Manufacturing Company Debt and Its Moderation Effect on Capital Structure: The Case of Public Company in Indonesia

Isti Pujihastuti,Rusdiono Mukri,Kuncoro Hadi,Hanny Nurlatifah,Iwan Aminudin,Sudirah Sudirah,Ujang Maman

doi:10.13189/ujaf.2022.100205

Isti Pujihastuti, Rusdiono Mukri + Show 5 more

Open Access

https://doi.org/10.13189/ujaf.2022.100205

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Abstract

Debt is one of the important sources of fund for Indonesian companies. The previous research of manufacturing companies listed on Indonesia Stock Exchange (IDX) in 2015-2017 indicated debt to equity ratio is 111%. The debt could probably cause disadvantages. There are requirements from external parties when companies request sources of funds, especially when conducting Initial Public Offerings (IPOs). There should also be debt covenants between company and debtor. However, the proper debt management will have a positive effect on capital structure. Therefore, this research aims to explore the effect of long-term debt (LTD), fixed assets (FA), earnings per share (EPS) and net income (NI) on capital structure (CS), assuming that LTD will moderate the effect of FA, EPS, and NI on equity. The research sample is 32 of manufacturing companies that conducted IPOs on IDX in period of 2018-2020, which were purposively taken based on the criteria of publishing annual financial report and having complete data needed in this research. Fortunately, the research found 11 companies for 2018; 9 companies for 2019; and 12 companies for 2020. The multiple linear regressions with cross data section show NI, FA, and EPS affect CS significantly; while LTD does not influence CS. However, the LTD significantly quasi-moderates the effect of FA on CS. While the LTD significantly moderates purely the effect of NI on CS. Therefore, the companies should manage the NI for investment in FA and increase the effectiveness of LTD's management in optimizing capital structure.

Highlights

Sources of company funds can ensure the implementation of effective organizational processes
For the companies that carried out the Initial Public Offerings (IPOs) process in 2018, this research collects the financial statement of 2018
It is known that the average equity of manufacturing companies that carried out the IPO process in 2018-2020 is approximately 18,585 billion rupiah, with a standard deviation of 73.717 billion rupiah

Summary

Introduction

Sources of company funds can ensure the implementation of effective organizational processes. The lack of funds has a serious impact on the company, the production process falters, the company's sales are hampered, the company's goals as a profit-oriented institution cannot be achieved, and the company's profits decline. 412 Manufacturing Company Debt and Its Moderation Effect on Capital Structure: The Case of Public Company in Indonesia the manufacturing companies should achieve internal efficiencies. It is important because the manufacturing companies are a vital sector in contributing to the economic development and employment [15]. The manufacturing industry involves processing in making the final product so that the added value provided looks more real. The manufacturing process, which is a special feature of the manufacturing industry, requires quite a lot of investment, both for factory installation and investment in raw materials, semi-finished and finished goods

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