CORRELATION BETWEEN FINANCIAL PERFORMANCE AND CAPITAL STRUCTURE OF COAL MINING COMPANIES LISTED ON INDONESIA STOCK EXCHANGE
Coal mining industry is continuously being exposed to high uncertainty and volatility. It is because the industry constantly has to deal with global economic that affects the supply and demand of coal as source of energy. In addition to that, there is growing concern on global warming and climate ch...
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| Format: | Theses |
| Language: | Indonesia |
| Online Access: | https://digilib.itb.ac.id/gdl/view/77888 |
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| Institution: | Institut Teknologi Bandung |
| Language: | Indonesia |
| Summary: | Coal mining industry is continuously being exposed to high uncertainty and volatility. It is because the industry constantly has to deal with global economic that affects the supply and demand of coal as source of energy. In addition to that, there is growing concern on global warming and climate change that put pressure on fossil fuels. Increasing number of policies and movements around the world have been implemented and many more to be activated to reduce the usage of fossil fuels and shifting to renewable energy. Despite being under pressure by the policies and movements, coal is still needed as the source of energy with current state of technology, and therefore, coal mining industry will be keep running at least for several years to come.
Beside of its characteristics of being volatile and cyclical, the coal mining industry is also considered as a capital-intensive industry. It requires significant amount of capital for the investments and operations. To run the business properly, the companies must implement strategies to tackle all the issues. One of them is to seek for optimal capital structure. With optimal capital structure, the companies would be able to run the business efficiently, and minimize the risks of financial distress, which could happen when the companies have too much debt but could not generate sufficient profits and cashflow, due to lower demand of coal and dropping coal price index.
This research is examining the correlation between capital structure (as proxied by Debt-to-Equity Ratio) and several financial performance indicators including profitability, asset structure, liquidity, firm size, and gross profit margin. This research focuses on 18 coal mining companies that have been listed on the Indonesia Stock Exchange (IDX) at least by 2020. The data is being derived from the financial reports published on the IDX between period of 2020 to 2022. Multiple Linear Regression technique is being employed to determine the correlations. Before employing Multiple Linear Regression technique, several tests have been conducted to examine the validity and reliability of the data, that includes normality test, multicollinearity test, autocorrelation test, and heteroscedasticity test. After the data passed the tests, then Multiple Linear Regression is employed which consists of partial regression test, ANOVA test, and goodness-of-fit test.
This research found that profitability, liquidity, and gross profit margin have negative significant correlation with capital structure. While asset structure and firm size have positive significant correlation with capital structure. Overall, the result of this research supports Pecking Order Theory, in which, firms are preferred to use internal financing first. When firms are able to generate higher profits and cashflow, they may consider to re-balance the usage of external financing. This research also concludes that profitability, asset structure, liquidity, firm size, and gross profit margin represent 58.2% of the variables that are correlated with capital structure. Future research may be conducted to seek for other variables that have not been included in this research yet, but are correlated with capital structure as well.
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