Abstract: This study examines the effects of capital structure on the profitability of 100 IDX-listed firms from 2004 to 2014. This research aims to disentangle the relationships between capital structure (DER) and profitability (ROA, ROE, and NPM) using the Hausman panel-data test and the Fixed Effects and Random Effects Models. The ROA and ROE ratios suggest that some financial leverage enhances asset efficiency. In contrast, the relationships between NPM and DER suggest positive net interest income, implying that interest expenses are offset by funds borrowed from financial institutions. This study examines the effect of some control variables on the relationships described above. The interest and inflation variables are the control variables of moderate capital structure efficiency and NPM, but only weakly and negatively. In addition, the contextual variable was found to moderate the relationships positively.

Keywords: Capital Structure, Profitability, IPO Companies, Debt-To-Equity Ratio (DER), Macroeconomic Conditions, Panel Data Analysis

Pages: 356-363