CC BY
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DOI https://doi.org/10.18551/rjoas.2018-09.52
STUDY OF VARIABLES THAT INFLUENCE THE LOW AND HIGH CAPITAL STRUCTURE
OF CONSUMER GOODS
Saputri Desak Putu Opri Sani, Artin Luh Gede Sri
University of Udayana, Bali, Indonesia *E-mail: [email protected]
ABSTRACT
This study aims to determine the determinants of the high and low capital structure of the Indonesian Stock Exchange consumer goods companies with the pecking order theory approach. There are five variables tested, namely asset structure, growth opportunity, firm size, profitability, and business risk. The population of this study was consumer goods companies listed on the Stock Exchange during 2012-2016. This study used a total census method of the population, namely 30 companies. Data analysis techniques used are using logistic regression. The results of the study found that there are two variables that significantly influence the high and low capital structure, namely asset structure and growth opportunity. Other variables, namely firm size, profitability, and business risk do not significantly influence the high capital structure.
KEY WORDS
High determinant variable, capital structure, pecking order theory, goods.
The company is faced with increasingly fierce competition in the era of globalization. Firm competition is oriented towards achieving profits and maximizing company value as reflected in stock prices. Maximize the value of the company and profit. One way that is used to achieve the goal is by utilizing financial management functions that can help companies maximize the value of the company, because by increasing the value of the company, the decision of corporate funding is classified based on the source of funds, namely debt and equity Sutrisno (2012: 5). The composition of debt and equity in the structure of long-term funding in a company is called the company's capital structure.
Capital structure is one indicator of the company's financial strength. Optimal capital structure that is if the minimum capital costs and company value will be maximum. The high and low capital structure is seen from the average capital structure, if the value above the average is said to be a high capital structure, if the value is below the average said the capital structure is low.
There are several theories of capital structure according to Bringham & Houston (2011) including, trade-off theory, and pecking order theory. This research focuses on packing order theory according to Myers (1984), pecking order theory explains that companies prioritize internal equity funding (using retained earnings) rather than external equity funding (issuing new shares).
These factors will be the basis of the manager's consideration in determining the capital structure decision according to Myers (1984) in the pecking order theory which includes asset structure, growth opportunity, firm size, profitability, and business risk. The study uses these variables because the results of previous studies there are still differences in results.
This study uses objects in the manufacturing sector, namely the consumer goods sub-sector listed on the Indonesia Stock Exchange. This study uses the object of the Consumer Goods industrial company listed on the Indonesia Stock Exchange because the capital structure of consumer goods companies in the five years of research has fluctuated which means competition between companies is getting tighter so that the capital structure varies. This research was conducted because it wanted to see what factors influenced the high and low use of capital structure in a company, where previous research only carried out research related to capital structure directly. Based on the description in the background, the main topics of discussion in this study are as follows. Is the asset structure, growth opportunity,
firm size, profitability, and business risk able to determine the company's capital structure? The purpose of the study is to determine the significant effect of asset structure on the company's capital structure. the benefits of this research are: 1) Theoretical Usability: this research is expected to be useful and can provide empirical evidence about variables that affect the capital structure of the consumer goods sector. 2) Practical Uses of this research are expected to provide information for companies as a basis for determining funding decisions.
LITERATURE REVIEW
The asset structure in the pecking order theory is to describe a portion of the amount of assets that can be guaranteed by the company. Debt is positively related to asset structure because companies whose assets are mostly tangible assets tend to use more debt because the tangible assets that the company has can be used as collateral to creditors to obtain debt, the opposite is true for companies that are mostly assets in the form of intangible assets. The results of previous studies conducted by Yuliani and Candraningrat (2014), Kumar, et al (2012), Alipour et al (2015), Jemmi (2013), Werner (2013), Bertha (2013), Nasser and Krassimir (2011), Supawadee et al (2014), Mota at el (2017), Rita (2014) states that asset structure has a significant positive effect on capital structure.
Growth opportunity based on pecking order theory is that companies that are growing or developing have greater internal funding needs. The consequence is that companies with high growth rates tend to use external funds to finance new projects, but the choice of external funds has a sequence, starting from the safest option and then high-risk options. Myers (1997) found that companies with high growth rates use more debt. Based on the pecking order theory, the relationship between the rate of growth and corporate debt is a positive relationship. The results of previous studies conducted by Alipour et al. (2015), Bayrakdaroglu (2013), Ticoalu (2013), Baharuddin et al. (2011) Santika and Sudiyatno (2011), Jemmi (2013), Werner (2013), Bertha (2013), Friska (2013), Songul (2015), Sangeeta (2015) stated that growth opportunity has a significant positive effect on capital structure.
Firm size determines the company's capital structure decision, according to the pecking order theory, there is a negative relationship between the size of the company and debt that is used because small companies have limited access to equity capital markets so that to obtain company funds depends on loans or debt, therefore according to Pecking order theory The theory of small companies tends to use debt more than large companies. Results of research conducted by Jemmi (2013), Werner (2013), Bertha (2013), Fuady (2014), Ticoalu (2013), Winston and Ventje (2013), Mota at el (2017), Rita (2014) Friska( 2013) states that firm size has a negative effect on the capital structure.
Profitability reflects a measure of ability in earning power from a company in the future. In pecking order theory profitability has a negative effect because companies tend to use as much internal funding as possible before deciding to use external funding. Thus companies with high rates of return use relatively small debt. A high level of profitability also means that the company's profit is high, this will make the company's retained earnings which will be used for investment and production activities are also high. Results of research by Haryanto (2010), Seftianne and Handayani (2011), Santika and Sudiyatno (2011), Priyono (2010), Winahyuningsih, et al (2010), Tuncer (2014), Nadeem et al (2011), Hossain and Hossain (2015 ), Wijaya and Utama (2014), Aulova and Hlavsa (2013) state that the profitability factor negatively affects the capital structure.
Business risk is one of the risks faced when a company is unable to fund its operational activities. Business risk can also occur if the company has too high debt. This is because the company needs to provide funds for repayment of debt and interest expense borne by the company. According to the pecking order theory, the high business risk of a company makes creditors uncomfortable to provide debt because of the high risk of the company so that the possibility of default is very high, so the business risk relationship to the capital structure is negative. The results of previous research conducted by Nuswandari (2013), Shibru et al
(2015), Friska (2013) states that business risk has a significant negative effect on capital structure.
Hypotheses:
H1: Asset structure has a positive and significant effect on the capital structure;
H2: Growth opportunity has a positive and significant effect on the capital structure;
H3: Firm size has a significant negative effect on capital structure;
H4: Profitability has a negative and significant effect on the capital structure;
H5: Business risk has a significant negative effect on the capital structure.
METHODS OF RESEARCH
This study aims to determine the effect of independent variables, namely asset structure, growth opportunity, firm size, profitability, and business risk on the dependent variable, namely the capital structure. The research location in this research is IDX by accessing data on the official IDX website at www.idx.co.id. The research time is 5 years, namely 2012 - 2016. The sample in this study is the consumer goods sector company. Determination of the sample in this study using census method that is by using the entire population. The analysis technique used in this study is logit regression analysis.
RESULTS OF STUDY
Based on Table 1, it is known that the asset structure coefficient is positive at 0.130 with a significance value of 0.000 <0.05. This means that H1 is accepted. This shows that the asset structure has a significant positive effect on the capital structure. The empirical results of the study support the hypothesis based on the assumption of the pecking order theory which describes some of the amount of assets that can be guaranteed by the company in running its business. One of the funding decisions for companies is to use external party or debt funds that are used to increase company assets so that the addition of the amount of assets owned by the company can be used as collateral by the company. Intangible assets that are increasingly large will show the company's ability to provide a higher guarantee so that the company will increase debt to benefit from the use of debt. The results of this study correspond to the results of Yuliani and Candraningrat's research (2014), Kumar, et al (2012), Alipour et al (2015), Indrajaya (2011), in their research stated that asset structure has a positive and significant effect on the low capital structure.
Table 1 - Logistic Regression Analysis
Variable in the Equation
B S.E Wald Df Sig Exp(B)
Step X1 1a X2 0,130 0,029 19,517 1 0,000 1,139
0,020 0,010 4,096 1 0,043 1,020
X3 0,404 0,204 3,911 1 0,048 1,498
X4 0,004 0,028 0,017 1 0,895 1,004
X5 0,053 0,052 1,036 1 0,309 1,055
Constant -12,683 3,992 10,096 1 0,001 0,000
Primary Data, 2018.
Based on Table 1 it is known that the coefficient of growth opportunity has a positive value of 0.020 with a significance value of 0.043 <0.05. This means that H2 is accepted. This shows that growth opportunity has a significant positive effect on the capital structure. The empirical results of the research support the hypothesis based on the assumption that pecking order theory increases the growth opportunity of companies will increase the company's capital structure because companies that have rapid growth often have to increase their investment in assets, besides companies with high growth rates and more retained earnings will more need for funds in the future. Retained earnings from companies with high growth rates will increase and companies will use more debt to finance company operations. The results of this study are in line with the results of Jemmi (2013), Werner
(2013), Bertha (2013), Friska (2013), Songul (2015), Sangeeta (2015) says growth opportunity has a significant positive effect on capital structure.
Based on Table 1 it is known that the firm size coefficient is positive at 0.404 with a significance value of 0.048 <0.05. This means that H3 is rejected. This shows that growth opportunity has a significant positive effect on the capital structure. The results of the study do not support the hypothesis that the larger a company, the easier it is for the company to obtain debt. Large companies have easy access so that the flexibility of large companies is also greater. The creditor or creditor certainly believes more in giving credit to large companies so that large companies have wider opportunities and easy to get credit. The results of this study are in line with the results of research conducted by Zerriaa and Noubbigh (2015), Bayrakdaroglu (2013), Aulova and Hlavsa (2013), Nadeem et al (2011) Nasser and Krassimir (2011), Songul (2015), Basil (2011), Sangeeta (2015) which states that firm size has a positive and significant effect on capital structure.
Based on Table 1, it is known that the profitability coefficient is positive at 0.004 with a significance value of 0.895> 0.05. This means that H4 is rejected. This shows that profitability has no significant positive effect on the capital structure. The results of the study do not support the hypothesis that high profit should have more debt service capacity and more taxable profits protected therefore must provide a higher debt ratio. This means that companies will use more debt to get greater profits. In addition, the company earns a profit which is more likely that the company shares more profits with shareholders as dividends. The results of this study are in line with the results of research conducted by Alipour et al (2015), Zerriaa and Noubbgh (2014), Patterrkongka and Napompech (2014), Songul (2014), Govika (2017).
Based on Table 1, it is known that the business risk coefficient is positive for 0.053 with a significance value of 0.309> 0.05. This means that H5 is rejected. This indicates that business risk has a positive and not significant effect on the capital structure. These results indicate that the size of a company's business risk does not affect its capital structure, because the use of corporate debt has not been maximized so the company does not have a high risk. The results of this study are consistent with research conducted by Saidi (2002) and Harjanti and Tandelilin (2007), Nuswandari (2013), Shibru et al (2015), and Friska (2013).
CONCLUSION AND SUGESTIONS
Based on the results of the analysis carried out, it can be concluded that the asset structure and growth opportunity variables affect the capital structure. Asset structure affects the high and low capital structure because of the increase in debt used to increase company assets so that the addition of the amount of assets owned by the company can be used as collateral by the company. Growth opportunity affects the high and low capital structure because companies that have rapid growth often have to increase their investment in the form of assets, so that the company's funding needs will be filled with debt which results in an increase in the company's capital structure. Firm variable size, profitability, and business risk are not able to influence the high and low capital structure.Suggestions that can be put forward in research for company issuers should pay attention to asset structure variables and opportunity growth in determining capital structure so that companies know the extent of optimal debt levels. For academics and subsequent researchers it is recommended to use other variables as determinants of high and low capital structures such as liquidity, taxes, interest rates with different proxies such as the amount of profit held, and interest rates on loans.
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