Hatane, Saarce Elsye and WIYONO, FELICIA and Tarigan, Josua (2020) Capital Structure and Board Characteristics in Firm Performances of Indonesian Lq45 Companies. THE INDONESIAN JOURNAL OF ACCOUNTING RESEARCH, 23 (2). pp. 213-240. ISSN 2655-1748
Abstract
This study aims to examine the effects of capital structure and board characteristics toward the performance of the company measured through ROCE and EVA spread. The study is conducted on companies from various industries which are listed on the Indonesia Stock Exchange (in the LQ45 index) and published an annual report for 7 years from 2010 to 2016. Capital structure management and the diversity in board characteristics must be well managed so that the company can sustain and secure its position in the market in order to maximize shareholders’ wealth which becomes a new corporate paradigm for the company. This study observes a total of 588 annual reports comprising of 84 companies from various industry over a period of 7 years. Total debt to total asset ratio is used for capital structure measure as an independent variable. Firm performances are assessed through ROCE as accounting profit measure and EVA spread as the market-based. There are three control variables, namely, sales growth, firm size and firm age. There are eight hypotheses to be tested in this study. The results of this study are quite diverse. Debt to total assets has significant negative impacts on ROCE and EVA. The percentage of female in the board has no significant effect on ROCE but has a negative one on EVA. The number of board members who have doctoral level also has no significant impact on ROCE but has a significant positive effect on EVA. The business education background in the board has a significant negative effect on ROCE but has no significant influence on EVA. In addition, this study also try to examine the board characteristics as moderating variables. The percentage of female in the board is weakening the negative influence of capital structures on EVA; while the percentage of doctoral degree is able to strengthen the negative influence of capital structures on ROCE and EVA. Besides, the business education background is strengthening the negative impact of capital structures on EVA, but weakening the negative impact of capital structures on ROCE. The future studies may expand the results by examining the research framework particularly in each industry and add more characteristics of the boards
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