Abstract
The purpose of this study is to examine the effect of capital structure and business risk on corporate performance. This study also examined the effect of non debt tax shield (NDTS) and sales growth (SG) on corporate performance with firm size (SIZ) as a control variable. Corporate performance is measured by return on assets (ROA), while capital structure is measured by debt to equity ratio (DER), and business risk meausred by degree of operating leverage (DOL). The population in this study is a company engaged in the construction and real estate sector that listed on the Indonesia Stock Exchange. The samples taken were 32 companies with purposive sampling. observations period for 3 years (2015-2017). Data is processed using ordinary least square (OLS). The results showed on the significance level 0.10, capital structure (DER) had a significant but negative effect on corporate performance. Business risk (DOL) and sales growth (SG) have a significant and positive effect on performance. While non debt tax shield (NDTS) and firm size (SIZ) have no significant effect on corporate performance.
Highlights
The task of the financial manager is to find sources of funds with low costs and optimal composition and invest these funds in profitable assets in the future
Business risk is measured by degree of operating leverage (DOL), which is the level of sensitivity of earnings (EBIT) due to changes in sales
The findings are different by Vakilifard and Oskouei (2014) who found sig nificant and negative effects between business risk and performance, while Alawattegama (2018) found that business risk had no effect on company performance
Summary
The task of the financial manager is to find sources of funds with low costs and optimal composition and invest these funds in profitable assets in the future. The results of research by Basit and Irwan (2017), Saputra et al (2015), Akeem et al (2014), Data et al (2017), and Cole et al (2015) show that the capital structure has a significant and negative effect on firm performance. Results of research by Basit and Irwan (2017) in Malaysia, Saputra et al (2015) in Indonesia showed a significant and negative influence between mo structure dal with company performance as measured by return on assets (ROA).
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