Capital structure dynamics in Indonesia: Understanding the role of ROA in the relationship between firm age, size, and leverage
Abstract
This study examines the dynamics of capital structure in Indonesia by exploring the role of Return on Assets (ROA) in mediating the relationship between firm age, size, and leverage usage. Employing a quantitative approach, the research analyzes panel data from 424 non-financial companies listed on the Indonesia Stock Exchange during 2019-2021. The analysis utilizes Partial Least Squares (PLS), emphasizing that the data does not need to be normally distributed and can accommodate small sample sizes. The findings indicate that ROA acts as a negative, albeit statistically insignificant, mediator in the relationship between both firm age and size with leverage. Despite theoretical frameworks like Pecking Order and Market Timing Theories suggesting explanatory mechanisms, the study reveals that ROA’s mediation is not robust enough to substantiate these theories. Consequently, the results suggest that other factors may be more pivotal in explaining the observed relationships. This study underscores the need for further research into how firm characteristics influence capital structure, particularly in emerging markets like Indonesia. It contributes to the theoretical and practical understanding of capital structure management, providing crucial insights for investors and managers.
Downloads
References
Adair, P., & Adaskou, M. (2015). Trade-off-theory vs. pecking order theory and the determinants of corporate leverage: Evidence from a panel data analysis upon French SMEs (2002–2010). Cogent Economics & Finance, 3(1), 1–12. https://doi.org/10.1080/23322039.2015.1006477
AL-Homaidi, E. A., Tabash, M. I., AL- Ahdal, W. M., Farhan, N. H. S., & Khan, S. H. (2020). The Liquidity of Indian Firms: Empirical Evidence of 2154 Firms. The Journal of Asian Finance, Economics and Business, 7(1), 19–27. https://doi.org/10.13106/jafeb.2020.vol7.no1.19
Anita, R., Abdillah, M. R., & Suseno, G. (2023). Leverage On Firm Value: The Role of Financial Performance Mechanisms. Jurnal Aplikasi Bisnis Dan Manajemen. https://doi.org/10.17358/jabm.9.3.751
Anita, R., Suseno, G., Abdillah, M. R., & Andira, A. R. (2023). The Influence of Family Control and Gender Diversity on Financial Performance: Leverage and Tangibility as Mediating Role. Jurnal Akuntansi Dan Bisnis, 23(1), 121. https://doi.org/10.20961/jab.v23i1.1011
Anton, S. G. (2016). The Impact of Leverage on Firm Growth. Empirical Evidence from Romanian Listed Firms. Review of Economic and Business Studies, 9(2), 147–158. https://doi.org/10.1515/rebs-2016-0039
Bhat, D. A., Chanda, U., & Bhat, A. K. (2023). Does Firm Size Influence Leverage? Evidence from India. Global Business Review, 24(1), 21–30. https://doi.org/10.1177/0972150919891616
Brawn, D. A., & Šević, A. (2018). “Firm size matters: Industry sector, firm age and volatility do too in determining which publicly-listed US firms pay a dividend.” International Review of Financial Analysis, 58, 132–152. https://doi.org/10.1016/j.irfa.2018.05.002
Bui, T. N. (2020). How do financial leverage and supply chain finance influence firm performance? Evidence from construction sector. Uncertain Supply Chain Management, 8(2), 285–290. https://doi.org/10.5267/j.uscm.2019.12.003
Chandra, M. S., & Djashan, A. I. (2019). Pengaruh Leverage Dan Faktor Lainnya Terhadap Manajemen Laba Pada Perusahaan Non Keuangan. Jurnal Bisnis Dan Akuntansi, 20(1), 13–20. https://doi.org/10.34208/jba.v20i1.403
Chipeta, C., & McClelland, D. (2018). In search of conclusive evidence on the trade-off and pecking order theories of capital structure : evidence from the Johannesburg Stock Exchange. Investment Analysts Journal, 47(1), 15–30.
Crouzet, N., & Mehrotra, N. R. (2020). Small and Large Firms over the Business Cycle. American Economic Review, 110(11), 3549–3601. https://doi.org/10.1257/aer.20181499
D’Amato, A., & Falivena, C. (2020). Corporate social responsibility and firm value: Do firm size and age matter? Empirical evidence from European listed companies. Corporate Social Responsibility and Environmental Management, 27(2), 909–924. https://doi.org/10.1002/csr.1855
Elsas, R., & Florysiak, D. (2015). Dynamic Capital Structure Adjustment and the Impact of Fractional Dependent Variables. Journal of Financial and Quantitative Analysis, 50(5), 1105–1133. https://doi.org/10.1017/S0022109015000496
Ghafoorifard, M., Sheykh, B., Shakibaee, M., & Joshaghan, N. S. (2015). Assessing the Relationship between Firm Size, Age and Financial Performance in Listed Companies on Tehran Stock Exchange. International Journal of Scientific Management and Development, 2(11), 631–635.
Ghozali, I. (2021). Partial least squares : konsep, teknik dan aplikasi menggunakan program SmartPLS 3.2.9 untuk penelitian empiris + CD (3rd ed.). Badan Penerbit Universitas Diponegoro.
Gozali, E. O. D., Hamzah, R. S., Pratiwi, C. N., & Octari, M. (2021). Firm Characteristics and Earnings Management in Listed Singaporean Corporations. Jurnal Riset Akuntansi Kontemporer, 13(2), 72–81. https://doi.org/10.23969/jrak.v13i2.4102
Hadi, A. R., & Suryanto, T. (2017). Capital Structure Determinants: Evidence from Palestine and Egypt Stock Exchanges. IKONOMIKA, 1(2), 118. https://doi.org/10.24042/febi.v1i2.147
Hair, J. J. F., Matthews, L. M., Matthews, R. L., & Sarstedt, M. (2017). PLS-SEM or CB-SEM: updated guidelines on which method to use. International Journal of Multivariate Data Analysis, 1(2), 107. https://doi.org/10.1504/IJMDA.2017.087624
Hariyani, D. S., Ratnawati, T., & Rahmiyati, N. (2021). The Effects of Macroeconomics, Dividend Policy, Good Financial Governance on Corporate Value: Moderation of CSRD. International Journal of Scientific and Research Publications (IJSRP), 11(4), 303–309. https://doi.org/10.29322/IJSRP.11.04.2021.p11240
Hariyanti, N., & Pangestuti, irene R. D. (2021). Pengaruh Profitabilitas, Leverage, Likuiditas, Collateralizable Assets, dan Growth in Net Assets Terhadap Kebijakan Dividen Dengan Firm Size, Firm Age, dan Board Size Sebagai Variabel Kontrol (Studi Kasus Pada Perusahaan Manufaktur Yang Terdaftar di Bursa. Diponegoro Journal of Management, 10(3), 10–24.
Ibhagui, O. W., & Olokoyo, F. O. (2018). Leverage and firm performance: New evidence on the role of firm size. The North American Journal of Economics and Finance, 45, 57–82. https://doi.org/10.1016/j.najef.2018.02.002
Indracahya, E., & Faisol, D. A. (2017). The Effect of Good Corporate Governance Elements, Leverage, Firm Age, Company Size and Profitability on Earning Management (Empirical Study of Manufacturing Companies in Bei 2014 – 2016). Profita: Komunikasi Ilmiah Dan Perpajakan, 10(2), 203–227.
Isayas, Y. N. (2022). Determinants of banks’ profitability: Empirical evidence from banks in Ethiopia. Cogent Economics & Finance, 10(1). https://doi.org/10.1080/23322039.2022.2031433
Isık, O., Unal, A. E., & Unal, Y. (2017). The Effect of Firm Size on Profitability: Evidence from Turkish Manufacturing Sector. Pressacademia, 6(4), 301–308. https://doi.org/10.17261/Pressacademia.2017.762
Joson, M., & Susanti, M. (2017). Pengaruh Firm Size, Profitability, Firm Age, Firm Growth, Leverage, dan Independent Commissioner terhadap Intellectual Capital Disclosure pada Perusahaan Sektor Keuangan yang Terdaftar di Bursa efek Indonesia Pada tahun 2012-2014. Jurnal Ekonomi, 20(2), 287–303. https://doi.org/10.24912/je.v20i2.161
Kartiningsih, D., & Daryanto, W. M. (2020). The Effect of Firm Characteristics to Profitability of Food and Beverages Companies Listed in Indonesia Stock Exchange. International Journal of Business, Economics and Law, 22(1), 69–76.
Khanh, H. T. M., & Khuong, N. V. (2018). Audit Quality, Firm Characteristics and Real Earnings Management: The Case of Listed Vietnamese Firms. International Journal of Economics and Financial Issues, 8(4), 243–249.
Kieschnick, R., & Moussawi, R. (2018). Firm age, corporate governance, and capital structure choices. Journal of Corporate Finance, 48, 597–614. https://doi.org/10.1016/j.jcorpfin.2017.12.011
Lambey, R., Tewal, B., Sondakh, J. J., & Manganta, M. (2021). The Effect of Profitability, Firm Size, Equity Ownership and Firm Age on Firm Value (Leverage Basis): Evidence from the Indonesian Manufacturer Companies. Archives of Business Research, 9(1), 128–139. https://doi.org/10.14738/abr.91.9649
Laurencia, V., & Mulyana, R. A. (2022). Firm Characteristics, Profitability and Corporate Governance Effect on Earnings Management. International Journal of Business, Economics and Law, 26(1), 224–232.
Lewis, C. M., & Tan, Y. (2016). Debt-equity choices, R&D investment and market timing. Journal of Financial Economics, 119(3), 599–610. https://doi.org/10.1016/j.jfineco.2016.01.017
Millenia, E., & Jin, T. F. (2021). Determinan Manajemen Laba: Financial Leverage, Profitabilitas, dan Karakteristik Perusahaan. Jurnal Bisnis Dan Akuntansi, 23(2), 243–252.
Muslih, M., & Marbun, S. O. (2022). The Effect of Risk Management, Firm Age, and Firm Size on the Performance of Banking Companies Registered in Indonesia Stock Exchange Moderated By Corporate Governance and Budget as Control Variable. International Journal of Science and Society, 2(4), 274–290.
Nguyen, C. D. T., Dang, H. T. T., Phan, N. H., & Nguyen, T. T. T. (2020). Factors Affecting Financial Leverage: The Case of Vietnam Firms. The Journal of Asian Finance, Economics and Business, 7(11), 801–808. https://doi.org/10.13106/jafeb.2020.vol7.no11.801
Putri, E. A., & Suseno, G. (2024). Peran Mediasi Profitabilitas pada Pengaruh Solvabilitas terhadap Nilai Perusahaan di Sektor Perbankan Indonesia. JURNAL SYNTAX IMPERATIF: Jurnal Ilmu Sosial Dan Pendidikan, 5(1), 193–209.
Rujiin, C., & Sukirman, S. (2020). The Effect of Firm Size, Leverage, Profitability, Ownership Structure, and Firm Age on Enterprise Risk Management Disclosures. Accounting Analysis Journal, 9(2), 81–87. https://doi.org/10.15294/aaj.v9i2.33025
Serrasqueiro, Z., & Caetano, A. (2014). Trade-Off Theory Versus Pecking Order Theory: Capital Structure Decisions in A Peripheral Region of Portugal. Journal of Business Economics and Management, 16(2), 445–466. https://doi.org/10.3846/16111699.2012.744344
Soesetio, Y., Rudhiningtyas, D. A., Sudarmiatin, S., & Mukhlis, I. (2021). Does internationalization moderate the effect of SMEs size, age, and other financial determinants on investment opportunities set? Evidence from Indonesia. JEMA: Jurnal Ilmiah Bidang Akuntansi Dan Manajemen, 18(2), 164. https://doi.org/10.31106/jema.v18i2.10393
Suseno, G., Oemar, F., & Anita, R. (2023). PERAN MEDIASI RETURN ON EQUITY PADA HUBUNGAN LEVERAGE TERHADAP NILAI PERUSAHAAN DI INDONESIA. SeNaSPU: Seminar Nasional Sekolah Pascasarjana, 110–119.
Virgantara, D. Z. (2022). Pengaruh Ukuran Perusahaan, Leverage, dan Profitabilitas Terhadap Nilai Perusahaan Papan Utama (Yang Terdaftar dalam Bursa Efek Indonesia Tahun 2014-2018). JURNAL STUDI MANAJEMEN ORGANISASI, 17(1), 1–9.
Yahaya, O. A., & Tijjani, B. (2021). Size, Age and Leverage of Nigeria Quoted Oil and Gas Corporations. Advanced International Journal of Banking, Accounting and Finance, 3(6), 51–60. https://doi.org/10.35631/AIJBAF.36005
Younis, H., & Sundarakani, B. (2019). The impact of firm size, firm age and environmental management certification on the relationship between green supply chain practices and corporate performance. Benchmarking: An International Journal, 27(1), 319–346. https://doi.org/10.1108/BIJ-11-2018-0363
