Comparative Analysis of Effect of Capital Structure to Profitability in Manufacturing Sector in Indonesia And Malaysia in 2009 - 2014

Semuel, Hatane and NGONO, HARTMANN HARDYANTO and Basana, Sautma R. (2017) Comparative Analysis of Effect of Capital Structure to Profitability in Manufacturing Sector in Indonesia And Malaysia in 2009 - 2014. In: The ICFBE 2017: 19th International Conference on Finance and Business Economics , 07-03-2017 - 07-03-2017, Phuket - Thailand.

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Abstract

The effect of capital structure on profitability is often debated by many financial investigators. The application of the trade-off theory and pecking order theory to analyze this relationship may generate different views. Each company has its own strategies to achieve its objectives and the external environment, such as state policy which has a broad impact on the relationship with the capital structure of the companys profitability. Malaysia is the country closest to Indonesia that had a similar growth rate of GDP and industrial production with Indonesia, but Malaysia has a lower inflation rate than Indonesia. This study was conducted to compare the performance of manufacturing sector between two countries when entering the era of the ASEAN Economic Community (AEC). The samples for this study were 69 companies in Indonesia and 242 companies in Malaysia that engaged in the manufacturing sector. The study uses panel data analysis. The study found that capital structure has a positive effect on the profitability of manufacturing companies in Indonesia, and it transforms to a negative effect on manufacturing companies in Malaysia. The results also showed that there are significant differences in short-term debt towards profitability of manufacturing companies in the two countries, Indonesia and Malaysia.

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