FACTORS IMPACTING PROFITABILITY AND CAPITAL STRUCTURE IN MANUFACTURING COMPANIES LISTED ON THE INDEX

Abstract

This study investigates the relationship between organizations' size, growth, tangibility, liquidity, volatility, uniqueness, asset utility, and non-debt tax and their profitability and capital structure. In addition, the reciprocal effects of profitability and capital structure have been evaluated. The current study employed the purposive selection technique to choose a sample of 117 firms listed in the Manufacturing sector on the IDX between 2010 and 2019. Covariance-Based Structural Equation Modelling (CB SEM) was used to analyze the data using the AMOS program. The outcome demonstrated that profitability and capital structure have a mutually beneficial relationship. At the same time, only growth and asset utility affected profitability. In addition, the results demonstrated that size, liquidity, asset utility, and non-debt tax shield have a beneficial impact on capital structure. In addition, the current study is useful because it demonstrates that a manufacturing company with a fast growth rate and excellent asset management will achieve high profitability even if creditors do not contemplate lending to it. In addition, this is the first study to examine the reciprocal effects of profitability and capital structure.