Solid State Technology

Volume: 63 Issue: 4
Publication Year: 2020

Company Performance Impact of Capital

Structure, Profitability and Company Size
Dede Hertina*, Carissa Novia Damayanti, Fajar Hadiyusuf
Widyatama University, Bandung, Indonesia
*dede.hertina@widyatama.ac.id

Abstract

This study aims to determine the effect of capital structure, profitability, company size on the
performance of the cigarette sub-sector companies listed on the IDX for the 2014-2018
period. This research uses descriptive and verification methods with regression analysis tools
and the coefficient of determination. The results of the analysis of the coefficient of
determination state that there is a strong and unidirectional relationship between the
independent variable and the dependent variable and has a determination coefficient value of
47.91%. The results of testing the F test hypothesis indicate that the capital structure,
profitability and company size simultaneously have a significant effect on company
performance. Hypothesis testing using t test shows that the capital structure has no
significant effect on company performance, profitability has a significant effect on company
performance and company size has a significant effect on company performance.

Keywords: Capital Structure, Profitability, Company Size, Company Performance.

Introduction
The company will do various ways to maintain its existence in obtaining profits. Company
owners need capital that will be used for company operational costs which will strengthen the
company in obtaining profits. The way to get additional capital is by going public, in this
case the company sells its shares to the public and can be owned by the public. The goal is to
go public to get expansion funds to improve the company's capital structure with additional
capital through investors who are interested in buying the shares offered and to increase the
company's shareholder value. Companies take various ways to achieve their goals, including
by analyzing financial ratios. Financial ratios are a tool for analyzing and measuring
company performance using company financial data, in addition to assessing the financial
decisions taken. The company should review the company's performance in any given period.
Company performance is the result of a management activity in a company. The performance
results can be used as a parameter in assessing the success of company management. The
company's success can be seen from the level of profitability in generating profits (Saudi,
2018). The level of profitability affects investors' perceptions of the company's growth
prospects in the future. Companies that have good prospects in the future usually have a high
level of profitability. The company's performance is viewed based on the size of the
company, which determines the use of external funds that will be used by the company. This
is because large companies will need large funds to be able to run the company. Fulfillment
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of these funds can be made available through external funding. In general, total assets are
used as a basis for measuring the size of a company because it has long-term characteristics.
According to Kartikaningsih (2013), company size has an influence on company
performance, the more assets owned and the smoother the turnover rate of assets, the greater
the profit the company gets. This is contrary to Helen (2016) who stated that company size

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Volume: 63 Issue: 4
Publication Year: 2020

has no influence on company performance. The purpose of analyzing financial ratios by the
company is to determine the financial condition so that the company's performance in a
certain period can be found. Financial ratios consist of several types, including profitability
ratios, solvency ratios, liquidity ratios and activity ratios. The purpose of analyzing financial
ratios by the company is to determine the financial condition so that the company's
performance in a certain period can be found. Financial ratios consist of several types,
including profitability ratios, solvency ratios, liquidity ratios and activity ratios. Research
conducted by Achmad Komara et al. (2016) shows that capital structure has a significant
negative effect on company performance. Earning Per Share and Debt / Equity Ratio have
increased from 2016-2018. This shows a positive relationship between Earning Per Share and
Debt / Equity Ratio, so this is contrary to research conducted by Achmad Komara et al.
(2016).

Conceptual Framework
Company Performance
Company performance is a complete display of the state of the company for a certain period
of time, is a result or achievement that is influenced by the company's operational activities in
utilizing its resources. Dedi Suhendro (2017) argues that company performance is an
achievement that the company achieves in a certain period as a result of the work process
during that period. Jumingan (2006) in Salma Tawqa (2016) company performance is a
description of the company's financial condition in a certain period, both regarding the
aspects of collection and distribution of funds which are usually measured by indicators of
capital adequacy, liquidity and profitability. Good management performance can improve
control within the company, but in the implementation of procedures that are implemented it
is often not in accordance with company performance and also the division of tasks and
responsibilities. Company performance is something that is produced by the company in a
certain period by referring to the established standards. In achieving company goals,
company performance is very important. One of the efforts made is by implementing a GCG
system in company performance.

Effect of Capital Structure on Company Performance

Capital structure is a balance or comparison between foreign capital and own capital. Foreign
capital is debt long term or short term, equity is divided into retained earnings and ownership
of the company. The optimal capital structure is a capital structure that optimizes the balance
between risk and return so as to maximize share prices. In determining the capital structure of
a company, it is necessary to consider the various variables that influence it. The capital
structure is the financial proportion between short-term debt, long-term debt and equity that
is used to meet corporate spending needs. Bambang Riyanto (2013) defines own capital as
basically capital that comes from the owner of the company and which is embedded in the
company for an indefinite period of time. Own capital is the capital used by a company for its
operational activities that comes from the owner of the company. The optimal capital
structure is a capital structure that optimizes the balance between risk and return so as to
maximize share prices. In determining the capital structure of a company, it is necessary to
consider the various variables that influence it. With an optimal capital structure, it will
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maximize the company's performance so that the welfare of the owners will also increase.
Research conducted by Achmad et al. (2016) states that capital structure has a significant
influence with the direction of a negative relationship on company performance, while
research by Selly et al. (2017) shows that capital structure has an effect on company
performance.

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 Solid State Technology
Volume: 63 Issue: 4
Publication Year: 2020

Effect of Profitability on Company Performance

Profitability is the company's ability to make a profit during a certain period. It is important
for companies to keep their profitability stable and even increase to fulfill obligations to
shareholders, increase the attractiveness of investors in investing, and increase public
confidence in saving excess funds owned by the company (Agustiningrum, 2013). In the
research chosen is the ROE indicator as a measure of profitability, the ROE ratio can
determine the company's ability to generate profits with its own capital. Profitability shows
the company's ability to obtain net income from its net sales and can also measure the
company's management's ability to carry out its operational activities by minimizing
company expenses and maximizing company profits. This is what can improve the
company's performance so that investors are also more interested in investing in the
company. The higher the profitability of a company, the better, because the prosperity of
shareholders or shareholders increases with the higher profitability of the company. The level
of profitability affects investors' perceptions of the company's growth prospects in the future.
Research conducted by Yunina et al. (2009) shows that profitability by using ROA and ROE
ratios has an effect on company performance by using the EPS ratio as a measuring tool.

Effect of Company Size on Company Performance

Company size is a determination of the size of a company. The higher the total assets, the
more assets owned by the company can indicate that the greater the assets owned by the
company so that investors will be safer in investing in the company, the size of the company
can be measured using the Ln of total assets. Helen (2016) states that company size is the
average total net sales for the year concerned to several years. Sales are greater than variable
costs and fixed costs, the amount of income before tax will be obtained. Conversely, if the
sales are smaller than the variable costs and fixed costs, the company will suffer losses.
Company size is a scale which can be classified as a company according to various ways,
including total assets, log size, stock market value and others. Based on total assets, the size
of the company is divided into three categories, namely large companies, medium companies
and small companies. Company size is the average sales yield in the current period up to
several years to come and is a determination of the size of a company. Company size as
measured by company assets shows how much assets the company owns. Companies that
have large assets will be able to optimize existing resources to obtain maximum business
profits and companies with small assets will of course also generate profits in accordance
with their relatively small assets. Research conducted by Tulus et al. (2017) states that
company size affects company performance.

Hypothesis
H1: Capital Structure (DER) has an influence on Company Performance (EPS)
H2: Profitability (ROE) has an influence on Company Performance (EPS)
H3: Company size has an influence on Company Performance (EPS)
H4: Capital Structure (DER), Profitability (ROE) and Company Size have an influence on
Company Performance (EPS)
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Methodology
The research method used in this research is descriptive and verification methods. The
sampling technique used in this study was purposive sampling, according to Komariah
(2011), purposive sampling determines the subject or object according to the objective.
The sample in this study were 4 companies that met the requirements set. The criteria used

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Volume: 63 Issue: 4
Publication Year: 2020

for sampling are as follows:

1. Cigarette companies listed on the Indonesia Stock Exchange in the study period, namely
the 2014-2018 period.
2. Cigarette companies that issue quarterly financial reports during the study period, namely
the 2014-2018 period.
3. Cigarette companies that have the data needed to calculate the variables studied during
the study period, namely the 2014-2018 period.

Data analysis method

In this study, the data analysis method used is multiple regression techniques to examine the
effect of capital structure, profitability and company size on the dependent variable, namely
company performance. Multiple regression model is a regression analysis technique that
explains the relationship between the dependent variable and several independent variables.

RESULTS AND DISCUSSION

Research results
Multiple Regression Analysis

Table 1. Multiple Regression Results

Dependent Variable: EPS
Method: Panel Least Squares
Date: 01/22/20
Time: 22:00
Sample: 2014Q1 2018Q4
Periods included: 20
Cross-sections included: 4
Total panel (balanced) observations: 80

Source: Results of Data Processing (2020)

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From Table 1, the regression equation is obtained as follows:

EPS= 0.468628 + 0.015405 DER + 0.003758 ROE - 0.021321 SIZE

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Volume: 63 Issue: 4
Publication Year: 2020

The interpretation of the multiple regression equation is as follows:

1. A constant of 0.468628 states that if the DER, ROE and Size variables are zero and there
is no change, then the EPS is 0.468628.
2. The DER variable has a positive multiple regression coefficient value of 0.015405. This
means that a one-unit change in the DER variable will increase the EPS by 0.015405,
assuming the other variables are constant.
3. The ROE variable has a positive multiple regression coefficient value of 0.003758. This
means that a one-unit change in the ROE variable will increase the EPS by 0.003758,
assuming the other variables are constant.
4. The variable Size has a negative multiple regression coefficient value of 0.003758. This
means that a one-unit change in the SIZE variable will decrease the EPS by 0.003758,
assuming the other variables are constant.

Effect of Profitability on Company Performance in the Cigarette Sub-Sector Listed on

the IDX for the 2014-2018 Period
To be able to determine the effect of profitability (X2) partially, a partial Hypothesis Testing
(t test) was carried out, the test was carried out using the following hypothesis:
a. H0: r1 = 0, meaning that there is no influence between the Profitability variable (X2) on
Company Performance (Y) in the Cigarette Sub-Sector Manufacturing Company listed on
the IDX for the 2014-2018 Period.
b. Ha: r1 ≠ 0, meaning that there is an influence between the Profitability variable (X2) on
Company Performance (Y) in the Cigarette Sub-Sector Manufacturing Company listed on
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the IDX for the 2014-2018 Period.

The level of significance used for this study was 5% (0.05). The results of data processing for
the t test can be seen in table 4.4. From table 4.4, it can be seen that the ROE Probability is

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Volume: 63 Issue: 4
Publication Year: 2020

0.0000 <α (0.05) so that H0 is rejected, which means that partially Profitability (ROE) has a
significant effect on Company Performance (EPS). The results of this study are in accordance
with the hypothesis so that the hypothesis is accepted.

Effect of Profitability on Company Performance

To be able to determine the effect of Company Size (X3) partially, a Partial Hypothesis
Testing (t test) was carried out, the test was carried out using the following hypothesis:
a. H0: r1 = 0, meaning that there is no influence between the variable company size (X3) on
the company performance (Y) in the cigarette manufacturing companies listed on the IDX
for the 2014-2018 period.
b. Ha: r1 ≠ 0, meaning that there is an influence between the variable company size (X3) on
company performance (Y) in the cigarette manufacturing companies listed on the IDX for
the 2014-2018 period.

The level of significance used for this study was 5% (0.05). The results of data processing for
the t test can be seen in Table 1. From Table 1, it can be seen that the SIZE Prob. is 0.0155 <
α (0,05) so that H0 is rejected, which means that Company Size partially has a significant
effect on Company Performance (EPS).

Research Implications
Assessing company performance is an important task for company leaders. Periodic
performance appraisals allow company leaders to know the current position of the company
compared to the targets or targets that have been set or compared to competitors and the
industry average. By knowing the achievement of the company's goals and position, the
company leader can make improvements to reach the desired level. For companies engaged
in the cigarette sub-sector, it turns out that the involvement of capital structure variables,
profitability and company size has an influence on company performance. With a good level
of profitability, it shows that the company is able to generate profits in a certain period. The
use of measuring instruments in accordance with the needs of the company will help to
determine the efficiency in the use of own capital and / or foreign capital. Companies need to
pay attention to the total assets owned because the greater the total assets of the company, the
greater the size of the company. A large total asset means that it can generate better profits.
The factors already mentioned should be a matter of concern for companies, particularly the
cigarette sub-sector in an effort to improve company performance. Future research is
expected to use other variables that have not been used in this study, or can add other
variables so that the research is more varied so that it can find results that have not been
found in this study.

Conclusion
1. Based on the results of the F test, the DER statistics, ROE and SIZE simultaneously affect
the EPS of Cigarette Companies Listed on the IDX for the 2014-2018 period.
2. The magnitude of the influence of DER, ROE and SIZE on EPS seen from the coefficient
of determination (R-squared) is 47.91%, the rest or 52.09% is influenced by other factors
not included in the study.
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3. Partially DER does not have a significant effect on EPS on the cigarette companies listed
on the IDX for the 2014-2018 period.
4. ROE partially has a significant effect on EPS in cigarette companies listed on the IDX for
the 2014-2018 period.
5. SIZE partially has a significant effect on EPS in the cigarette companies listed on the IDX

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Volume: 63 Issue: 4
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for the 2014-2018 period.

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