THE RELATIONSHIP BETWEEN FIRM PERFORMANCE AND CAPITAL STRUCTURE DURING THE COVID-19 PANDEMIC: EVIDENCE FROM THE INDONESIAN LISTED STEEL COMPANIES
The COVID-19 pandemic has resulted in significant changes. Many businesses must make losses or even declare bankruptcy. Due to low operational activity, the company can no longer rely on internal resources to finance its operations. Steel is an input for raw materials in the manufacture of infrastru...
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| Format: | Theses |
| Language: | Indonesia |
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| Online Access: | https://digilib.itb.ac.id/gdl/view/67428 |
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| Institution: | Institut Teknologi Bandung |
| Language: | Indonesia |
| Summary: | The COVID-19 pandemic has resulted in significant changes. Many businesses must make losses or even declare bankruptcy. Due to low operational activity, the company can no longer rely on internal resources to finance its operations. Steel is an input for raw materials in the manufacture of infrastructure. Futhermore, there are issues based on the COVID-19 pandemic at listed steel firms in Indonesia, namely a significant increase in the debt ratio in 2020Q1 where the COVID-19 pandemic initially occurred. Therefore, the company must choose between growing debt or issuing shares for external funding for effective financial alternatives when meeting funding needs that will occur if the company has an optimal capital structure to increase the wealth maximation and firm value. This empirical study aims to examine the relationsip of COVID-19 pandemic and firm performance on the capital structure before and during the pandemic. A company's capital structure refers to the mix of debt and equity it uses to support its operations and to expand. This research applies panel data regression and system-GMM to study varied factors that affect the leverage decision of steel companies in Indonesia. The samples of this study were 8 steel companies listed on IDX Industrial Clasification using the data quarter from 2018 until 2021 from the company's monthly financial statements that can be downloaded through the official IDX website. The Fixed Effect Method using panel regression shows that the COVID19 pandemic does affect the financing of the companies, also capital structure is influenced by firm specific variables like profitability that positively affect the capital structure, whereas the current ratio, earning volatility, and non-debt tax shield have negatively affected the capital structure. Meanwhile, the result of system GMM shows that only COVID-19 and Current Ratio significantly affect capital structure. This research also find the existence of both pecking order theory and trade-off theory in the case of Indonesian Steel companies. |
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