The Effect of Capital Structure on Profitability of Electricity Companies In Southeast Asia

Abstract

Capital structure is increasingly important in determining the optimal combination of funding for investment needs that can increase firm value from profitability. The study aims to examine the effect of capital structure on profitability of electricity companies in Southeast Asia. The study used multiple regression model represented by pooled least square to calculate 48-panel data from the annual financial report during the time period of 2009-2016. We utilized short-term debt to total assets (STD), long-term debt to total assets (LTD), total debt to total assets (TD), and debt to equity ratio (DER) as proxies of capital structure (independent variables). Operating income margin (OIM), return on asset (ROA), and return on equity (ROE) were the profitability proxies (dependent variables). Firm size and firm age were used as control variables in the study. The results of this study indicate that STD and LTD have a negative relationship that consequently has significant effect on LTD and OIM. Other than positive and negative relationships between the capital structure (TD and DER) and profitability, this study also finds that TD and DER have positive significant influence on OIM and ROE, but have negative insignificant relation with ROA. Thus, it is necessary to optimize the capital structure by adjusting the target of capital structure that can provide a balance on the marginal cost and marginal benefit.

The Effect of Capital Structure on Telecommunication Firm Performance

“…The same result stated by; Nguyen and Nguyen (2020) in Vietnam; Nenu et al (2018) in Rumania; Monga (2018) in India; Salim and Yadav (2012) in Malaysia; Antoniou et al (2008); Zeitun and Tian (2007) in Jordan. Meanwhile Wibowo and Rahim (2019) concluded positive effect of capital structure on company profitability, where structure of capital computed as ratio of debt to assets and debt to equity while firm profitability proxied by operating income margin and return on equity. Several study with the positive relationship between capital structure and firm performance are Abdullah and Tursoy (2019) for non-financial firms in Germany; Margaritis and Psillaki (2007); Berger et al (2006); Abor (2005) and Doorasamy (2021) in East Africa.…”

Impact of Capital Structure and Profitability on Stock Return of Manufacturing Companies Listed on the Indonesian Stock Exchange (IDX) in the Period 2018-2021

“…Hal tersebut juga menunjukkan bahwa tingkat penggunaan hutang untuk pendanaan perusahaan memberi efek negatif atas pengembalian investasi (Gao & Tsusaka, 2023), (A. Wibowo & Rahim, 2019).…”

Effect of Working Capital Turnover, Capital Structure, Company Size, and Sales Growth on Profitability

“…Pentingnya struktur modal dalam menentukan bauran pendanaan yang baik sebagai kebutuhan investasi yang bisa menjadi penambahan nilai bisnis dari profitabilitas (Wibowo & Rahim, 2019). Variabel struktur modal mempengaruhi secara positif terhadap variabel profitabilitas apabila modal hutang bisa memenuhi capaian penjualan serta meningkatkan laba, jika penggunaan modal hutang gagal memenuhi target penjualan maka profitabilitas perusahaan akan menurun (Natnadiandi & Yuliandhari, 2018).…”