Understanding the Capital Structure and the Factors that Influence it

Oct 13, 2025 by talynt.org 108 views

The Effect of Company Size, Business Risk, Asset Growth, and Profitability on Capital Structure with Managerial Ownership as a Moderation Variable in Manufacturing Companies Listed on the Indonesia Stock Exchange for the 2012-2013 Period

Understanding the Capital Structure and the Factors that Influence it

The capital structure of a company refers to the composition of funding sources used by the company, which is a combination of debt and equity. Decisions regarding capital structure are very important because they can affect the profitability, risk, and value of the company. In this study, we examine how the company's size, business risk, asset growth, and profitability affect the capital structure of manufacturing companies listed on the Indonesia Stock Exchange (IDX) in the 2012-2013 period.

The Role of Company Size in Capital Structure Decisions

Company size is one of the main factors that have the potential to affect the capital structure of a company. Large companies tend to have easier access to funding sources, both from banks and capital markets. This is because large companies have a higher credit rating and are considered less risky by lenders. As a result, large companies can borrow money at a lower interest rate and have more flexibility in their capital structure decisions.

The Impact of Business Risk on Capital Structure Decisions

Business risk is another factor that can affect the capital structure of a company. Companies with high business risk tend to prefer equity funding rather than debt, because debt interest expenses can worsen financial conditions if the company has difficulty. This is because equity funding does not require the company to make regular interest payments, which can be a burden on the company's cash flow.

The Effect of Asset Growth on Capital Structure Decisions

Asset growth is also an important factor that can affect the capital structure of a company. Growing companies usually require more funds to finance expansion. This can be achieved through debt or equity funding, depending on the company's financial situation. However, companies with high asset growth may prefer equity funding because it allows them to retain control of the company and avoid debt obligations.

The Influence of Profitability on Capital Structure Decisions

Profitability is another factor that can affect the capital structure of a company. Profitable companies tend to be easier to get loans, because banks and investors see it as low risk. This is because profitable companies have a higher credit rating and are considered less risky by lenders. As a result, profitable companies can borrow money at a lower interest rate and have more flexibility in their capital structure decisions.

The Role of Managerial Ownership as a Moderation Variable

This study also investigated the role of managerial ownership as a moderation variable. Managerial ownership refers to share ownership by company management. It is hoped that high managerial ownership can increase transparency and corporate governance, thus affecting capital structure decisions. However, the results of this study found that managerial ownership had no significant effect on the relationship between independent variables (company size, business risk, and profitability) with capital structure.

Research Methods and Results

This study uses secondary data from manufacturing company financial statements listed on the IDX in the 2012-2013 period. Data were analyzed using multiple linear regression methods. The results showed that simultaneously, the four independent variables (company size, business risk, asset growth, and profitability) had a significant effect on capital structure. However, partially, only company size and business risks have a significant influence.

Implications and Recommendations

The results of this study provide useful information for stakeholders, especially company management and investors. Companies need to pay attention to factors that affect capital structure, such as size, risk, growth, and profitability. This study also shows the importance of transparency and good corporate governance in influencing capital structure decisions. Although managerial ownership in this study has no significant influence, this does not mean that managerial ownership is not important. Increasing transparency and corporate governance through corporate governance mechanisms can help increase investor confidence and company access to funding sources.

Conclusion

In conclusion, this study examines how the company's size, business risk, asset growth, and profitability affect the capital structure of manufacturing companies listed on the IDX in the 2012-2013 period. The results of this study provide useful information for stakeholders, especially company management and investors. Companies need to pay attention to factors that affect capital structure, such as size, risk, growth, and profitability. This study also shows the importance of transparency and good corporate governance in influencing capital structure decisions.

Limitations of the Study

This study has several limitations. Firstly, the study only examines the effect of company size, business risk, asset growth, and profitability on capital structure. Other factors that may affect capital structure, such as industry and market conditions, are not considered in this study. Secondly, the study only uses secondary data from manufacturing company financial statements listed on the IDX in the 2012-2013 period. This may limit the generalizability of the results to other companies and industries.

Future Research Directions

Future research can build on the findings of this study by examining the effect of other factors on capital structure, such as industry and market conditions. Additionally, future research can use primary data from companies to examine the effect of managerial ownership on capital structure decisions. This can provide more detailed and accurate information on the role of managerial ownership in influencing capital structure decisions.

References

[List of references cited in the study]

Appendix

[Appendix containing additional information, such as tables and figures, that support the findings of the study]
Frequently Asked Questions (FAQs) about the Effect of Company Size, Business Risk, Asset Growth, and Profitability on Capital Structure with Managerial Ownership as a Moderation Variable in Manufacturing Companies Listed on the Indonesia Stock Exchange for the 2012-2013 Period

Q: What is the capital structure of a company?

A: The capital structure of a company refers to the composition of funding sources used by the company, which is a combination of debt and equity.

Q: What are the main factors that affect the capital structure of a company?

A: The main factors that affect the capital structure of a company are company size, business risk, asset growth, and profitability.

Q: How does company size affect the capital structure of a company?

A: Large companies tend to have easier access to funding sources, both from banks and capital markets. This is because large companies have a higher credit rating and are considered less risky by lenders.

Q: How does business risk affect the capital structure of a company?

A: Companies with high business risk tend to prefer equity funding rather than debt, because debt interest expenses can worsen financial conditions if the company has difficulty.

Q: How does asset growth affect the capital structure of a company?

A: Growing companies usually require more funds to finance expansion. This can be achieved through debt or equity funding, depending on the company's financial situation.

Q: How does profitability affect the capital structure of a company?

A: Profitable companies tend to be easier to get loans, because banks and investors see it as low risk. This is because profitable companies have a higher credit rating and are considered less risky by lenders.

Q: What is managerial ownership, and how does it affect the capital structure of a company?

A: Managerial ownership refers to share ownership by company management. The results of this study found that managerial ownership had no significant effect on the relationship between independent variables (company size, business risk, and profitability) with capital structure.

Q: What are the implications of this study for company management and investors?

A: The results of this study provide useful information for stakeholders, especially company management and investors. Companies need to pay attention to factors that affect capital structure, such as size, risk, growth, and profitability. This study also shows the importance of transparency and good corporate governance in influencing capital structure decisions.

Q: What are the limitations of this study?

A: This study has several limitations. Firstly, the study only examines the effect of company size, business risk, asset growth, and profitability on capital structure. Other factors that may affect capital structure, such as industry and market conditions, are not considered in this study. Secondly, the study only uses secondary data from manufacturing company financial statements listed on the IDX in the 2012-2013 period.

Q: What are the future research directions based on this study?

A: Future research can build on the findings of this study by examining the effect of other factors on capital structure, such as industry and market conditions. Additionally, future research can use primary data from companies to examine the effect of managerial ownership on capital structure decisions.

Q: What are the practical implications of this study for company management and investors?

A: The practical implications of this study are that companies need to pay attention to factors that affect capital structure, such as size, risk, growth, and profitability. This study also shows the importance of transparency and good corporate governance in influencing capital structure decisions.

Q: What are the policy implications of this study?

A: The policy implications of this study are that regulatory bodies and policymakers need to consider the factors that affect capital structure when making decisions about company financing and regulation.

Q: What are the future research directions based on this study?