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Mumtaz Ahmed
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Economics, Econometrics & Finance

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Impact of Capital Structure on Firm Performance of Financial Companies Listed on the Indonesia Stock Exchange Irvandi Waraney Ombuh; Chrisna Riane Opod; Patricia Steffina Mawitjere; Mumtaz Ahmed
Economy and Finance Enthusiastic Vol. 2 No. 1 (2024): January-June
Publisher : Tinta Emas Publisher

Show Abstract | Download Original | Original Source | Check in Google Scholar | DOI: 10.59535/efe.v2i1.204

Abstract

In the current business landscape, effective management of a company's financial strategy is paramount for sustainable growth, with a particular emphasis on optimizing the capital structure to fulfill the funding requirements of day-to-day operations. This research investigates how the capital structure influences the financial performance of non-bank financial institutions listed on the Indonesia Stock Exchange in the year 2022. The study focuses on two key dependent variables: the return on assets ratio and the return on equity ratio. The independent variables, represented by the capital structure, encompass the debt-to-assets ratio and the debt-to-equity ratio. The results obtained through regression analysis of the data unveil a significant negative impact of the capital structure on financial performance, particularly affecting the return on equity. These findings underscore the importance of non-bank financial institutions exercising caution when managing capital resources secured through debt financing. Excessive reliance on debt within the company's capital structure could potentially elevate financial burdens, ultimately leading to a reduction in overall profitability. Consequently, prudent capital management practices are recommended to maintain financial stability and bolster long-term prosperity.
Co-Authors Chrisna Riane Opod Irvandi W. Ombuh Patricia Steffina Mawitjere