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The nonlinear effect of debt on firm performance: the evidence from Indonesia

This research posits the nonlinearity model of capital structure in Indonesia by examining the rate of debt acquisition and its effect on firms’ performance. It uses the total debt and earnings after tax (EAT) as proxies of firms' performance from a sample of 2,064 as listed on the Indonesian S...

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Main Authors: Raharja, Bayu Sindhu, Mranani, Muji
Format: Article
Language:English
Published: Penerbit Universiti Kebangsaan Malaysia 2019
Online Access:http://journalarticle.ukm.my/14134/1/jeko_53%283%29-1.pdf
http://journalarticle.ukm.my/14134/
http://www.ukm.my/fep/jem/content/2019-3.html
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spelling my-ukm.journal.141342020-02-07T10:46:32Z http://journalarticle.ukm.my/14134/ The nonlinear effect of debt on firm performance: the evidence from Indonesia Raharja, Bayu Sindhu Mranani, Muji This research posits the nonlinearity model of capital structure in Indonesia by examining the rate of debt acquisition and its effect on firms’ performance. It uses the total debt and earnings after tax (EAT) as proxies of firms' performance from a sample of 2,064 as listed on the Indonesian Stock Exchange (IDX) from 1999 to 2018. To analyse the nonlinear effect, it uses the polynomial regression analysis. The results established the positive quadratic impact of debt on firms’ performance which predicts that increasing debt will trigger such high performance. It is conceived that increasing debt use in financing decisions will cause the company performance to go down in the future. This research provides a new perspective to the field of capital structure theory, especially to the classical trade-off theory. For future research, introducing other proxies in gauging firms’ performance may strengthen the validity of this study. It should also explain and elaborate on the nexus between debt increment and positive quadratic effect on firms’ performance, and also provide solutions to practical issues in the economy. Penerbit Universiti Kebangsaan Malaysia 2019 Article PeerReviewed application/pdf en http://journalarticle.ukm.my/14134/1/jeko_53%283%29-1.pdf Raharja, Bayu Sindhu and Mranani, Muji (2019) The nonlinear effect of debt on firm performance: the evidence from Indonesia. Jurnal Ekonomi Malaysia, 53 (3). pp. 1-8. ISSN 0127-1962 http://www.ukm.my/fep/jem/content/2019-3.html
institution Universiti Kebangsaan Malaysia
building Tun Sri Lanang Library
collection Institutional Repository
continent Asia
country Malaysia
content_provider Universiti Kebangsaan Malaysia
content_source UKM Journal Article Repository
url_provider http://journalarticle.ukm.my/
language English
description This research posits the nonlinearity model of capital structure in Indonesia by examining the rate of debt acquisition and its effect on firms’ performance. It uses the total debt and earnings after tax (EAT) as proxies of firms' performance from a sample of 2,064 as listed on the Indonesian Stock Exchange (IDX) from 1999 to 2018. To analyse the nonlinear effect, it uses the polynomial regression analysis. The results established the positive quadratic impact of debt on firms’ performance which predicts that increasing debt will trigger such high performance. It is conceived that increasing debt use in financing decisions will cause the company performance to go down in the future. This research provides a new perspective to the field of capital structure theory, especially to the classical trade-off theory. For future research, introducing other proxies in gauging firms’ performance may strengthen the validity of this study. It should also explain and elaborate on the nexus between debt increment and positive quadratic effect on firms’ performance, and also provide solutions to practical issues in the economy.
format Article
author Raharja, Bayu Sindhu
Mranani, Muji
spellingShingle Raharja, Bayu Sindhu
Mranani, Muji
The nonlinear effect of debt on firm performance: the evidence from Indonesia
author_facet Raharja, Bayu Sindhu
Mranani, Muji
author_sort Raharja, Bayu Sindhu
title The nonlinear effect of debt on firm performance: the evidence from Indonesia
title_short The nonlinear effect of debt on firm performance: the evidence from Indonesia
title_full The nonlinear effect of debt on firm performance: the evidence from Indonesia
title_fullStr The nonlinear effect of debt on firm performance: the evidence from Indonesia
title_full_unstemmed The nonlinear effect of debt on firm performance: the evidence from Indonesia
title_sort nonlinear effect of debt on firm performance: the evidence from indonesia
publisher Penerbit Universiti Kebangsaan Malaysia
publishDate 2019
url http://journalarticle.ukm.my/14134/1/jeko_53%283%29-1.pdf
http://journalarticle.ukm.my/14134/
http://www.ukm.my/fep/jem/content/2019-3.html
_version_ 1662755926969417728
score 13.223943

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