Management should consider the impact of growth and profitability on capital structure decisions

Oct 13, 2025 by recoveryshake.com 141 views

The Effect of Asset Structure, Company Growth, Profitability, Company Size, and Company Age on Capital Structure in Manufacturing Companies Listed on the Indonesia Stock Exchange

Introduction

The capital structure of a company is a crucial aspect of its financial health, as it determines how the company finances its operations and growth. In the context of manufacturing companies listed on the Indonesia Stock Exchange, understanding the factors that influence capital structure decisions is essential for stakeholders, including management, investors, and regulators. This study aims to comprehensively analyze the effect of asset structure, company growth, profitability, company size, and company age on capital structure in manufacturing companies listed on the Indonesia Stock Exchange.

Background

Capital structure refers to the combination of debt and equity used by a company to finance its operations and growth. Good capital structure management is vital for a company's financial health, as it affects its ability to raise capital, manage risk, and generate returns for shareholders. Various factors, including asset structure, growth, profitability, company size, and age of the company, can play a significant role in determining how companies decide to finance their activities.

Research Purposes

The primary purpose of this study is to investigate the effect of asset structure, company growth, profitability, company size, and company age on capital structure in manufacturing companies listed on the Indonesia Stock Exchange. The proposed hypothesis is that all these variables simultaneously affect the company's capital structure. This study aims to provide insights into the factors that influence capital structure decisions in the Indonesian manufacturing sector, which can help management and stakeholders make informed decisions.

Research Methods

This study uses secondary data taken from the financial statements of manufacturing companies listed on the Indonesia Stock Exchange, which can be accessed through the official website www.idx.co.id. The analysis technique used in this study includes descriptive statistics and multiple linear regression to test the proposed hypothesis. The sample consists of 100 manufacturing companies listed on the Indonesia Stock Exchange, with a minimum market capitalization of IDR 1 trillion.

Research Results

The results of this study show that simultaneously, asset structure, growth, profitability, company size, and company age have a significant effect on the company's capital structure. However, when tested partially, only the company's growth and profitability show a positive effect on the capital structure. On the other hand, asset structure, company size, and company age do not have a significant influence on the company's capital structure decisions.

Additional Analysis and Explanation

Further analysis shows that high company growth usually encourages companies to use more debt in their capital structure, as they believe that the income generated from these growth will be sufficient to pay debt obligations. Good profitability also gives self-confidence to management in using debt as a source of financing, given the company's ability to generate stable profits. This suggests that companies with high growth and profitability tend to adopt a more aggressive capital structure, which may involve higher levels of debt.

Meanwhile, the asset structure, size, and age of the company do not show a significant effect on the capital structure. This can be caused by these variables that may not be considered as the main indicator in the current funding decision in the Indonesian manufacturing sector. For example, a larger company might choose to operate with a more conservative capital structure despite having a large enough asset.

Conclusion

This study provides important insights for stakeholders in manufacturing companies listed on the Indonesia Stock Exchange. Understanding how the asset structure, growth, and profitability affect decisions about capital structure can help management in formulating better financial strategies. Further research can be done by considering other variables that may affect capital structure decisions, as well as expanding industrial coverage and time to produce a deeper understanding of the dynamics of capital structure in Indonesia.

Recommendations

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

Management should consider the impact of growth and profitability on capital structure decisions. Companies with high growth and profitability should adopt a more aggressive capital structure, which may involve higher levels of debt.
Asset structure, size, and age of the company should not be considered as the main indicator in funding decisions. These variables may not be relevant in the current funding decision in the Indonesian manufacturing sector.
Further research should be conducted to consider other variables that may affect capital structure decisions. This can include variables such as industry, market conditions, and regulatory requirements.
Expansion of industrial coverage and time can provide a deeper understanding of the dynamics of capital structure in Indonesia. This can involve studying companies from different industries and time periods to identify patterns and trends in capital structure decisions.

Limitations

This study has several limitations that should be noted:

Sample size: The sample size of 100 manufacturing companies listed on the Indonesia Stock Exchange may not be representative of the entire population of manufacturing companies in Indonesia.
Data quality: The data used in this study is secondary data, which may be subject to errors and biases.
Model specification: The multiple linear regression model used in this study may not capture all the complexities of capital structure decisions.

Future Research Directions

This study provides a foundation for further research in the area of capital structure decisions in the Indonesian manufacturing sector. Some potential future research directions include:

Investigating the impact of industry and market conditions on capital structure decisions.
Examining the role of regulatory requirements in capital structure decisions.
Studying the impact of company-specific factors, such as management style and corporate governance, on capital structure decisions.
Analyzing the relationship between capital structure and firm performance, such as profitability and market value.
Frequently Asked Questions (FAQs) about the Effect of Asset Structure, Company Growth, Profitability, Company Size, and Company Age on Capital Structure in Manufacturing Companies Listed on the Indonesia Stock Exchange

Q: What is the main objective of this study? A: The main objective of this study is to comprehensively analyze the effect of asset structure, company growth, profitability, company size, and company age on capital structure in manufacturing companies listed on the Indonesia Stock Exchange.

Q: What is capital structure, and why is it important? A: Capital structure refers to the combination of debt and equity used by a company to finance its operations and growth. Good capital structure management is vital for a company's financial health, as it affects its ability to raise capital, manage risk, and generate returns for shareholders.

Q: What are the factors that influence capital structure decisions? A: The factors that influence capital structure decisions include asset structure, growth, profitability, company size, and age of the company.

Q: What is the relationship between company growth and capital structure? A: High company growth usually encourages companies to use more debt in their capital structure, as they believe that the income generated from these growth will be sufficient to pay debt obligations.

Q: What is the relationship between profitability and capital structure? A: Good profitability also gives self-confidence to management in using debt as a source of financing, given the company's ability to generate stable profits.

Q: What is the relationship between asset structure, company size, and company age, and capital structure? A: Asset structure, company size, and company age do not show a significant effect on the capital structure. This can be caused by these variables that may not be considered as the main indicator in the current funding decision in the Indonesian manufacturing sector.

Q: What are the implications of this study for stakeholders in manufacturing companies listed on the Indonesia Stock Exchange? A: Understanding how the asset structure, growth, and profitability affect decisions about capital structure can help management in formulating better financial strategies.

Q: What are the limitations of this study? A: This study has several limitations that should be noted, including sample size, data quality, and model specification.

Q: What are the future research directions in this area? A: Some potential future research directions include investigating the impact of industry and market conditions on capital structure decisions, examining the role of regulatory requirements in capital structure decisions, and studying the impact of company-specific factors, such as management style and corporate governance, on capital structure decisions.

Q: What are the practical implications of this study for companies listed on the Indonesia Stock Exchange? A: Companies listed on the Indonesia Stock Exchange should consider the impact of growth and profitability on capital structure decisions and adopt a more aggressive capital structure, which may involve higher levels of debt, if they have high growth and profitability.

Q: What are the policy implications of this study for regulators and policymakers? A: Regulators and policymakers should consider the impact of industry and market conditions on capital structure decisions and develop policies that promote a more efficient and effective capital structure in the Indonesian manufacturing sector.

Q: What are the future research directions in this area for academics and researchers? A: Some potential future research directions include analyzing the relationship between capital structure and firm performance, such as profitability and market value, and investigating the impact of company-specific factors, such as management style and corporate governance, on capital structure decisions.