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Abstract
This paper examines the moderating impact of capital structure on the relationship between government subsidy, strategic profitability and financial strength of state-owned enterprises in Indonesia. A purposive sampling is used and data were collected from seven state-owned enterprises over the period of 2005 to 2016. The empirical evidence provided by this paper indicates that government subsidy has a significant negative impact on the financial strength, which means that the state-owned enterprises are difficult to manage the company independently if the government continues to provide subsidies or additional capital. This study also found that strategic profitability has a significant positive impact on the financial strength, which means there are opportunities for management to perform profitability practice of earnings management as strategic to enhance the level of financial strength of the company. However, capital structure is strengthening the relations of ‘government subsidy’ and ‘real earnings management’ with the financial strength. So far, it is still little known how ‘capital structure’ affects the relationship between government subsidy and financial strength, specifically in the case of state-owned enterprises.
Highlights
Government subsidy policies are commonly used around the world
The principal issues are raised in this study such as: (a) How does the government subsidy affect the financial strength of the state-owned enterprises? (b) How does the strategic profitability affect the financial strength of state-owned enterprises? (c) How does the capital structure affect the financial strength state-owned enterprises of Indonesia (d) Does capital structure strengthen the relationship between the government subsidy and financial strength of the state-owned enterprises? (e) Does capital structure strengthen the relationship between the strategic profitability and the financial strength of state-owned enterprises? The outcome of this study provides an overview what the factors affecting the financial strength of state-owned enterprises are, so it is helpful for management and shareholders in decisions regarding government subsidy, strategic profitability, and capital structure
This study presents the following conclusions: (a) Government subsidy has a significant negative effect on financial strength of the state-owned enterprises of Indonesia
Summary
Government subsidy policies are commonly used around the world. these subsidy programs are used to target particular demographics or industrial sectors (e.g., subsidies for low-income housing, state owned enterprises, farmers, academic students or small-scale business). The outcome of this study provides an overview what the factors affecting the financial strength of state-owned enterprises are, so it is helpful for management and shareholders in decisions regarding government subsidy, strategic profitability, and capital structure. Forts to improve the financial strength of the com- The subsidies by the government will encourage pany and to analyze the factors that influence the economic growth through state-owned enterprisstrategic steps to obtain optimal results, to meet es as drivers of growth in the industry, business the targets set by the principal, state-owned enter- and other sectors. They provide the social and prises state-owned enterprises or the government economic benefit within a society such as eduas stockholder. Growth, as electricity prices are lower, fuel prices are much cheaper, rail freight rates are affordable
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