Does Short-Term Debt increase Profitability? The Role of Corporate Governance as a Moderating Variable

Abstract

This research is conducted to inspect the relationship of Short-Term Debt as a predictor for the financial leverage on Profitability of the company. In the analysis, Short-Term Debt will act as the independent variable and Profitability will be the dependent variable using Return on Equity (ROE) as the indicator. In the model analysis, corporate governance will be used as the moderating variable to bridge the relationship between the independent and dependent variable. In this study, the mediating variable of corporate governance uses Board of Directors (BOD) and board of commissioner (BOC) size, board of independent commissioners’ size, managerial and also the institutional ownership. From the analysis, it is shown that Short-Term debt has a significant positive impact on the company’s Profitability. In addition, board size weakens the relationship between financial leverage and profitability. Board size and institutional ownership significantly strengthen the relationship between financial leverage and profitability. Board of independent commissioners’ size and managerial ownership did not moderate the relationship between financial leverage and profitability.