An Analysis of the Effect of Capital Structure on Corporate Performance, with Managerial Ownership as a Moderator

Abstract

This study examines the effect of capital structure on corporate financial performance, with managerial ownership as a moderating variable. The research sample consists of 63 public companies listed on the Main Board of the Indonesia Stock Exchange from 2011 to 2022, using panel data analysis. The findings reveal that capital structure has a negative and significant effect on corporate financial performance as measured by return on assets (ROA) and return on equity (ROE), but has no significant effect on Tobin’s Q. In addition, managerial ownership does not moderate the relationship between capital structure and ROA; however, it moderates the relationship between capital structure and corporate performance as measured by ROE and Tobin’s Q, with the moderating effects varying in direction. These findings imply that the optimal level of debt within a firm’s capital structure may depend on managerial ownership and other corporate governance mechanisms, which can influence corporate performance either positively or negatively. This study contributes to the existing literature by providing further insight into the relationship between capital structure and corporate performance, particularly in the Indonesian context. It also highlights the importance of considering managerial ownership and other corporate governance factors when examining the complexity of the capital structure–performance nexus.