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Moderating effects of corporate governance mechanism on the relation between capital structure and firm performance

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  • Ngatno
  • Endang P. Apriatni
  • Arief Youlianto

Abstract

The purpose of this study is to examine the moderating effect of corporate governance on the relationship between capital structure and firm performance. This study uses secondary data in the form of financial reports at the end of 2019 from micro-financial institutions (rural banks) with a total of 506 units. Data were analyzed using the Moderated Regression Analysis. Results indicate that capital structure financing decisions have a positive contribution to financial performance. However, this only applies to short-term debt. Otherwise, long-term debt has a negative and insignificant effect on both return on assets and return on equity. These results support the view of the pecking order theory, as empirical evidence that the opposite effect between firm profits and capital structure. The results of the moderation analysis show that only the size of the board of commissioners can strengthen the relationship between capital structure and company performance, while board size and ownership concentration are not able to moderate the relationship between capital structure and company performance.

Suggested Citation

  • Ngatno & Endang P. Apriatni & Arief Youlianto, 2021. "Moderating effects of corporate governance mechanism on the relation between capital structure and firm performance," Cogent Business & Management, Taylor & Francis Journals, vol. 8(1), pages 1866822-186, January.
    • Handle: RePEc:taf:oabmxx:v:8:y:2021:i:1:p:1866822
    DOI: 10.1080/23311975.2020.1866822
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    1. repec:fst:rfsisf:v:8:y:2023:i:14:p:98-109 is not listed on IDEAS
    2. Ana Belén Tulcanaza-Prieto & Younghwan Lee & Wendy Anzules-Falcones, 2024. "The Moderating Role of Corporate Governance in the Relationship between Leverage and Firm Value: Evidence from the Korean Market," Risks, MDPI, vol. 12(1), pages 1-19, January.
    3. Daniela Corina Oprea (Bîrlă) & Cristina-Elena Voicu & Komalpreet Kaur, 2023. "Improving public sector performance: the power of implementing corporate governance," Journal of Financial Studies, Institute of Financial Studies, vol. 14(8), pages 98-109, May.
    4. Dana Hassan & Majd Iskandrani & Hadeel Yaseen & Mohammad AlMaharmeh, 2024. "Board Composition and Cash Hoarding: Evidence from Jordanian Small- and Medium-Sized Enterprises," Academic Journal of Interdisciplinary Studies, Richtmann Publishing Ltd, vol. 13, January.
    5. Tripathi, Vibha & Goodell, John W. & Madhavan, Vinodh & Kumar, Satish, 2024. "Moderating effect of capital structure on the relationship between corporate governance mechanisms and firm value: Evidence from India," International Review of Economics & Finance, Elsevier, vol. 92(C), pages 1336-1350.
    6. Ayman Hassan Bazhair, 2023. "Board Governance Mechanisms and Capital Structure of Saudi Non-Financial Listed Firms: A Dynamic Panel Analysis," SAGE Open, , vol. 13(2), pages 21582440231, May.

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