Factors Affecting Capital Structure in Property and Real Estate Companies Listed on the Indonesia Stock Exchange

Oct 13, 2025 by talynt.org 88 views

Factors Affecting Capital Structure in Property and Real Estate Companies Listed on the Indonesia Stock Exchange

Introduction

The capital structure of a company plays a crucial role in determining its financial stability and growth. In the property and real estate sectors, companies often face unique challenges in managing their capital structure, given the high levels of investment required to maintain and expand their assets. This study aims to identify various factors that affect the capital structure of property and real estate companies listed on the Indonesia Stock Exchange (IDX). Using a quantitative approach, the data analyzed in this study were sourced from the audited financial statements of 40 property and real estate companies during the 2013 to 2016 period.

Methodology

The analytical technique used in this study was multiple linear regression with a panel data approach, specifically the random effect model. This approach allows for the analysis of data from multiple companies over a period of time, providing a more comprehensive understanding of the factors affecting capital structure. The data were sourced from the audited financial statements of 40 property and real estate companies listed on the IDX, covering the period from 2013 to 2016.

Results

The results of this study showed that simultaneously, several variables such as Financial Asset Ratio (FAR), Growth, Size, Current Ratio (CR), and Return on Assets (ROA) had a significant effect on the company's capital structure in the property and real estate sectors on the IDX. However, when tested partially, the results were different. The asset structure was proven to have a negative and insignificant influence on the Debt to Equity Ratio (DER), while the company's growth showed a positive influence that was also not significant on DER. The company's size had a positive but insignificant influence, while liquidity had a negative and significant effect on the capital structure. Profitability, on the other hand, had a negative but not significant influence.

In-Depth Analysis

From the results of this study, it is essential to dig deeper into why each variable has a different effect on the capital structure.

Assets Structure

The negative effect produced by the asset structure shows that the proportion of assets owned by the company is not always in line with improving capital structure. This may be caused by companies that prefer to use existing assets to fund operations rather than taking new debt. For instance, a company may choose to use its existing assets to fund a new project rather than taking on debt to finance it. This approach can be beneficial in the short term but may not be sustainable in the long term.

Company Growth

Positive but insignificant growth may indicate that although companies have increased income, they do not automatically increase the use of debt to expand operations. The decision to grow can be further influenced by a company's strategy that is not dependent on debt. For example, a company may choose to grow through organic means, such as increasing its market share, rather than through debt financing.

Company Size

Company size that shows positive and insignificant influence can be interpreted that although large companies often have better access to capital, this is not always translated into a healthier capital structure. Large companies may have more resources at their disposal, but this does not necessarily mean that they will use debt to finance their operations.

Liquidity

Results that show liquidity have a negative and significant effect on capital structure indicate that companies with high liquidity tend to rely on internal funding sources rather than debt. The existence of strong liquidity allows companies to fund projects without having to take debt. For instance, a company with high liquidity may choose to fund a new project using its internal funds rather than taking on debt.

Profitability

Profitability that has a negative and not significant effect indicates that even though the company makes a profit, this does not always contribute to a better capital structure. Companies may prefer to reinstate profits to support operations rather than pay debt. For example, a company may choose to reinvest its profits in its operations rather than paying dividends to shareholders.

Conclusion

This research provides a clearer picture of how certain factors can affect the capital structure of property companies and real estate in Indonesia. Given the importance of capital structure in determining financial stability and company growth, the results of this study can be a consideration for company management in strategic decision making. Applying the right strategy based on the analysis of these factors is expected to support the sustainability and growth of companies in competitive markets.

Recommendations

Based on the findings of this study, the following recommendations can be made:

Asset structure: Companies should consider using debt financing to fund operations rather than relying on existing assets.
Company growth: Companies should consider using debt financing to expand operations, rather than relying on organic growth.
Company size: Large companies should consider using debt financing to fund operations, rather than relying on internal funding sources.
Liquidity: Companies with high liquidity should consider using debt financing to fund operations, rather than relying on internal funding sources.
Profitability: Companies should consider paying dividends to shareholders, rather than reinvesting profits in operations.

By considering these recommendations, companies in the property and real estate sectors can improve their capital structure and achieve financial stability and growth.
Frequently Asked Questions (FAQs) on Factors Affecting Capital Structure in Property and Real Estate Companies Listed on the Indonesia Stock Exchange

Q: What is capital structure, and why is it important for property and real estate companies?

A: Capital structure refers to the mix of debt and equity used by a company to finance its operations. It is essential for property and real estate companies because it affects their financial stability and growth. A well-structured capital structure can help companies to manage their risk, increase their profitability, and achieve their growth objectives.

Q: What are the key factors that affect capital structure in property and real estate companies?

A: The key factors that affect capital structure in property and real estate companies include financial asset ratio, growth, size, current ratio, return on assets, asset structure, company growth, company size, liquidity, and profitability.

Q: How does financial asset ratio affect capital structure?

A: Financial asset ratio refers to the proportion of financial assets to total assets. A high financial asset ratio can indicate that a company is using debt financing to fund its operations, which can affect its capital structure.

Q: What is the relationship between growth and capital structure?

A: Growth refers to the increase in a company's income or revenue. A positive growth rate can indicate that a company is expanding its operations, which can affect its capital structure. However, the relationship between growth and capital structure is complex, and it depends on various factors, including the company's strategy and financial structure.

Q: How does company size affect capital structure?

A: Company size refers to the total assets or revenue of a company. Large companies often have better access to capital, which can affect their capital structure. However, the relationship between company size and capital structure is not always straightforward, and it depends on various factors, including the company's strategy and financial structure.

Q: What is the role of liquidity in capital structure?

A: Liquidity refers to the ability of a company to meet its short-term obligations. A high liquidity position can indicate that a company is not relying on debt financing to fund its operations, which can affect its capital structure.

Q: How does profitability affect capital structure?

A: Profitability refers to the ability of a company to generate profits. A high profitability rate can indicate that a company is generating sufficient cash flows to fund its operations, which can affect its capital structure.

Q: What are the implications of the study's findings for property and real estate companies?

A: The study's findings have several implications for property and real estate companies. Firstly, companies should consider using debt financing to fund their operations, rather than relying on existing assets or internal funding sources. Secondly, companies should consider using debt financing to expand their operations, rather than relying on organic growth. Thirdly, large companies should consider using debt financing to fund their operations, rather than relying on internal funding sources. Finally, companies should consider paying dividends to shareholders, rather than reinvesting profits in operations.

Q: What are the limitations of the study?

A: The study has several limitations. Firstly, the study only analyzed data from 40 property and real estate companies listed on the Indonesia Stock Exchange. Secondly, the study only considered a limited number of factors that affect capital structure. Finally, the study did not consider the impact of macroeconomic factors on capital structure.

Q: What are the future research directions?

A: The study suggests several future research directions. Firstly, researchers should consider analyzing data from a larger sample of companies to increase the generalizability of the findings. Secondly, researchers should consider analyzing the impact of macroeconomic factors on capital structure. Finally, researchers should consider analyzing the impact of other factors, such as industry trends and regulatory changes, on capital structure.