analysis an asset structure

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ANALYSIS AN ASSET STRUCTURES, ROE AND R/E INFLUENCE ON

CAPITAL STRUCTURE AND ITS INLFUENCE TOWARD TO EPS

BY

DIATRI ANDRINI

Student Number : 00.312.343

Approved By

Thesis Advisor

.......................... ..... - ................. - ........

Achmad Sobirin, Drs, M.Akt, Ph.d

Language Advisor

............................... ..... - ................. - ........

Widyasari Listyowulan


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ANALYSIS AN ASSET STRUCTURES, ROE AND R/E INFLUENCE ON

CAPITAL STRUCTURE AND ITS INLFUENCE TOWARD TO EPS

A BACHELOR DEGREE THESIS

By

DIATRI ANDRINI

Student Number : 00.312.343

Defended Before The Board of Examiners

on .... - ................ - .....

and Declared Accpetable

Board of Examiners

Examiner 1:

Arief Bachtiar, Drs.,MSA.,Ak ....................................

Examiner 2:

Achmad Sobirin, Drs, M.Akt, Ph.d ....................................

Yogyakarta, - .... -

International ProgramFaculty of Economics

Islamic University of Indonesia

Dean

----------------------

Asmai Ishak, Drs., M.bus., Ph.D


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ACKNOWLEDGEMENT

Diatri Andrini (2006) ; Analysis An Asset Structure, ROE And R/E Influence To

Capital Structure and Its Inlfuence Toward EPS To Determione The

Optimalization

Praise Allah S.W.T for all His unlimited and priceless blessings that always give

the writer way of strength from the beginning of this thesis until its completion.

(Alhamdulillah Hirabbill Allamin).

This thesis is made to fulfil the writers responsibility as the student of IslamicUniversity of Indonesia as the requisites to the completion of the study and the

achievement of Bachelor Degree of Economics. The writer hopes that this thesis

is able to give several benefits and also as the media to obtain more knowledge for

those who may needs the information contains in this thesis. Moreover, the writer

addresses her apology if this thesis is not a perfect one. The writer may hope for

several corrections further to elaborate this thesis better.

At this opportunity, the writer would like to address her gratitude to the following

people who shares their precious time, thoughts, power, and patience both directly

and indirectly.1. Dean of Faculty of Economics UII, Mr. Asmai Ishak, Drs., M.Bus., Ph.

D. for his leadership and providing several facilities that support and

make the academic activities more comfortable.

2. Academicals Advisor, Mr. M. Akhyar Adnan, Drs., MBA., Ph.D. for his

opportunity and giving the simplicity in the Independence Study to revise

my grade.

3. Thesis advisor, Mr. Achmad Sobirin, Drs., Ph.D for the time and

patience. You guide on finishing this thesis and inspiring me to select my

choice. The way you taught, even just one at MCS and how you

delivered certain theme and knowledge succeed to influence me and

attract my thought.

4. My only one beloved father, (Alm.) Dr. Indrawarman Seno Adjie.

Though I only remember you by memories and pictures, it is you who

becomes my source of life and spirit. You always guide me and remind

me and become the reason of everything. I am still not the person that

you want to be, but my journey is still far. I promise to be the one who

makes you smile in Heaven. You are my only Angel.


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5. My lovely family, my mother, sister and big brother for your prayers and

supports. Thank you for your both financial and non-financial support,

your advice became my shelter and brought peace to my heart. You are

all my light of my life, especially for my mother, you are my soul.

6. My best ever have. Thank you for your patience, time for share,

especially for showing the other side of life. It changes the way I thought

and saw before. Lets hope that we can achieve our own dreams and one

day we can be a best partner, brother and sister. To be the best ever have

in our life.

7. My friends in Faculty of Economics UII. Thank you for your time,

supports, helps, jokes, and shares. There are many more that influencesme, together with you all comforts my heart. Though we separate by time

and place, I believe that friends last forever.

8. All my friends in Solo. Thank you for your spare time. Seeing your jokes

makes me laugh and smile. You are always there for my pc games, fixing

my computer, advising me on buying computer parts. I believe I will lose

and being fake without you all.

9. This goes for those whom I cannot mention. I dont mean to forget you,

but there are too many to be remembered. I just hope best wishes for your

future.

Sincerely yours,

Diatri Andrini


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TABLE OF CONTENT

Page

Page of Title ............................................................................................... i

Approval Page ............................................................................................ ii

Legalization Page ......................................................................................... iii

Acknowledgement ....................................................................................... iv

Table of Content ........................................................................................... v

List of Table ............................................................................................... vi

List of Graphic ................................................................................................ vii

List of Appendice ............................................................................................ viii

Abstract (English) ............................................................................................ ix

Abstract (Indonesia) ......................................................................................... x

Chapter I : INTRODUCTION

1.1. Study Background .. 1

1.2. Problem Identification . 4

1.3. Problem formulation 4

1.4. Limitation of research Area . 5

1.5. Research Objectives . 6

1.6. Research Contribution . 6

1.7. Writing Structure . 6

1.8. Definition of Terms . 8


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4.2.1. First Step of Analysis . 41

4.2.2. Second Step of Analysis . 51

4.3. Research Findings 55

4.3.1. First Step Analysis Findings .. 55

4.3.2. Second Step Analysis Findings . 56

4.4Research implications 56

4.4.1Capital Structure 57

4.4.2Earning Per Share .. 57

Chapter V: CONCLUSION AND RECOMMENDATION

5.1. Conclusion 59

5.2. Recommendation . 62

BIBLIOGRAPHY

APPENDICES


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LIST OF TABLE

Page

TABLE.I. Sampling-using Purposive Random Sampling .. 30

TABLE.II. Regression Analysis of X variables to Y1 variable ......... 42

TABLE.III. Multicolinaerity Test Result . 49

TABLE.IV. Autocorrelation Test Analysis Result .. 49

TABLE.V. Heteroskedasity Test Analysis Result . 50

TABLE.VI. Regression Analysis of Y2 variables to Y1 variable .. 52


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LIST OF GRAPHIC

Page

GRAPHIC.I. Theoretical Framework . 22

GRAPHIC.II. Accepted and Rejected Area Hypothesis of F-test-first step

analysis 45

GRAPHIC.III. Accepted and Rejected Area Hypothesis of Asset Structure

variable . 46

GRAPHIC.IV. Accepted and Rejected Area Hypothesis of ROE variable .. 47

GRAPHIC.V. Accepted and Rejected Area Hypothesis of R/E variable . 48

GRAPHIC.VI. Accepted and Rejected Area Hypothesis of EPS variable 54


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LIST OF APPENDICE

Page

Appendix - I First Step Regression Analysis ... 63

Appendix - II Second Step regression Analysis .. 64

Appendix - III Data Tabulation 65

Appendix - IV Durbin-Watson Table .. 68

Appendix - V F-table .. 69

Appendix - VI T-table 70

Appendix of Manufacturing Companies Financial Statement Year 2000-2003


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ABSTRACT

Capital is a basic need for firms to start their business and expand-known

as globalization. To deal with globalization, firms should concern on financing

problems that focused on capital structure. Capital effect on the firms ability to

survive and compete with others firms (strong capital can kill the weak one).

So it is important for firms to make their financing decision-capital

structure decision, that is the choice between debt or equity financing. The best

proportion between debt and equity used will enter firms into the optimal capital

structure. Some of important judgemental issues should be applied consider to an

optimal capital structure

The aims of the research are: (1) to find out the magnitude of the asset

structures, return on equity-ROE and retained earnings-R/E variables influence on

the capital structure, and the magnitude of the capital structure variables influence

on the earning per share, (2) which variable influences the most significant and

dominant on the capital structure

One hundred and fifty-five go-public manufacturing companies in the JSXwere used as the population, and only eighty-four companies were collected as the

samples using the purposive random sampling technique. Recursive Models of the

Linear Regression, which was used as the analysis model, divided into two steps:

(1) regressing the magnitude of the asset structure, return on equity-ROE and

retained earnings-R/E variables as the independent variables on the Capital

structure as the dependent variable, (2) regressing the magnitude of the capital

structure variables as the independent variables on the earning per share-EPS as

the dependent variable.

Related to the aims, the results showed: (1) simultaneously, the three

variables significantly influenced the capital structure (F-stat; 1955, 066 > F-

tab;2,37 and p;0,000 < 0,05); whereas, partially, ROE significantly influenced (T-

stat;30,770 > T-tab ;1, 67 and p;0,000 < 0, 05 ), R/E significantly influenced (T-

stat; -5,107 > T-tab;-1, 67 and p;0,000 < 0, 05), only asset structures variable not

significantly influenced and. Partially, Capital structures EPS variable


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significantly influenced the EPS(T-stat;-9,775 > T-tab;1, 67 and p;0,000 < 0, 05 );

whereas. (2) Only the ROE and R/E significantly and dominantly influenced the

capital structure.

.

Keywords : Asset structures, ROE, R/E, Capital Structures and EPS


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ABSTRAK

Permodalan adalah kebutuhan yang paling mendasar diperlukan perushaan

untuk memulai bisnis mereka bahkan memeperluasnya-dikenal sebagai

globalisasi. Untuk menghadapai globalisasi, perusahaan harus lebih

memperhatikan masalah pendanaan yang berfokus kepada strucktur permodalan

karena permodalan berdampak kepada kemampuan perusahaan untuk bertahan

dan berkompetisi dengan perusahaan lain (perusahaan dengan modal kuat dapat

membunuh perusahaan dengan modal lemah).

Ini sangat penting bagi perusahaan untuk membuat keputusan pendanaan-

yaitu keputusan terhadap struktur permodalan, adalah pilihan untuk menentukan

antara pendanaan menggunakan hutang atau dengan modal sendiri. Proporsi yang

tepat terhadap penggunaan hutang dan modal sendiri akan mengantar perusahaan

tersebut mendapatkan struktur permodalan yang optimal. Beberapa permasalahan

penting harus diaplikasikan dalam menentukan struktur modal yang optimal.

Tujuan dari penelitian ini adalah: (1) untuk mengetahui pengaruh structure

asset, ROE dan R/E terhadap struktur permodalan dan pengaruh strukturpermodalan itu sendiri terhadap EPS, (2) untuk mengetahui, variabel mana yang

paling berpengaruh dominan terhadap struktur permodalan.

Seratur lima pulih lima perusahaan manufaktur yang go public di BEj

digunakan sebagai populasi, dan hanya delapan puluh empat perusahaan

digunakan sebagai sample dengan menggunakan metode purposive random

sampling. Recursive model of the linear regression, yang digunakan untuk

menganalisa persamaan, terbagi menjadi dua langkah; (1) meregresi struktur

asset, ROE dan R/E sebagai variable bebas terhadap struktur permodalan sebagai

variable terikat, (2) meregresis struktur permodalan sebagai variable bebas

terhadap EPS sebagai variable terikat

Berdasarkan tujuan dari penelitian, hasil analisis menunjukkan bahwa: (1)

secara simultan, tiga variable berpengaruh significan terhadap struktur

permodalan (F-stat; 1955, 066 > F-tab;2,37 and p;0,000 < 0,05); dimana, secara

parsial, ROE berpengaruh signifikan (T-stat;30,770 > T-tab ;1, 67 and p;0,000


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0, 05 ), R/E berpengaruh signifikan (T-stat; -5,107 > T-tab;-1, 67 and p;0,000 < 0,

05), hanya struktur asset yang tidak berpengaruh signifikan, dan, secara parsial,

struktur permodalan berpengaruh signifikan terhadap EPS (T-stat;-9,775 > T-

tab;1, 67 and p;0,000 < 0, 05 ); dimana. (2) Hanya ROE dan R/E yang

berpengaruh paling signifikan dan dominant terhadap struktur permodalan..

Kata Kunci : Struktur Aset, ROE, R/E, Struktur Perodalan dan EPS


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CHAPTER I

INTRODUCTION

1.1`Study Background

In starting business, a new firm requires capital, and still more capital is

need as if the firm is to expand. Market globalization seen by firms as an

opportunity to expand, they can market their products through out their own

countries. Market globalization gives a problem, that strong (in financially)

industries can kill the small (in financially) industries at the place where they

market their products. Many firms concentrate more on financing problem to

face this kind of problem.

Financing require fund and it can come from many different sources and

take many different forms. All capital classified into two basic types-debts and

equity which in the use one or both of them, gives advantages and

disadvantages. Generally, firms have a tendency to use their internal sources

(equity, retained earning, etc) as permanent capital and the external sources

such as debt, used by firms as complementary capital. As if a firm had deficit

in their internal resources (equity, R/E, etc), it is considered that firms use the

external resources (debt) as financing optional.

Based on those reasons, financial managers concern on both cost of capital

and the choice on capital structure, to determine from where the financing used

by firms came from. Financial managers are responsible for firms financing

decisions making. Financial manager should look for an efficient financing,


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and concerned on the best financing mix or best capital structure (best

composition the use of debt financing or equity financing) determination.

The best financing mix or capital structure determination has an

understanding that capital structure decisions making are able to maximize the

value of firms. At the optimal level of capital structure, amount of debt used by

firms are able to minimize over all weighted average capital cost (WACC) then

the value of firms will be maximized (Martono andD. Agus.H; pg 239).

It is a difficult task to determine their precise optimal capital structure, so a

manager should apply judgemental issues in their quantitative analysis for

determining the financing resources used before determining the optimal level

of capital structure. Some of important judgemental issues taken consider to an

optimal capital structure are:

1.Control, majority control of manager has an effect on the choice of debt

use or stock published that are going used for their capital structure.

2.Business risk, a higher or lower business risk caused by the increasing or

decreasing such as sales variability, operating leverage and other factors

effect the amount of debt use.

3. Asset structure, suitability of firms asset structure effect the amount of

debt used.

4.Growth rate, movement of firms growth has an effect on the amount of

debt used.

5.Profitability (ROE), a higher or lower of firms capability to earn profit

using their own equity (known as ROE) effect the tendency in debt used.


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6.Taxes, the benefit of tax deductible a firm will get, will influence the

choice on amount of debt used.

7. Market condition, conditions in the stock and bond markets undergoes

both long-and short-run changes that can affect firms optimal capital

structure.

8. Retained earning, a firm choice whether to retain their profit earning or

to use their profit earning for dividend payment, will influence the

amount of debt used.

After determining financing resources came from for capital structure, then

the optimal level of capital structure determination needed to identify the effect

of financing resources choice in capital structure for firms. The optimal level of

capital structure determination could analyze through:

1. EBIT or EPS Analysis, the optimal capital structure analyzed by

examining how the changing of debt proportion uses affects its EPS.

2.EPS Indifference Analysis

3.The Effect of Capital Structures on Stock Price and Cost of Capital, the

optimal capital structure analyzed through the determination of the mix

of debt and equity that maximizes the value of the firm that is, its stock

price (not the firms EPS).

Further researches were needed, so firms financial manager able to make

their financing decision (about choice and proportion of debt or equity used)

consider on the optimal level of capital structure. Based on that, the writer


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need to make research with the topic: Analysis an Asset Structure, ROE

and R/E Influence on Capital Structure and Its Influence toward EPS.

1.2Problem Identification

From the explanation mentioned before, the problem identification can be

identified as:

1.Is there any significant influence of asset structure, ROE, and retained

earning to capital structure and then, is there any significant influence of

capital structure to Earning Per Share (EPS)?

2.How is the influence of Assets Structure, ROE and Retained Earning to

the capital structure?

3.What is the variable that is dominantly influence the capital structure?

4.How is the influence of capital structure to EPS?

1.3Problem Formulation

Based on the study background mentioned before, the problem formulation

can be formulated become:

1.Is there any significant influence between asset structures to capital

structure at manufacturing companies listed at Jakarta Stock Exchange?

2.Is there any significant influence between, ROE to capital structure at

manufacturing companies listed at Jakarta Stock Exchange?

3.Is there any significant influence between retained earning to capital

structure at manufacturing companies listed at Jakarta Stock Exchange?


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4.Is there any significant influence capital structure to EPS at

manufacturing companies listed at Jakarta Stock Exchange?

5.Which from three variables (asset structure, ROE and R/E) that

dominated influence to firms capital structure at manufacturing

industries published at Jakarta Stock Exchange?

1.4Limitation Of Research Area

To analyse the problem observed by the researcher, the limitation of my

research are:

1.Stock Exchange observed is only for Jakarta Stock Exchange, because

JSE is not only the first stock exchange in Indonesia but also the biggest

stock exchange in Indonesia.

2.During observation period, firms that become research object proved

listed and sold their stocks at Jakarta Stock Exchange.

3.Observation period use in this research is from January 2000 until

December 2003, because during that period is the time where the

condition of our country is raising up from crisis.

4.Firms stocks chosen for this research are stocks from manufacturing

industries and during research observation period, those stocks already

listed at Jakarta Stock Exchange.

5.Companies chosen is companies with the listing date before and till

December,31,1997


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1.Capital Structure (Y1), define as firms long-term financing which is

shown by the comparison between debts use to equity use. Capital

structure reflects the capital sources and proportion use by firms for

financing its activity.

2. EPS (Y2) define as earning that can be earned by firms for each share

being sold. EPS measured by (net profit-dividend stock-dividend

preferred stock) divide by average rate stock published.

3. Asset Structure (X1) consists of current/fixed assets, investments, and

other. A firm, whose asset is suitable as security for loans, tends to use

debt. In this research, the asset structure variable measured from the

average of average of fixed assets divide by total asset

4. Return on Equity-ROE (X2), define as firms capability to earn profit

using their own equity where profit shared is profit for stockholder

(Earning After Tax).

ROE is as the measurement of income for stockholder for their capital

invested in firm and it measure firm capability to earn profit for

stockholder (Lukman, 1998; R.Agus, 1998).

5.Retained Earning (X3), Retained earning is the measurement amount of

earning that retained in percentage form and can be figure out by using

formula ( 1-c ) where c is percentage of earning that were divide.


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1.8Writing Structure

To make easier in understanding of thesis writing, writing structure

needed. The discussion of this thesis divided into 5 chapters. Those five

chapters are:

CHAPTER I INTRODUCTION

This chapter explains Study background, Problem

Identification, Problem formulation, Limitation of research

Area, Research Objectives, Research Contribution, and Writing

Structure.

CHAPTER II REVIEW RELATED LITERATURE

This chapter explains few things as a way to get close to

theoretic research problem that are going to be tested the truth.

This chapter involves Theoretical review (Functions of

Finance, The Choices in Financing, Understanding Financial

Structure, Understanding Capital Structure, Maximizing Value

of Firms), Review Previous Research Theoretical Framework,

and Hypothesis Formulation.

CHAPTER III RESEARCH METHOD

This chapter involves Type of Research Method, Research

Subject, Research Setting, Research Instrument, Research

Variables, Research Procedure, and Technique Data Analysis.


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CHAPTER IV RESEARCH FINDINGS, DISCUSSION, AND

IMPLICATIONS

This chapter involves Research Description, General Condition

of Capital Structure and Return on Equity, Research Analysis

(first and second step of analysis), Research Findings (first and

second analysis) and Research Implications.

CHAPTER V CONCLUSION AND RECOMMENDATION

This chapter consists of two sub chapter that is Conclusion and

Recommendation, which contains of the main problem that

already analyzed in this research.


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CHAPTER II

REVIEW RELATED LITERATURE

2.1 Theoretical Review

2.1.1 Functions of Finance

Firms ability to survive depend on its operational activity, its

profitability where all supported by a good financial management. That is

the basic reason why financial manager is an important instrumental to

companies succeed, because they involved in decision-making. Based on

the function of finance, the major decisional systems separated into three

parts where firms should make, those are:

1. The Investment Decisions

Investment decisions includes capital investment (that the

allocation of capital to investment proposals whose benefit realized

in the future.) and reallocate capital (occur when an asset no longer

economically justifies the capital committed to it.).

The investment decisions determine the total amount of assets held

by the firm, the composition of those assets, and the business-risk

complexion of the firm as perceived by suppliers of capital. In

selecting new investment, a company must manage existing of

asset efficiently.

2. The Financing Decisions

In financing decisions, the financial manager concerned with the

best financing mix or capital structure between debt, equity and


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hybrid securities that minimizes a company's cost of capital

determination. The financing mix can simply measured by looking

at the proportion of debt in the total financing. This ratio called as

debt to capital ratio also known as DER.

3. The Dividend / Share Repurchase Decisions

The dividend / share repurchase decision is concern on the amount

of cash to distribute to stockholders. There are two methods of

distribution: cash dividend and share repurchase.

The dividend payout ratio and the number of shares repurchased

determine the amount of earnings retained in a company and going

evaluated in light of the objective of maximizing shareholder

wealth.

Those three major decisional systems related and influenced to each

other. The problems face by firms effect on the decision-making systems

made by firms, for an example, firms with the capital structure problems

concern on the financing decision, because this decision will help financial

manager to determine the capitals sources and proportion that will be

used by firms.

2.1.2 The Choices in Financing Decision

Financial manager who involved in financing decision-making should

choose and look for the best financings sources proportion and concerned

also with determining best capital structure. As if a mistake made on

financing decision-making, it will fatally effect on firms ability to survive.


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There are two basic types of capital as an optional for firms to make their

choices for financing decision-making. Those two basic types of capital

are:

1.Debt Sources for Financing

The essence of debt is that firms promise to make fixed payments

in the future (that is interest payments and repaying principal.). As if

firms fail on payments, a firm can lose it control on its business.

Debt take in different forms, are bank loans (commonly choose by

private business.) and bonds-is a debt instrument issued by corporation

in order to raise working capital (commonly choose by publicly traded

firms).

To measure how much the debt proportion used is by looking at the

proportion of debt in the total financing. DER-Debt to Equity Ratio

that stated in every firms financial statements reflects the proportion

of debt used by firms. Where DER formulated as:

Total Debt

Debt to Equity ratio =

Total Equity

The use debt as resources for firms financing should considered

for the following characteristic:

a.Firms committed to makes fixed payments in the future.

b.The fixed payment is tax deductible for firms that choose to use

debt financing.


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c.Failure to make payments can lead to either default or lose of

control of the firm to the party to whom payments are due.

The choice in debt use for financing will give not only several

advantages but also can existed several disadvantages for its using.

Several advantages in the debt use for financing are:

a.Interest payment is firms tax deductible (Tax beneficially)

The use of debt allowed firms to deduct interest expense from

income to arrive at taxable income that it will reduce firms

taxes, the higher the marginal tax rate of a business, the more

debt it will have in capital structure.

b.Add discipline to management

Manager of a firm with no debt and generate high income and

cash flow attempt to become complacent where it will lead to

inefficiency and investment poor project. The use of debt

makes managers have to ensure that the investment they make

will earn at least enough return to cover interest expenses.

c.Debt-holders limitations

Debt-holders are limited to a fixed return, so stockholders do

not have to share profits if the business does exceptionally

well. Debt-holders do not have voting rights, so stockholders

can control business with less money than would otherwise

required.


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There are several disadvantages that should used by financial

manager as basic consideration in the choice to use debt or not to use

for its financing. Those several disadvantages are:

a.Bankruptcy Costs

The increasing in the use of debt, it increases the probability

bankruptcy and hence the expected bankruptcy cost. The

greater probability of bankruptcy in the operating cash flow of

the firm, the less debt the firm can afford to use.

b.Agency costs

Agency cost arises when a firm hire outside parties to do

something for the firm, because firm interest may deviate from

those outside parties hired. The greater agency problems

associated lending to a firm the less debt a firm can afford to

use.

c.Loss of future flexibility

As if a firm borrows up to the capacity, it loses the flexibility of

financing structure projects with debt. The more uncertain a

firm is about its future financing requirements and projects, the

less debt the firm will use for financing current project.

2.Equity Sources for Financing

Equity describe as shares issued by a company representing

ownership in that company. Equity is amount of cash flows left over


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after debt payments had been make. There are several different forms

of equity can be taking:

a.A very small businesses: owner investing for their investment

b.Slightly larger businesses: a venture capital

c.Publicity traded firms: common stocks.

The important in financing concept is sourcing and used of fund

problems, where fund sourcing can come from internal and external

resources and going to be used or allocated on firm assets.

2.1.3 The Understanding of Capital Structure

The right hand side of firms financial structure reflects firms capital

structure that focused only on permanent financing-consist of long-term

financing, preferred stock and shareholder equity, where firms should

determine the choice and proportion of internal or external financing

resources are going to be used.

Martono and Harjito, D.Agus (239; 241) define capital structure as the

comparison of long-term financing which reflected by the comparison

between long-term liabilities to owners equity. The owners equity

sources itself come from shareholder equity, and retained earning.

Financial manager should look for an efficient financing alternative

that occur as if firms has an optimal capital structure. Before determining

the optimal level of capital structure, it need to analyze several

judgemental issues consider on choice for financing. Some of important

judgemental issues taken consider to an optimal capital structure are:


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1.Managements Control Position

Managements control position may influence the capital structure

decision in the choice of debt or equity use, as if management

barely has majority control (over 50% of the stock) but not in

position to buy any more stock, debt may as the choice for new

financing.

2.Business Risk

Business risk is a function of the uncertainty inherent in

projections of a firms future return on invested capital-ROIC or

the risk ness of the firms stock if it uses no debt. A higher-lower

level of business risk effect on the proportion of debt used, a firm

that has relatively low business risk (small sales variability, low

operating leverage, etc) can take more debt then the firm with high

business risk.

3.Asset Structure

Asset structures suitability effects on the choice and proportion

debt used in capital structure. A firm, which asset is suitable as

security for loans, tends to use debt rather heavily.

K.H, Kee (1993) found that firms with a bigger number of asset

structure have a tendency to use a bigger long-term debt too

because they use their asset as security for loans.

4.Level of Growth Rate

A firms growth movement effect on the choice of the internal and

external fund resources optional. A firm with a vastly growth, often


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face a bigger uncertainty, then firm have a tendency to reduce their

willingness in the debt used.

5.Return on Equity-ROE.

ROE is firms capability to earn profit using their own equity. It

mean that ROE is contrast to the decision on the debt proportion

used by firms, a firm with very high ROE use relatively little debt,

because a high level of ROE mean a highly profitable firms that do

not need to do much in debt financing where their higher profit

enable them to do most their financing.

6.Taxes

A firm that use debt should make a fixed interest payment. The

interest payments are a deductible expense, while dividends are

not, therefore, the higher a firms corporate tax rate, the greater the

advantage using debt.

7.Market condition

Conditions in the stock and bond markets undergo both long-and

short-run changes that can affect firms optimal capital structure.

8.Retained Earning-R/E

R/E is the measurement amount of earning that retained in

percentage form. A firm that choose to retained their profit earn the

capabilities to form their internal fund (equity) is bigger, mean that

firms have a tendency to use internal fund resources rather using

debt.


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R. Agus (1998) argue that as if a firm choose to retained their

profit earn, so the capabilities to form internal fund (equity) is

bigger,

Bambang (1995) stated that one of important manager functions is

to determine net profit after tax allocation for one side and for

retained earning in the other side where the decision influence the

firm value.

An important concept in capital structure is Leverage (use of assets

and fund resources for increasing shareholder value or profit). The

beneficial using Leverage, that the interest payment by firm is cost that

tax deductible. so number of total funds for paying shareholder is much

bigger as if firm use debt.

The beneficial using debt for firm is Tax, because the interest debt

payment is a tax deductible or tax saving, the higher firms debt tax,

the higher beneficial in using debt (R. Agus, 1994;.Horne 1995)

Modligani and Miller (MM) stated that as If theres tax, the capital

structure changes become relevant, this because the interest payment

function as tax deductible, so for firms use debt can get tax saving and

will increasing the shareholder value then the value of firm will

maximized.

From explanation above can be concluded that firms who use debt

will get tax saving, so firms tend to use external fund resources (Debt)

bigger, where it will influence the capital structure, because tax saving

will increase Earning After Tax (EAT).

2.1.4 The Optimal Capital Structure Determination

After knowing which fund resources used for capital structure, the

further step could be taken is to determine whether the choice of fund

resources for capital structure is optimal. At optimal capital structure, the

combination of debt and equity maximized the value of firm because


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In this research, the analysis of an optimal capital structure focus on

the use of Earning Per Share-EPS Analysis to determine the optimal

capital structure. The changes in the use of debt affect the changes in

Earning Per Share (EPS) and then will cause the changes in stock price.

As if there are two firms that earn same profit level where one of

them use debt and the other one do not use, than tax income payment

is not same, because firm that use debt will pay smaller tax (Horne,

1995; Sutrisno, 2000)

Stated before, firms that use debt will have small net income, because

firms have to pay interest debt, but they will pay smaller tax, it means

firms get tax saving. When firms use no debt, they have to pay bigger tax,

it mean there is no tax saving they can get.

Even though it is difficult to stated precise level of an optimal capital

structure, the basic concept to determine whether the choice of debt and

equity used for capital structure is optimal that the proportion of debt used

followed by the increasing of earning per shareEPS level. The proportion

of debt used followed by the increasing of EPS level because when firm

use amount of debt as firms capital structure, they have to make fixed

interest payment, at other side, the interest payment is tax deductible or it

make firm to pay a smaller tax.

It should be remained that made a correct amount of debt proportion

used followed by the increasing of EPS level, and when incorrect amount

debt used, it might be followed by the decreasing of EPS level as if other

variables do not influence. Earning Per Share formulated as:


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(Sales Fixed Cost Variable Cost Interest) (1 Tax)

EPS =

Number Shares published

or simplify as follows ;

(EBIT - 1) (1 T)

EPS =

Number shares published


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2.2 Theoretical Framework

Based on the theory brief explained at theoretical review, the framework

of this research are

Three Major Decisional Systems

Investment decision Financing decision Dividend / Share repurchase

decisions

Debt Financing Equity Financing

Financial Structure (right hand side)

Capital Structure (Y1)

Asset Structure ROE Retain Earning

(X1) (X2) (X3)

Earning Per Share-EPS (Y2)

Optimal Capital Structure

GRAPH.I


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precise of optimal capital structure level, but to identify whether the choice

and proportion of debt used by firms for its capital structure is optimal or not ,

that the proportion of debt used by firms followed by the increasing of earning

per share-EPS level.

2.3Review Previous research

Review of previous research used a literature to develop the research for

the future need. Several of previous researches used for this research are:

1From the Nunung, Goniyahs analysis (1997) about the capital structure

influence to ROE and earning per share at food and beverages industries

listed at Jakarta Stock Exchange, it stated that:

a.Capital structures positively and influence significantly to ROE.

b.Capital structure positively and influence significantly to ROE

because ROA is greater that Interest debt.

2From the Maryam, Zanariahs analysis (1998) about variables

influenced capital structure and its influence toward ROE at metal

product industry listed at Jakarta stock exchange, it stated that

a.Debt Tax negatively and influence significantly to financing

structure

b.Leverage has positive and influence significant to ROE

c.Interest debt does not influence significantly to ROE.

d.ROA positively and influence significantly to ROE.


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tax variables, increase capital structure variable for 62, 7239%. It

shown that burden tax becomes a consideration for management in

their way to get tax saving from leverage level of return.

e.Retained earning positively but not influence significantly to capital

structures. It shown that firm tend to make dividend payment to

increase stock price for increasing firms value also.

f.Capital structures positively and influence significantly to ROE that

as if other variables remain constant, every 1% change of capital

structures variables, increase ROE variable for 29, 4399%. It shown

that, as if the firms external capital increased, the firms ability to

earn profit using their internal capital also increased.g.Burden tax positively and influence significantly to ROE that as if

other variables remain constant, every 1% change of burden tax

variables will increase ROE variable for 1, 4110%. It is shown that,

when the interest levels increase, firms tend to use their own

internal equity. With a condition that ROE is smaller than interest

level.

h.ROA positively and influence significantly to ROE that as if other

variables remain constant, every 1% change of ROA variables will

increase ROE variable for 95, 3678%. It shown that, firms ROA is

bigger than interest debt, by debt financing, firms able to increase

their ROE level so the firms value can also be increased


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4From the Okky, Andys analysis (2004) about variables influence capital

structure at manufacturing industries listed at Jakarta Stock Exchange for

period of 2000-2003, it stated that:

a.Firm size structures positively and influence significantly to capital

structures that as if other variables remain constant, every 1% change

of firm size variables, increase capital structure variable for 12, 3%.

It shown that even though the bigger the firms size, they tend to

increase the debt proportion used.

b.Business risk negatively and influence significantly to capital


of business risk variables, decrease capital structure variable for-

10,7%.

c.Firm size negatively and influence significantly to capital structures

that as if other variables remain constant, every 1% change of firm

size variables, decrease capital structure variable for 38, 7863%. It

occurs because the bigger the firms size, the more tendency to

decrease the capital structure components especially on the debt

used.

d.Asset structures positively and significantly influence capital


of asset structures variables, increase capital structure variable for 2,

328%.


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e.Profitability positively but not influence significantly to capital

structures.

f.Ownership positively and influence significantly to capital structure

that as if other variables remain constant, every 1% change of

ownership variables, increase capital structure variable for 1, 650%.

2.4Hypothesis Formulation

Hypothesis is temporary answer that still need to be proving its

correctness, and needed to give direction to the writer about what are going to

be done. Based on the theoretical framework above, the hypotheses for this

research are as follows:

1.Asset structure (X1), return on equity / ROE (X2), and retained earning

(X3) simultaneously and positively influence capital structure (Y1) at

manufacturing industries listed at Jakarta Stock Exchange.

2.Asset structure (X1) partially and positively influence capital structure

(Y1) at manufacturing industries listed at Jakarta Stock Exchange.

3.ROE (X2), partially and negatively influence capital structure (Y1) at


4.Retained earning (X3) partially and negatively influence capital structure

(Y1) at manufacturing industries listed at Jakarta Stock Exchange.

5.Capital structure (Y1) simultaneously and positively influence EPS (Y2)

at manufacturing industries listed at Jakarta Stock Exchange.


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6.Capital structure (Y1) partially and positively influence EPS (Y2) at



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CHAPTER III

RESEARCH METHOD

3.1Type Research Method

The study method applied in this research is quantitative descriptive study.

This approach was choosing because the research object has real and concrete

performance.

3.2Research Subject

3.2.1Population and Sample

Population for this research are industries / companies that were listed

( go public ) at Jakarta Stock Exchange from year 2000 until 2003 for 323

companies, using purposive random sampling (one of sampling technique

non probabilistic taken based on research purpose and the writer

consideration criteria) sample taken is 84 manufacturing companies, with

the description in table below

Table I.: Sampling

Using: Purposive Random SamplingCompanies listed at BEJ 323 companies

Non-Manufacturing Companies (168)

Manufacturing Companies 155

Companies listing after Dec,311997 ( 37)

Companies not listing ( 10)

Data error ( 24)

Sample taken 84 companies

.


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Data being used is secondary data that were published by government,

private or other organization ( such As Jakarta Stock Exchange ) in form

of research report, science journals, magazine, Indonesia Capital Market

Directory ( especially for capital structure and other literature that contain

the development of manufacturing industries.). Data gathered using

documentation technique with pooled data type, by this type, amount of

observation is 252 cases that get from number of year (3) observed

multiply by number of sample (84).

3.3Research Setting

The research taken place at Jakarta Stock Exchange, because Jakarta Stock

Exchange as one of the biggest go public firm stock selling in Indonesia.

3.4Research Instrument

The hypotheses tested using Multiple Linear Regression with Recursive

Model. This model was choosing because this research set to identify the

significant of independent variable influence to two dependent variables that

were recursively analyse.

Recursive model for this analysis for this research formulated as follows:

Y1 = 10 + 11X1 + 12X2 + 13X3 + 1t

Y2 = 20 + 21Y1 + 2t


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3.7Technique Data Analysis

Step taken to analysis the regression are as follows:

1.Regress between dependent variable (Y1)-Capital Structure with

independent variables (X1, X2, and X3) Asset Structure, ROE, and

Retained Earning.

a.Test the influence independent variables simultaneously (F-test):

F-test used to figure how far independent variable together influence

dependent variable. Step taken to analysis hypothesis testing to value

variation of dependent variable explained by value variation of

dependent variable as follows:

(1).Determining Hypothesis

Ho: b1, b2, b3 = 0, There is no significant influence Asset

Structure, ROE, and Retained Earning to capital structure

Ha; b1, b2, b3 0, There is significant influence Asset Structure,

ROE and Retained Earning to capital structure

(2).Determining F-table, with 5% significant level

(3).Determine F-Statistic

r2

( n 1 k )F statistic =

K ( 1 r2 )

(4).Decision making criteria

If; F Statistic > F table, reject Ho

If; F statistic < F table, Ho accepted

( Algifari 1997, 59 )


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(5).Accepted / rejected area

(6).Determining Conclusion

b.Test to the coefficient regression ( T-Test )

This test is to find out how far the significant each of independent

variables to dependent variables. In this test involve several steps,

those are:

(1).Determining Hypothesis for each variables :

(a).Ho; b1 = 0, there is no influence of asset structure to capital

structure

Ha; b1 0, there is influence of asset structure to capital

structure

(b).Ho; b2 = 0, there is no influence ROE to capital structure

Ha; b2 0, there is influence ROE to capital structure

(c).Ho; b4 = 0, there is no influence of retained earning to capital

structure

Ha; b4 0, there is influence of retained earning to capital

structure

(2).Determining T table, with 5% significant level


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(3).Determining T statistic using formula

r n 1 kT statistic =

1 r2

Where

T statistic = statistic test

r = product prouct moment coefficient

n = number of sample

k = number of variable X


If; T statistic > T table, Ho reject

If; T statistic < T table, Ho accepted



c.Measurement Percentage influence all independent variables

Percentage influence of all independent variables to dependent

variable can be figure out through determinant coefficient ( R

squared / R2 ). The number of coefficient determination come from 0

until 1, close to 0 it mean : smaller the influence of all independent


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variables to dependent variable and close to 1 mean : bigger

influence of independent variables to dependent variable.

d.Classical Assumption Test

In theoretically, model used in this research will result a good

parameter value of hypothesis model as if already acquired for the

classical assumption those are multicollinearity, heteroscedasticity,

and auto correlation. (Santoso, 2000; 30)

(1).Multicollinearity

Test to figure out whether in regression, there is a correlation

between independent variable, as if there were a correlation so

there will be a multi co linearity problem.

Multicollinearity use to find out the perfect linear relationship

of neither some nor all independent variables inside of

regression model used. As if the level of correlation < 90 %, so

there is no multicollinearity problems.

(2).AutoCorrelation

Auto correlation use to find out whether there is a correlation

between sample yang diurutkan based on time. The

consequences of the auto correlation existences inside of

regression model is the sample variance could not describe

populations variance, so the regression model can not use to

predict dependent variable value at independent variable value.


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Ho ; Y1 = 0 , there is no influence capital structure to earning

per share

Ha ; Y1 0 , there is influence of capital structure to earning

per share

(2).Determining T table, with 5% significant level

(3).Determining T statistic using formula

r n 1 k

T statistic =

1 r2

Where

T statistic = statistic test

r = product prouct moment coefficient

n = number of sample

k = number of variable X




(5).accepted / rejected area



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CHAPTER IV

RESEARCH FINDINGS, DISCUSSION, AND IMPLICATIONS

4.1Research Description

In this research, data analyzed using multiple linear regression analysis

with recursive model. This model chosen because this research set to identify

the significant of independent variable influence to two dependent variables

that were recursively analyse that is to figure out the influence of Assets

Structure, ROE and R/E to Capital Structure and its influence toward to EPS.

Data analyzed helped using SPSS.11 version.

323 companies listed at Jakarta Stock Exchange from January 2000 until

December 2003 are the population for this research. 84 samples taken using

purposive random sampling (sampling technique non-probabilistic taken

based on research purpose and the writer consideration criteria). Some criteria

used are classification of manufacturing and non-manufacturing companies,

listing date and data error. Data gathered using documentation method (data

gathered from firms prospectus and other literature support for this research)

and data take from Jakarta Stock exchange at Islamic University of Indonesia.

Then data tabulated to make easier in data processing.


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The result of regression analysis using SPSS 10.0 version are as follows:

Table II.

Regression Analysis of X variables to Y1 variable

Variables Coeff. Regression Stand. Coeff. Beta Sig. t

X1 0,155 0.001 0,040*

X2 - 6,623 0.973 56,001*

X3 - 7,730 - 0.038 - 2,189*

Intercept 2,688 1.943*

F. significant = 1369,864

R. squared = 0.982

Where:

X1 = Asset Structure

X2 = Return On Equity-ROE

X3 = Retained Earning-R/E

* = Significant at = 0, 05 or at level 5 %

From table above, the multiple linear regressions stated as follow:

Y1 = 2.688 + 0.155X1 - 6.623X2 7,730X3 + 1t(1).Coefficient Asset Structure (X1)

Asset Structure (X1) has a positive sign of multiple coefficient

regression for 0,155. It means, as if the others coefficient multiple

regression variables remain constant, the changes of asset structure

variable for 1% will increase the capital structure variables for

0,155 (or 15,5%).

From analyzed data, the changes of asset structure followed by

capital structure increasing. It is show that firms have a bigger

amount of asset so they tend to use debt financing. It occurs


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because firms might use their asset as debt collateral to get debt

financing. In his research, K.H, Kees (1993) stated that firms with

a bigger asset structures, have a tendency to use a bigger debt

(especially long-term debt) for its financing activity.

(2).Coefficient Return On Equity-ROE (X2)

Coefficient Return on Equity-ROE (X2) has a negative sign of

multiple coefficient regression for -6.623. It means, as if the other

coefficient regression value variables remain constant, the changes

of Return on Equity-ROE variable for 1% will cause the decreasing

of the capital structure variable for 6.623 (or 66,23%).

From analyzed data, the ROE changes followed by the capital

structure decreasing. It is show that profit earn by firms increased

by the equity financing rather than debt financing or in other word,

firms tend to use their equity rather debt for its capital structure to

finance its activity.

(3).Coefficient Retained Earning-R/E (X3)

Coefficient Retained Earning (X3) has a negative sign of multiple

coefficient regression for -7,730. It mean, as if the others

coefficient regression variables remain constant, the changes of

Retained Earning (X3) variables for 1% will cause the decreasing

of the capital structure variable for 7,730 (or 77,30%).


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From analyzed data, the R/E changes followed by the capital

structure decreasing. It is show that when the percentage of profit

stated as retained profit is bigger, the dividend payout ratio is

smaller, and then it will increase their own equity and finally will

effect on the capital structure decreasing, because a firm have a

tendency to use internal fund resources rather using debt. In his

theory, Agus.R (1998) stated that as if a firm choose to retain their

profit earning rather use it to pay dividend, then the capabilities to

form internal fund (equity) is getting bigger.

(4).Constant ( )

Constant is 2.688. It mean that, as if the other variables-asset

structure (X1), Return on Equity (X2), and Retained Earning (X3)

remain constant or equal to zero, the capital structure will increase

for 2,688 or (26,88%)..

From analyzed data, as if firms internal sources remain zero

(retained earning = 0) and firms capability to earn profit using

own equity remain zero (ROE = 0), firm will chose to use their

external fund resources (debt financing) as an optional for their

operational activity also earn profit.

2.F-Test Analysis

aDetermining Hypothesis

Ho: b1, b2, b3 = 0, There is no significant influence Asset Structure,

ROE, and Retained Earning to capital structure


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Ha; b1, b2, b3 0, There is significant influence Asset Structure, ROE

and Retained Earning to capital structure

bDetermining F-table, with 5% significant level

cDetermine F-Statistic

r2 ( n 1 k )

F statistic =

K ( 1 r2 )

dDecision making criteria

If; F Statistic > F table, reject Ho

If; F statistic < F table, Ho accepted

( Algifari 1997, 59 )

eAccepted or rejected area

Graph.1I

f Determining Conclusion

Based on the multiple linear regression result in Table I, can be seen that

F - Statistic (1369,864) > F - Table (2,76) and p (0,000) < 0,05. It mean

that Ho is rejected and Ha is accepted or in other word that at

manufacturing companies ,simultaneously the assets structure, ROE and

retained earning variables influence significantly to capital structure.


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3.T-Test Analysis

aInfluence Assets Structure (X1) to Capital Structure (Y1) :

(1).Determining the hypothesis

Ho; b1 = 0, there is no influence of asset structure to capital

structure

Ha; b1 0, there is influence of asset structure to capital structure

(2).Determining T table ( 5%, df = 77) = 1,66 and T statistic = 0,040




(4).Accepted or rejected area

Graph.1II


Because of T-tab (-1,66) < T-stat (0,040) < T-tab (+ 1,66), and p

(0,968) > 0, 05 (5%), it means that Ho is accepted and Ha is

rejected or in other word that at manufacturing companies, partially

the assets structure variable do not significantly influence to capital

structure.


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bInfluence Return On Equity (X2) to Capital Structure (Y1)


Ho; b2 = 0, there is no influence ROE to capital structure

Ha; b2 0, there is influence ROE to capital structure

(2).Determining T table ( 5%, df = 77) = 1,66 and T statistic = 56,001





Graph.1V


Because of T-stat (56,001) > T-tab (1, 66) and p (0,000) < 0, 05

(5%), it means that Ho is rejected and Ha is accepted or in other

word that at manufacturing companies , partially the ROE variable

influence significantly to capital structure.

c Influence Retained Earning (X3) to Capital Structure (Y1)


Ho; b4 = 0, there is no influence of retained earning to capital

structure


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Ha; b4 0, there is influence of retained earning to capital structure

(2).Determining T table, ( 5%, df = 68) = 1,66 and T statistic = - 2,189





Graph. V


Because of T-stat (-2,189) > T-tab (-1, 67) and p (0,032) < 0, 05

(5%), it means that Ho is rejected and Ha is accepted or in other

word that at manufacturing companies , partially the R/E variable

influence significantly to capital structure variable.

4.Multiple Linear Correlation

a.Correlation Coefficient and coefficient Determinant

From Table I, it is show that the value of coefficient determination (R

square or R2) is 0.982. It is show that 98,2 % variation of Capital

Structure determined by t he existence of asset structure, return on equity

(ROE) and retained earning (R/E) and another 0,018 or 1,8 % variation


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of capital structure determined by another factors (beside capital

structure, ROE and R/E).

5.Classical Assumption Test

aMulti-co-linearity Test

Using SPSS 11.00 version, the multi-co-linearity test result can be seen

in this table below:

Table III

Multicolinaerity Test Result

Model Collinearity Statistic

Tolerance VIF

Constant

Assets Structure 0,996 1.004

Return On Equity 0,792 1,263

Retained Earning 0,789 1,268

Data observed do not contain multi-co-linearity problem as if the value

of VIF < 10 and Tolerance value 1


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the normality assumption and there is no multicollinmearity,

autocorrelation and heteroskedasity problem, so this regression model

deserved to use.

4.2.2 Second Step of Analysis

The second step analysis is regress the influence of capital structure

variables to earning per share variable

1.Quantitative Analysis

aSimple Linear Regression

For this second step of analysis, a simple regression linear used to find

out relation pattern between one independent variable to one dependent

variable. The main purpose of this regression analysis to predict value of

dependent variable as if other variable that related to it already

determined. The second linear regression model for capital structure (Y1)

to Earning Per Share (Y2) are as follows:

Y2 = 10 + 11Y1 + 1tWhere:

Y2 = dependent variable- Earning Per Share (EPS)

10 = Intercept

Y1 = Capital Structure

1t = error term


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using equity nor totally published stocks without any consideration

using debt.

(2).Constant ( )

Constant for - 33,267 mean that when the capital structures (Y1)

remain constant or equal to zero, so the earning per share will

decrease for 33,267. The firms earning per share decrease because

firms do not involved the used of debt where the use of debt will

give tax deductible for firms then the value of earning per share

become bigger rather using equity totally.

2.T-Test Analysis

aInfluence Capital structure (Y1) to Earning Per Share (Y2) :


Ho; b1 = 0, there is no influence of Capital structure (Y1) to

Earning Per Share (Y2)

Ha; b1 0, there is influence of Capital structure (Y1) to Earning

Per Share (Y2).

(2).Determining T table ( 5%, df = 78) = 1,66

T statistic = -6,730.





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Graph.VI


Because T-stat (-6,730) > T-tab (-1,66), and p (0,000) < 0, 05 (5%),

it can be concluded that Ho rejected and Ha accepted, or in other

words that there is significant influence of capital structure variable

(Y1) to earning per share (Y2).

3.Multiple Linear Correlation

a.Correlation Coefficient and coefficient Determinant

From Table V shows that the value of coefficient determination (R-

square / R2) is 0.367 which show that 36,7 % variation of Earning Per

Share determined by the existence of capital structure variable. And

another 0,633 or 63,3% variation of earning per share determined by

another factors (beside capital structure).


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4.3Research Findings

4.3.1 First Step of Analysis Findings

In first step of analysis, the writer observed an influence of independent

variables (assets structure, return on equity-ROE, and retained earning-

R/E) to dependent variable (capital structure), then the result of analysis

are:

1.Based on F-test of Analysis

Based on F-test analysis, found that F-statistic (1369,864) > F-table (2,76)

and p (0,000) < 0,05, it means that Ho is rejected and Ha is accepted. At

manufacturing companies, simultaneously the independent variables-

Assets Structure (X1), Return on Equity (X2) and Retained Earning (X3)

significantly influence the dependent variable-Capital Structure (Y1).

2.Based on T-test and Partial Correlation of Analysis

a.The T-test of Asset Structure to Capital Structure found that :

T-stat (0,040) < T-tab (+1,66), and p (0,968) > 0,05 (5%), it can be

concluded that Ho accepted and Ha rejected, or in other words that

there is no significant influence of asset structure variable (X1) to

capital structure.

b.The T-test of Return On Equity to Capital Structure found that :

T-stat (56,001) > T-tab (1,66), and p (0,000) < 0,05 (5%), it can be

concluded that Ho rejected and Ha accepted or in other words that

there is a significant influence of return on equity variable-ROE (X2)

to capital structure.


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c.The T-test of Retained Earning to Capital Structure found that :

T-tab (-2,189) >T-tab (-1, 66), and p (0,032) < 0,05 (5%), it can be

concluded that Ho rejected and Ha accepted, or in other words that

there is significant influence of retained earning variable-R/E (X3) to

capital structure.

4.3.2 Second Step of Analysis Findings

In second step of analysis, the writer observed an influence of independent

variable (capital structure) to dependent variable (Earning Per Share). The

analysis results are:

1.Based on T-test and Partial Correlation of Analysis

a.The T-test of Capital Structure to Earning Per Share found that :

T-Statistic (-6,730) > T-Table (-1,66), and p (0,000) < 0,05 (5%), it can

be concluded that Ho rejected and Ha accepted, or in other words that

there is significant influence of capital structure variable (Y1) to

Earning Per Share.

4.4Implications

4.4.1 Capital Structure

Asset structure positively and significantly influence to capital

structure. This shows that changes of asset structures followed by the

capital structure changes. This considered in memorising that the

decreasing of asset structure followed by the decreasing capital structure

and the increasing asset structure followed also by the increasing of capital

structure. Therefore, the debt increasing that directed to the increasing


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increasing shareholder value using their own equity but tend to use debt as

firms financing. When R/E remain constant or zero, it means firms not

retain their profit earn to be re-invested then internal fund resources is

smaller. Because the internal fund resources is smaller, the firms chose to

used external fund resources (debt) for its financing activities

4.4.2 Earning Per Share (EPS)

Capital structure has a positive sign parameter and significantly

influence to Earning Per Share. This show that the changes capital

structure followed by the changes EPS, mean that the proportion debt use

by firms able to increase firms EPS, it might be that firms get tax

deductible from the interest payment so the value of EPS is bigger rather

firms use only or more tends to equity

However, when capital structures remain constant or zero, Earning per

Share has a negative sign parameter. This show that firms tend to use

equity to debt or the proportion debt already used by firm unable to

increase the value of earning per share. When the EPS value increases, it is

one indication that the capital structure own by firms is optimal or optimal

capital structure where the value of firms maximized.

Companies should consider for the increasing of capital structure

component, especially the financing using debt. The best proportion use

between debt and equity might give an increasing the EPS value and firm

get benefit from interest payment as firms tax deductible or as their tax

saving.


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CHAPTER V

CONCLUSIONS AND RECOMMENDATIONS

5.1 Conclusions

From analysis result been described in chapter before can give a conclusion as

follows:

1First step regression analysis between independent variable (asset

structure-X1, ROE-X2 and Retained Earning-X3) to dependent variable

(capital structure-Y1) result :

Y1 = 2.688 + 0.155X1 - 6.623X2 7,730X3 + 1tDefine that

a.Asset Structure (X1) has a positive sign of multiple coefficient

regression for 0,155. It means that as if the others coefficient multiple

regression variables remain constant (not change), the changes of asset

structure variable for 1 % will increase the capital structure variables

for 0,155 (or 15,50%).

b.Coefficient Return On Equity (X2), has a negative sign of multiple

coefficient regression for -6.623, it means that as if the other

coefficient regression value variables remain constant, so the changes

of return on equity variable for 1% will cause the decreasing of the

capital structure for 6.623 (or 66,23%).

c.Coefficient Retained Earning (X3) has a negative sign of multiple

coefficient regression for -7,730, it means that when the others


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coefficient regression variables remain constant, so the changes of

Retained Earning (X3) variables for 1 % will cause the decreasing of

capital structure for 7,730 (or 77,30%).

From those result figured that firms have a tendency using the internal

fund resources (equity) rather using external fund resources (debt). It

indicated by the increasing ROE where ROE is firms capability to earn

profit using equity, and the increasing of R/E where firms have a tendency

to retain their earning so the opportunities to make an internal fund

resources is bigger.

2In Table II, can be seen that F - Statistic (1955, 066) > F - Table (2,37) and

p (0,000) < 0,05, simultaneously the assets structure, ROE and retained

earning variables influence significantly to capital structure. ROE partially

influence to capital structure (T-stat;30,770 > T-tab ;1, 67 and p;0,000 < 0,

05 ), and Retained Earning partially influence capital structure (T-stat; -

5,107 > T-tab;-1, 67 and p;0,000 < 0, 05)

3In Table II, show that the value of coefficient determination (R-square or

R2) is 0.982 mean 98,2 % variation of Capital Structure determined by the

existence of asset structure, return on equity (ROE) and retained earning.

And another 0,012 or 1,2% variation of capital structure determined by

another factors (beside capital structure, ROE and R/E).

4Second step regression analysis between independent variable (capital

structure-Y1) to dependent variable (Earning Per Share-Y2) result :

Y2 = - 33,267 + 3,825Y1 + 1t


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a.Capital structure (Y1) has a positive sign of multiple coefficient

regression for 4,443. It means that as if the changes of capital structure

variable for 1 % will increase the Earning Per Share variables for

4,443 (or 44,43%).

From those result figured that based on EPS analysis, firms capital

structure not optimal yet because when the capital structure remain

constant or zero, EPS decrease for 33,267. It mean that the proportion debt

use by firm not able to increase the value of EPS, theres no maximize get

from tax deductible get from interest payment by firms.

5In Table VI,. Capital structure partially influence to EPS (T-stat;-9,775 >

T-tab;1, 67 and p;0,000 < 0, 05 ).

6 In Table VI, it show that the value of coefficient determination (R-square

/ R2) is 0.577 mean 57,7 % variation of EPS determined by the existence

of capital structure another 0,423 or 42, 3 % variation of EPS determined

by another factors (beside capital structure).

5.2 Recommendation

This research result hoped can give recommendation for them who read this

research. The contributions they can get are:

1.The owners and Management side

Companies should consider for the best proportion between debt equity

use so an optimal capital structure reached where WACC minimized and

value firms maximized. Companies should consider the use debt rather


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BIBLIOGRAPHY

Horne, Van, C.J. (1995) Financial Management and Policy, Tenth Edition,

Prentice Hall, International Edition, New Jersey.

Horne, Van, C.J. (1995) Financial Management and Policy, Twelfth Edition,

Prentice Hall, International Edition, Upper Saddle River,New Jersey.

Brealy, Richard A. and Steward, C. Myers (1991) Principles of Corporate

Finance, Fourth Edition, Richard D.Erwin, Inc.

Eugene F, Brigham ; Louis C, Gapenski ; Philip R, Daves ( 2000 ) IntermediateFinancial Management, Sixth Edition, Prentice Hall, International Edition,

New Jersey..

Eugene f, Brigham ; Joel F, Houston ( 1998 ), Fundamentals Of Financial

Management, Eight Edition, The Dryden Press, Harcourt Brace College

Gerald I, White ; Ashwinpaul C, Sondhi, Dov, Fried ( 1998 ), The Analysis And

Use of Financial Statements, Second Edition, John Wiley & Sons.Inc

Subardi Agus ( 1994 ), Manajemen Pendanaan, Jilid 2, first edition, Upp Amp

YKPN, Yogjakarta

Napa, I.A. dan Mulyadi P.S. (1996) Keputusan Keputusan Pendanaan

Perusahaan (Teori dan Hasil Pengujian Empirik), Second edition,

Liberty, Yogyakarta

R., Agus, Sartono (1998) Manajemen Pendanaan Teori dan Aplikasi, Third

edition, BPFE, Yogyakarta.

S.Nasution(1996), Metode Research: Penelitian Ilmiah, First edition, Bumi

Aksara, Jakarta

Alfigari,(1997),Analisis Regresi, First Edition,BPFE, jogjakarta

Weston, J.F. and Brigham, U. F. (1994) Dasar- Dasar Manajemen Pendanaan,

Seventh edition , Erlangga, Jakarta.

Weston, J.F. dan Copland, T.E. (1997) Manajemen Pendanaan, Ninth edition,

Bina Rupa Aksara, Jakarta.

Maski,Ghozali and Idrus, M.S (1999), Analisis Variabel-Variabel Yang

Mempengaruhi Struktur Pendanaan Dan Pengaruhnya Bersama Beban


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Bunga, Return On Asset Terhadap Rentabilitas Modal Sendiri Pada

Perusahaan Food And Bavarage Yang Go Publik Di Indonesia Periode

1995-1997, Thesis, Universitas Brawijaya Malang.


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APPENDICE


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First Step Regression Analysis

Variables Entered/Removedb

R/E, Asset

structure,

ROEa

, Enter

Model1

Variables

Entered

Variables

Removed Method

All requested variables entered.a.

Dependent Variable: Capital Struct.b.

Model Summaryb

,991a ,982 ,981 5,31137 2,013

Model1

R R Square

Adjusted

R Square

Std. Error of

the Estimate

Durbin-W

atson

Predictors: (Constant), R/E, Asset structure, ROEa.


ANOVAb

115934,2 3 38644,726 1369,864 ,000a

2172,218 77 28,211

118106,4 80

Regression

Residual

Total

Model1

Sum ofSquares df Mean Square F Sig.

Predictors: (Constant), R/E, Asset structure, ROEa.


Coefficientsa

2,688 1,384 1,943 ,056

,115 2,878 ,001 ,040 ,968 ,996 1,004

-6,623E-02 ,001 ,973 56,001 ,000 ,792 1,263

-7,73E-07 ,000 -,038 -2,189 ,032 ,789 1,268

(Constant)

Asset structure

ROE

R/E

Model1

B Std. Error

Unstandardized

Coefficients

Beta

Standardi

zed

Coefficien

ts

t Sig. Tolerance VIFCollinearity Statistics

Dependent Variable: Capital Struct.a.


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TABEL DURBIN WATSON

Level of Significance = 0,05p -1=1 p -1= 2 p -1= 3 p -1= 4 p -1= 5

ndL dU dL dU dL dU dL dU dL dU

15 1.08 1.36 0.96 1.54 0.82 1.75 0.69 1.97 0.56 2.21

16 1.10 1.37 0.98 1.54 0.86 1.73 0.74 1.93 0.62 2.1517 1.13 1.38 1.02 1.54 0.90 1.71 0.78 1.90 0.67 2.10

18 1.16 1.39 1.05 1.53 0.93 1.69 0.82 1.87 0.71 2.06

19 1.20 1.40 1.08 1.53 0.97 1.68 0.86 1.85 0.75 2.0220 1.22 1.41 1.10 1.54 1.00 1.68 0.90 1.83 0.79 1.99

21 1.24 1.42 1.13 1.54 1.03 1.67 0.93 1.81 0.83 1.9622 1.26 1.43 1.15 1.54 1.05 1.66 0.96 1.80 0.86 1.94

23 1.27 1.44 1.17 1.54 1.08 1.66 0.99 1.79 0.90 1.9224 1.30 1.45 1.19 1.55 1.10 1.66 1.01 1.78 0.93 1.90

25 1.32 1.45 1.21 1.55 1.12 1.66 1.04 1.77 0.95 1.89

26 1.33 1.46 1.22 1.55 1.14 1.65 1.06 1.76 0.98 1.88

27 1.34 1.47 1.24 1.56 1.16 1.65 1.08 1.76 1.01 1.8628 1.35 1.48 1.26 1.56 1.18 1.65 1.10 1.75 1.03 1.85

29 1.36 1.48 1.27 1.56 1.20 1.65 1.12 1.74 1.05 1.8430 1.37 1.49 1.28 1.57 1.21 1.65 1.14 1.74 1.07 1.83

31 1.38 1.50 1.30 1.57 1.23 1.65 1.16 1.74 1.09 1.8332 1.39 1.50 1.31 1.57 1.24 1.65 1.18 1.73 1.11 1.82

33 1.40 1.51 1.32 1.50 1.26 1.65 1.19 1.73 1.13 1.81

34 1.41 1.51 1.33 1.58 1.27 1.65 1.21 1.73 1.15 1.8135 1.42 1.52 1.34 1.58 1.28 1.65 1.22 1.73 1.16 1.80

36 1.43 1.52 1.35 1.59 1.29 1.65 1.24 1.73 1.18 1.80

37 1.44 1.53 1.36 1.59 1.31 1.65 1.25 1.72 1.19 1.8038 1.45 1.54 1.37 1.59 1.32 1.66 1.26 1.72 1.21 1.79

39 1.46 1.54 1.38 1.60 1.33 1.66 1.27 1.72 1.22 1.7940 1.47 1.54 1.39 1.60 1.34 1.66 1.29 1.72 1.23 1.79

45 1.48 1.57 1.43 1.62 1.38 1.67 1.34 1.72 1.29 1.7850 1.50 1.59 1.46 1.63 1.42 1.67 1.38 1.72 1.34 1.77

55 1.53 1.60 1.49 1.64 1.45 1.68 1.41 1.72 1.38 1.77

60 1.55 1.62 1.51 1.65 1.48 1.69 1.44 1.73 1.41 1.7765 1.57 1.63 1.54 1.66 1.50 1.70 1.47 1.73 1.44 1.77

70 1.58 1.64 1.55 1.67 1.52 1.70 1.49 1.74 1.46 1.7775 1.60 1.65 1.57 1.68 1.54 1.71 1.51 1.74 1.49 1.7780 1.61 1.66 1.59 1.69 1.56 1.72 1.53 1.74 1.51 1.77

85 1.62 1.67 1.60 1.70 1.57 1.72 1.55 1.75 1.52 1.7790 1.63 1.68 1.61 1.70 1.59 1.73 1.57 1.75 1.54 1.78

95 1.64 1.69 1.62 1.71 1.60 1.73 1.58 1.75 1.56 1.78100 1.65 1.69 1.63 1.72 1.61 1.74 1.59 1.76 1.57 1.78

p-1 =Number of independent variables

Sumber : Hanke (1998:549)


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analysis an asset structure

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