Is The Higher Debt Level Profitable for State-Owned Enterprises?

Abstract

Purpose: The need for more significant debt financing to achieve higher profitability of State-Owned Enterprises (SOEs) is an issue that has recently attracted public attention in Indonesia. This study examines how SOE debt financing is associated with profitability when the debt level is relatively low and relatively high. Design/Methodology/Approach: The sample includes 514 SOE observations in the 2014-2018 period. Regression models are used to test the research hypotheses. Findings: The regression results show a positive association between debt financing and profitability when debt levels are low. On the other hand, the results show that the relationship is negative when debt levels are high. These results are consistent after controlling for the size, type, and industrial sector of the SOEs and observation year. Practical Implications: These findings suggest the need for controlling SOE debt financing to achieve SOE objectives in generating profits in Indonesia. Originality/value: By splitting the sample into low and high debt levels, this study presents findings that can show when debt financing can increase profitability and reduce SOEs' profitability.

Bureaucratic Reform at the Directorate of Politics and General Government, Ministry of Home Affairs

“…Research conducted by the author using a qualitative descriptive research method. Where according to Sugiono the qualitative research method itself examines more related to natural objects, with data collection techniques carried out by triangulation, [7].…”