Does Short-Term Debt increase Profitability? The Role of Corporate Governance as a Moderating Variable
Keywords:
Financial leverage, profitability, short-term debt
Abstract
This research is conducted to inspect the relationship of Short-Term Debt as a predictor for the financial leverage on Profitability of the company. In the analysis, Short-Term Debt will act as the independent variable and Profitability will be the dependent variable using Return on Equity (ROE) as the indicator. In the model analysis, corporate governance will be used as the moderating variable to bridge the relationship between the independent and dependent variable. In this study, the mediating variable of corporate governance uses Board of Directors (BOD) and board of commissioner (BOC) size, board of independent commissioners’ size, managerial and also the institutional ownership. From the analysis, it is shown that Short-Term debt has a significant positive impact on the company’s Profitability. In addition, board size weakens the relationship between financial leverage and profitability. Board size and institutional ownership significantly strengthen the relationship between financial leverage and profitability. Board of independent commissioners’ size and managerial ownership did not moderate the relationship between financial leverage and profitability.
References
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Ghorbani, A., & Salehi, M. (2021). Earnings management and the informational and disciplining role of debt: evidence from Iran. Journal of Asia Business Studies, 15(1), 72–87. https://doi.org/10.1108/ JABS-11-2019-0336
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Merendino, A., & Melville, R. (2019). The board of directors and firm performance: empirical evidence from listed companies. Corporate Governance: The International Journal of Business in Society, 19(3), 508–551. https://doi.org/10.1108/CG-06-2018-0211
Nguyen, T. H., & Nguyen, H. A. (2020). Capital structure and firm performance of non-financial listed companies: Cross-sector empirical evidences from Vietnam. Accounting, 6(2), 137–150. https://doi.org/10.5267/j.ac.2019.11.002
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Pham, H. S. T., & Nguyen, D. T. (2020). The effects of corporate governance mechanisms on the financial leverage–profitability relation: Evidence from Vietnam. Management Research Review, 43(4), 387–409. https://doi.org/10.1108/MRR-03-2019-0136
Poursoleiman, E., Mansourfar, G., & Abidin, S. (2020). Financial leverage, debt maturity, future financing constraints and future investment. International Journal of Islamic and Middle Eastern Finance and Management, 13(4), 613–634. https://doi.org/10.1108/IMEFM-10-2019-0430
Puwanenthiren, P., Sathasivam, B., & Thirunavukarasu, V. (2021). Corporate governance, ownership structure and agency costs: evidence from Sri Lanka. Indonesian Management and Accounting Research, 19(2), 121–134. https://doi.org/10.25105/imar.v19i2.7265
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Suhadak, S., Mangesti Rahayu, S., & Handayani, S. R. (2020). GCG, financial architecture on stock return, financial performance and corporate value. International Journal of Productivity and Performance Management, 69(9), 1813–1831. https://doi.org/10.1108/IJPPM-09-2017-0224
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Younis, H., & Sundarakani, B. (2019). The impact of firm size, firm age and environmental management certification on the relationship between green supply chain practices and corporate performance. Benchmarking, 27(1), 319–346. https://doi.org/10.1108/BIJ-11-2018-0363
Zainuddin, Z., Andaresta Mananohas, O., & Akindutire, O. R. (2020). The Effect of Debt Policies, Profitability, Managerial Ownership Structure, and Liquidity on Dividend Policy. The Indonesian Journal of Accounting Research, 23(03), 411–428. https://doi.org/10.33312/ijar.483
Zamzamir@Zamzamin, Z., Haron, R., & Othman, A. H. A. (2021). Hedging, managerial ownership and firm value. Journal of Asian Business and Economic Studies, 28(4), 263–280. https://doi.org/10.1108/ jabes-08-2020-0101
Zharfpeykan, R., & Akroyd, C. (2022). Factors influencing the integration of sustainability indicators into a company’s performance management system. Journal of Cleaner Production, 331(December 2021), 129988. https://doi.org/10.1016/j.jclepro.2021.129988.
Ahmed, I. A. (2019). Capital Structure, Ownership Structure and Corporate Governance of SMEs in Ghana. Journal of Accounting - Business & Management, 26(01), 45. https://doi.org/10.31966/jabminternational.v26i01.397
al Farooque, O., Buachoom, W., & Sun, L. (2020). Board, audit committee, ownership and financial performance – emerging trends from Thailand. Pacific Accounting Review, 32(1), 54–81. https://doi.org/10.1108/PAR-10-2018-0079
Anginer, D., Demirguc-Kunt, A., Simsir, S. A., & Tepe, M. (2021). Is short-term debt a substitute for or complementary to good governance? Borsa Istanbul Review, 22(2), 197–208. https://doi.org/10. 1016/j.bir.2021.05.004
Barros, F. E. E. de, Santos, R. C. dos, Orso, L. E., & Sousa, A. M. R. (2020). The evolution of corporate governance and agency control: the effectiveness of mechanisms in creating value for companies with IPO on the Brazilian stock exchange. In Corporate Governance (Bingley) (Vol. 21, Issue 5). https://doi.org/10.1108/CG-11-2019-0355
Chandra, T., Junaedi, A. T., Wijaya, E., & Ng, M. (2021). The impact of co-structure of capital, profitability and corporate growth opportunities on stock exchange in Indonesia. Journal of Economic and Administrative Sciences, 2010. https://doi.org/10.1108/jeas-08-2019-0081
DePamphilis, D. M. (2022). Financing the deal: private equity, hedge funds, and other sources of financing. In Mergers, Acquisitions, and Other Restructuring Activities (Eleventh Edition) (11th ed., pp. 343–372). Academic Press. https://doi.org/https://doi.org/10.1016/B978-0-12-819782-0.01001-7
Feng, Y., Hassan, A., & Elamer, A. A. (2020). Corporate governance, ownership structure and capital structure: evidence from Chinese real estate listed companies. International Journal of Accounting and Information Management, 28(4), 759–783. https://doi.org/10.1108/IJAIM-04-2020-0042
Ghorbani, A., & Salehi, M. (2021). Earnings management and the informational and disciplining role of debt: evidence from Iran. Journal of Asia Business Studies, 15(1), 72–87. https://doi.org/10.1108/ JABS-11-2019-0336
Hajisaaid, A. M. S. A. (2020). The Effect of Capital Structure on Profitability of Basic Materials Saudi Arabia Firms. Journal of Mathematical Finance, 10(04), 631–647. https://doi.org/10.4236/jmf.2020. 104037
Hastori, H., Siregar, H., Sembel, R., & Ahmad Maulana, T. N. (2015). Agency costs, corporate governance and ownership concentration: The case of agro-industrial companies in Indonesia. Asian Social Science, 11(18), 311–319. https://doi.org/10.5539/ass.v11n18p311
Jihadi, M., Vilantika, E., Hashemi, S. M., Arifin, Z., Bachtiar, Y., & Sholichah, F. (2021). The Effect of Liquidity, Leverage, and Profitability on Firm Value: Empirical Evidence from Indonesia. Journal of Asian Finance, Economics and Business, 8(3), 423–431. https://doi.org/10.13106/jafeb.2021.vol8.no3.0423
Jin, B. E., & Kim, G. (2021). Assessing Malaysia and Indonesia as emerging retail markets: an institution-based view. International Journal of Retail and Distribution Management. https://doi.org/10.1108/IJRDM-05-2020-0187
Karim, S., Manab, N. A., & Ismail, R. B. (2020). The dynamic impact of board composition on CSR practices and their mutual effect on organizational returns. Journal of Asia Business Studies, 14(4), 463–479. https://doi.org/10.1108/JABS-07-2019-0214
Kock, N. (2021). WarpPLS user manual : Version 7.0. In ScriptWarp Systems. ScriptWarp Systems.
Lorenza, D., Kadirb, Muh. A., & Sjahruddin, H. (2020). Pengaruh struktur modal dan ukuran perusahaan terhadap profitabilitas pada perusahaan otomotif yang terdaftar di bursa efek indonesia. Jurnal Ekonomi Manajemen, 13(01), 85–97.
Mahrani, M., & Soewarno, N. (2018). The effect of good corporate governance mechanism and corporate social responsibility on financial performance with earnings management as mediating variable. Asian Journal of Accounting Research, 3(1), 41–60. https://doi.org/10.1108/AJAR-06-2018-0008
Mangesti Rahayu, S., Suhadak, & Saifi, M. (2020). The reciprocal relationship between profitability and capital structure and its impacts on the corporate values of manufacturing companies in Indonesia. International Journal of Productivity and Performance Management, 69(2), 236–251. https://doi.org/10.1108/IJPPM-05-2018-0196
Mboi, C. S., Muturi, W., & Wanjare, J. (2018). Effect of Short-term Debt to Total Assets Ratio on Financial Performance of Medium-sized and Large Enterprises in Kenya. Research Journal of Finance and Accounting, 9(18), 40–49.
Merendino, A., & Melville, R. (2019). The board of directors and firm performance: empirical evidence from listed companies. Corporate Governance: The International Journal of Business in Society, 19(3), 508–551. https://doi.org/10.1108/CG-06-2018-0211
Nguyen, T. H., & Nguyen, H. A. (2020). Capital structure and firm performance of non-financial listed companies: Cross-sector empirical evidences from Vietnam. Accounting, 6(2), 137–150. https://doi.org/10.5267/j.ac.2019.11.002
Noviani, A. V., Atahau, A. D. R., & Robiyanto, R. (2019). Struktur modal, profitabilitas, dan nilai perusahaan: Efek moderasi Good Corporate Governance. Jurnal Ekonomi Dan Bisnis, 22(2), 391–415. https://doi.org/10.24914/jeb.v22i2.2601
Pham, H. S. T., & Nguyen, D. T. (2020). The effects of corporate governance mechanisms on the financial leverage–profitability relation: Evidence from Vietnam. Management Research Review, 43(4), 387–409. https://doi.org/10.1108/MRR-03-2019-0136
Poursoleiman, E., Mansourfar, G., & Abidin, S. (2020). Financial leverage, debt maturity, future financing constraints and future investment. International Journal of Islamic and Middle Eastern Finance and Management, 13(4), 613–634. https://doi.org/10.1108/IMEFM-10-2019-0430
Puwanenthiren, P., Sathasivam, B., & Thirunavukarasu, V. (2021). Corporate governance, ownership structure and agency costs: evidence from Sri Lanka. Indonesian Management and Accounting Research, 19(2), 121–134. https://doi.org/10.25105/imar.v19i2.7265
Risliana, F. (2019). Pengaruh good corporate governance dan kebijakan hutang terhadap agency cost. Jurnal Riset Ekonomi Dan Bisnis, 3(2), 28–31. http://www.jurnal.unsyiah.ac.id/bioleuser
Samo, A. H., & Murad, H. (2019). Impact of liquidity and financial leverage on firm’s profitability – an empirical analysis of the textile industry of Pakistan. Research Journal of Textile and Apparel, 23(4), 291–305. https://doi.org/10.1108/RJTA-09-2018-0055
Schäuble, J. (2019). The impact of external and internal corporate governance mechanisms on agency costs. Corporate Governance (Bingley), 19(1), 1–22. https://doi.org/10.1108/CG-02-2018-0053
Suhadak, S., Mangesti Rahayu, S., & Handayani, S. R. (2020). GCG, financial architecture on stock return, financial performance and corporate value. International Journal of Productivity and Performance Management, 69(9), 1813–1831. https://doi.org/10.1108/IJPPM-09-2017-0224
Tayachi, T., Hunjra, A. I., Jones, K., Mehmood, R., & Al-Faryan, M. A. S. (2022). How does ownership structure affect the financing and dividend decisions of firm? Journal of Financial Reporting and Accounting. https://doi.org/10.1108/JFRA-09-2021-0291
UNCTAD. (2019). Digital economy report 2019.
Widnyana, I. W., Wiksuana, I. G. B., Artini, L. G. S., & Sedana, I. B. P. (2020). Influence of financial architecture, intangible assets on financial performance and corporate value in the Indonesian capital market. International Journal of Productivity and Performance Management, 70(7), 1837–1864. https://doi.org/10.1108/IJPPM-06-2019-0307
Yolanda, Y., & Utama, C. A. (2021). Family Ownership Structure, Independent Directors, and Independent Commissioners: Effects on Leverage. Jurnal Manajemen Bisnis, 12(1), 41–55. https://doi.org/10.18196/mabis.v12i1.9525
Younis, H., & Sundarakani, B. (2019). The impact of firm size, firm age and environmental management certification on the relationship between green supply chain practices and corporate performance. Benchmarking, 27(1), 319–346. https://doi.org/10.1108/BIJ-11-2018-0363
Zainuddin, Z., Andaresta Mananohas, O., & Akindutire, O. R. (2020). The Effect of Debt Policies, Profitability, Managerial Ownership Structure, and Liquidity on Dividend Policy. The Indonesian Journal of Accounting Research, 23(03), 411–428. https://doi.org/10.33312/ijar.483
Zamzamir@Zamzamin, Z., Haron, R., & Othman, A. H. A. (2021). Hedging, managerial ownership and firm value. Journal of Asian Business and Economic Studies, 28(4), 263–280. https://doi.org/10.1108/ jabes-08-2020-0101
Zharfpeykan, R., & Akroyd, C. (2022). Factors influencing the integration of sustainability indicators into a company’s performance management system. Journal of Cleaner Production, 331(December 2021), 129988. https://doi.org/10.1016/j.jclepro.2021.129988.
Published
2022-09-12
How to Cite
Widuri, R., Darmasaputra, A., & Cecilia, A. (2022). Does Short-Term Debt increase Profitability? The Role of Corporate Governance as a Moderating Variable. International Journal of Organizational Behavior and Policy, 1(1), 57-70. https://doi.org/10.9744/ijobp.1.1.57-70
Section
Articles
Copyright (c) 2022 Retnaningtyas Widuri, Alan Darmasaputra, Agnes Cecilia
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