THE INFLUENCE OF TIME INTEREST EARNED AND PROFITABILITY TOWARDS CAPITAL STRUCTURE (Study Case of PT. Bank Mandiri (Persero) Tbk Period 2009-2012)

By

Eri Rahman

014200900045

A thesis presented to the

Faculty of Economics President University

in partial fulfillment of the requirement for

Bachelor Degree in Economics Major in Management

March 2013

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i

THESIS ADVISOR

RECOMMENDATION LETTER

This thesis entitled “THE INFLUENCE OF TIME INTEREST EARNED

AND PROFITABILITY TOWARDS CAPITAL STRUCTURE STUDY CASE

OF PT. BANK MANDIRI (PERSERO) TBK PERIOD 2009-2012” prepared and

submitted by Eri Rahman in partial fulfillment of the requirements for the degree

of Bachelor Degree in the Faculty President University has been reviewed and found

to have satisfied the requirements for a thesis fit to be examined. I therefore recommend

this thesis for Oral Defense.

Cikarang, Indonesia, January 31St, 2013

Acknowledge By Recommended by,

Irfan Z Habsjah, MBA, CMA Purwanto ST, MM Head of Management Study Program Thesis Advisor

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PANEL OF EXAMINERS APPROVAL SHEET

The Panel of Examiners declare that the thesis THE INFLUENCE OF TIME

INTEREST EARNED AND PROFITABILITY TOWARDS CAPITAL

STRUCTURE IN PT. BANK MANDIRI (PERSERO) TBK PERIOD 2009-2012

that was submitted by Eri Rahman majoring in Banking and Finance from the Faculty of

President University was assessed and approved to have passed the Oral Examinations

on March 4th 2013

Drs. Bruno Rumyaru MA Chair - Panel of Examiners

Irfan Z Habsjah, MBA, CMA Examiners I

Iman Heru Wijayanto, MBA Examiners II

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ABSTRACT

Company in determining the capital structure of corporate funds filled by two factors: it’s by own capital (equity) or by foreign capital (debt) that must be consider several factors. Here Time Interest Earned and Profitability are two from several factors that researcher use to determine the influence of the management of the company in determining the decision company in Capital Structure proportion. This study aims to determine the influence of Time interest earned and Profitability towards Capital Structure in Banking Sectors (Case Study PT. Bank Mandiri Persero Tbk Period 2009-2012). PT. Bank Mandiri (Persero) Tbk selected because become a bank that have large influence and have biggest asset in period January 2009 – 2012. This study used a sample of PT. Bank Mandiri (Persero) Tbk as a bank that will be examined in side of Capital Structure and Variables that influence it. Variables that used are Times Interest Earned and Profitability as Independent Variables then Capital Structure used as Dependent Variable in this research. This study use Multiple Regression Analysis to see and interpret the result, whether there are contributions of each Variable individually and simultaneously to Capital Structure. The result of this research is accepted the Ha Hypothesis, which means that all Independent Variable individually and Simultaneously give influence to Capital Structure of PT. Bank Mandiri (Persero) Tbk Period 2009 – 2012.

Keywords: Capital Structure, Time Interest Earned, Profitability

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ACKNOWLEDGEMENT

First of all, I would like to thank God Allah SWT for all the blessing and guidance all

also to Prophet Muhammad SAW, that make researcher can complete the thesis

entitled “THE INFLUENCE OF TIME INTEREST EARNED AND

PROFITABILITY TOWARD CAPITAL STRUCTURE STUDY CASE PT. BANK

MANDIRI (PERSERO) TBK PERIOD 2009 – 2012” very well, both morally and

spiritually. And not forget researcher want to say many thanks to:

1. My beloved parents, Hj. Emi and H. Rusman, who have fought hard to

support and prayed for me, moral guidance and endless trust in every step and

decision that taken by me over the years, until I can complete my studies at

President University.

2. My brother Eman Sulaeman, his wife Wati and my nephew Dicky Aditya

Nugraha thanks for your kindness, attention and support during my study.

3. Mr Purwanto ST, MM and Mr Iman Heru Wijayanto MBA, as my advisor in

this study that has given me a lot of time and attention to give me guidance

and direction during the preparation process of this thesis.

4. My beloved friends of SMA Plus Astha Hannas, Mulya, Andriyansyah, Deni

OP, Tommy WW, M Irvan T, Asep SH, Septira TSS, Dewi W, Devi WA, Lia

Y, Laela N, Diana PH, Rinda HP, Iskandar, MH Rijal, Sumarno H, Novia S,

Brillian C, Siska B, Edwin H, Gery F, Dede AW and all of SMA Plus Astha

Hannas Member that I can’t mention one by one thanks for this togetherness

and spirit of kinship.

5. Special thanks to my best friends Rendy Martindo Y, M Yogi Rahardi, M

Iqbal H, Tedy Rianto LG, Z Angga Winata, Alfian F, Agil T, Giannie Abdu,

Antonius T for their kindship to accompanying me during education process

and support me to being able to finish this thesis.

6. All who have been supported me direct and indirectly, thanks for the support

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TABLE OF CONTENT

Table of Contents THESIS ADVISOR ....................................................................................................... i

RECOMMENDATION LETTER .................................................................................. i

PANEL OF EXAMINERS APPROVAL SHEET ........................................................ ii

ABSTRACT ................................................................................................................ iii

ACKNOWLEDGEMENT .......................................................................................... iv

TABLE OF CONTENT .............................................................................................. vi

LIST OF TABLES ....................................................................................................... x

LIST OF FIGURES .................................................................................................... xi

CHAPTER I INTRODUCTION ....................................................................................................... 1

1.1 Background of the Study ................................................................................ 1

1.2 Company Profile ............................................................................................. 3

1.2.1 PT. Bank Mandiri (Persero) Tbk ............................................................. 3

1.2.2 Vision: ..................................................................................................... 3

1.2.3 Company’s Achievement: ....................................................................... 4

1.3 Problem Identified .......................................................................................... 5

1.4 Statement of Problem ..................................................................................... 5

1.5 Research Objective ......................................................................................... 6

1.6 Significance of the Study ............................................................................... 6

1.7 Theoretical Framework .................................................................................. 7

1.8 Scope and Limitations of the Study ............................................................... 8

1.9 Assumptions and Hypothesis ......................................................................... 8

1.10 Definitions of Terms ...................................................................................... 9

CHAPTER II LITERATURE REVIEW........................................................................................... 10

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2.1 LITERATUR REVIEW ............................................................................... 10

2.1.1 Bank ...................................................................................................... 10

2.1.2 Capital Structure.................................................................................... 12

2.1.3 Sources of Capital Structure ................................................................. 12

2.1.4 Financial Ratios ..................................................................................... 13

2.1.5 Static Trade off Theory ......................................................................... 14

2.1.6 Factors that influence Capital Structure ................................................ 15

CHAPTER III RESEARCH METHODOLOGY ............................................................................... 21

3.1 Research Method .......................................................................................... 21

3.2 Research Framework .................................................................................... 22

3.3 Research Time and Place ............................................................................. 25

3.4 Research Instrument ..................................................................................... 25

3.4.1 Method of Data Collection .................................................................... 25

3.4.2 Instrument for Data Analysis ................................................................ 26

3.5 Sampling Design .......................................................................................... 27

3.5.1 Sampling Technique.............................................................................. 28

3.5.2 Statistical Treatment.............................................................................. 28

3.6 Assumption and Hypothesis ......................................................................... 29

3.7 Classical Assumption Test ........................................................................... 29

3.7.1 Normality Test ...................................................................................... 29

3.7.2 Heterocedasticity Test ........................................................................... 30

3.7.3 Multicolinearity Test ............................................................................. 30

3.7.4 Autocorrelation Test.............................................................................. 31

3.8 Multiple Regression Analysis....................................................................... 32

3.9 Testing Hypothesis ....................................................................................... 33

3.9.1 Correlation Coefficient (R) ................................................................... 33

3.9.2 Coefficient of Determination (R2) ......................................................... 34

3.9.3 F Test ..................................................................................................... 34

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3.9.4 T Test .................................................................................................... 35

3.10 Limitation of Study ...................................................................................... 36

CHAPTER IV ANALYSIS OF DATA AND INTERPRETATION OF RESULT ........................... 37

4.1 Analysis of Data Collection ......................................................................... 37

4.1.1 Capital Structure.................................................................................... 37

4.1.2 Time Interest Earned ............................................................................. 40

4.1.3 Profitability ........................................................................................... 42

4.2 Descriptive Statistic of Variables ................................................................. 44

4.3 Classical Assumption Test Result ................................................................ 45

4.3.1 Normality Test ...................................................................................... 45

4.3.2 Multicollinearity Test ............................................................................ 48

4.3.3 Heterocedasticity Test ........................................................................... 49

4.3.4 Autocorrelation Test.............................................................................. 50

4.4 Multiple Regression Analysis....................................................................... 51

4.5 Model Testing ............................................................................................... 53

4.5.1 Coefficient Correlation (R) ................................................................... 53

4.5.2 Coefficient Determination (R2) ............................................................. 53

4.5.3 F-Test .................................................................................................... 54

4.5.4 T-Test .................................................................................................... 55

4.6 Results Interpretation ................................................................................... 57

4.6.1 The Influence of Time Interest Earned (X1) towards Capital Structure (Y) 57

4.6.2 The Influence of Profitability (X2) towards Capital Structure (Y) ....... 58

4.6.3 The Influence of Time Interest Earned (X1) and Profitability (X2) towards Capital Structure (Y) .............................................................................. 58

CHAPTER V CONCLUSION AND RECOMMENDATION ......................................................... 60

5.1 Conclusion .................................................................................................... 60

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5.2 Recommendation .......................................................................................... 62

5.2.1 Recommendation................................................................................... 62

REFERENCES ........................................................................................................... 64

APPENDICES ........................................................................................................... 66

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LIST OF TABLES

Table 3.1 Interpretation for Correlation Coefficient ………………………………..33

Table 4.1 Capital Structure of PT. Bank Mandiri (Persero) Tbk Periods 2009-2011………...............................................................................................................39

Table 4.2 Time Interest Earned of PT. Bank Mandiri (Persero) Tbk Periods 2009-2011……………………………………………………………………………….…41

Table 4.3 Profitability of PT. Bank Mandiri (Persero) Tbk Periods 2009-2011………………………………………………………………………….………43

Table 4.4 Descriptive Statistics of Independent Variable …………………………………………………...………………………….…….…44

Table 4.5 Non Parametic Kolmogorov Smirnov Test………………………………………………..………………… …….………..47

Table 4.6 Tolerance and VIF Value………………………………………..……….…………….……………….. 48

Table 4.7 Durbin Watson Test…….……………………………………………………………………….……51

Table 4.8 Multiple Regression Analysis Result……………………………………..………………………… ……….…….. 51

Table 4.9 Coefficient Correlation (R) and Determination (R2) Test Result……………………………………………………………………..…..……...53

Table 4.10 F-Test Result………………………………………………………………………..… …....55

Table 4.11 T-Test Result………………………………………………………………………..……….56

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LIST OF FIGURES

Figure 1.1 Research Framework………………………………………….………..….7

Figure 1.2 Asumption Framework………………………………………………..…..7

Figure 3.1 Research Framework……………………………………………………..23

Figure 4.1 Capital Structure of PT. Bank Mandiri (Persero) Tbk Periods 2009-2011………………………………………………………………………….………38

Figure 4.2 Time Interest Earned of PT. Bank Mandiri (Persero) Tbk Periods 2009-2011……………………………………………………………………………….....40

Figure 4.3 Profitability of PT. Bank Mandiri (Persero) Tbk Periods 2009-2011………………………………………………………………….………………42

Figure 4.4 Histogram Graphics…………………………………………………………………………… .45

Figure 4.5 Normal Probability Plot………………………………………………………………………………..….46

Figure 4.6 Heterocedasticity Test………………………………………………..……………………………..…..50

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1

CHAPTER I

INTRODUCTION

1. INTRODUCTION

1.1 Background of the Study Within the company, capital structure indicates how the company

finances its operations or how the company finances its assets. Companies

need funds from its own capital and foreign capital. Riyanto (1993:15) says

that "capital structure reflects the way the assets are spent, thus capital

structure is reflected in the overall liabilities in the balance sheet. Capital

structure also reflects the overall balance of foreign capital (both short and

long term) with its own capital." Capital structure is the ratio between the debt

(foreign capital) and equity (own capital). In the application of capital

structure, firms need to consider a variety of variables that influence it.

Several theories were put forward many factors that influence the capital

structure decision. Baral (2004) stated that the higher the company's ability to

pay interest on the loan, the higher the firm's debt capacity. From these studies

concluded that Baral Time interest earned influence capital structure

decisions. By and Houston (2001:39) there are several factors that influence

the capital structure decision are: stability of sales, asset structure, operating

leverage, growth rate, profitability, tax, control, management attitude, the

attitude of lenders and appraisers agency ratings, market conditions, internal

conditions, financial flexibility.

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The company's managers must consider the cost of capital will determine

whether the financing structure financing needs met by their own capital or

with foreign capital. Broadly speaking, capital structure is a combination of

debt (foreign capital) and equity (equity) of the company. The main objective

is to form a combination of financial managers to lower funding costs as low

as possible, dividend policy and revenue, and maximize shareholder wealth.

Appropriate capital structure policy will increase the company's share price,

thus prosperity shareholders also increased. To that end, the company in

deciding whether to use their own capital or foreign capital should start with

the ability to increase the prosperity of the owner.

Given the importance of capital structure in making investment decisions, the

researchers interested in studying the influence of time interest earned on

capital structure and profitability. Time interest earned researcher choose as

an aspect that represent in debt sector and profitability is sector that represent

profit in company in process or determining proportion of capital structure

decisions. Researchers wanted to know which of the time factor and the

interest earned profitability really influential in corporate capital structure

decisions. Research conducted a replication study of the previous studies were

similar.

Researchers interested in analyzing time interest and profitability as the

independent variable to the capital structure. In this study the researchers

chose because banking is a banking company or a financial institution

engaged in corporate finance. As a financial institution, the bank provides

various types of financial services.

To be able to provide services in the field of financial services, the bank

would require funds. Fulfillment bank funding comes from two sources,

namely internal sources and external sources. The selection of the source of

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funds banks have done exactly as it relates to the size of the cost to be borne.

The amount of costs to be borne depends on the structure of loans and equity

capital.

Based on the descriptions above researcher will conduct research here re-titled

the influence of Times Interest Earned and Profitability towards Capital

Structurein PT. Bank Mandiri (Persero) Tbk. Periods January 2009 until 2012.

The difference of this study with previous studies is the study chose

researching Time Interest Earned and Profitability for both these factors are

factors that influence the capital structure of the company and at different

times.

1.2 Company Profile

1.2.1 PT. Bank Mandiri (Persero) Tbk

PT Bank Mandiri (Persero) Tbk. is a bank headquartered in Jakarta, and is the

largest bank in Indonesia in terms of assets, loans, and deposits. The bank was

established on October 2, 1998 as part of the restructuring program

implemented by the Government of Indonesia. In July 1999, the four

government-owned banks, namely, Bank Bumi Daya (BBD), Bank Dagang

Negara (BDN), Indonesia Export-Import Bank (Exim Bank), and the

Development Bank of Indonesia (Bapindo), combined into Bank Mandiri.

1.2.2 Vision:

Become a Financial Institution Indonesia's most admired and always

progressive

Mission:

1. Oriented to meeting the needs of the market

2. Developing human resources professional

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3. Gives the maximum benefit to stakeholders

4. Implementing an open management

5. Caring for the benefit of society and the environment

1.2.3 Company’s Achievement:

As of December 2011, total assets of Bank Mandiri has reached Rp

551.9 trillion, which is double the amount of total assets in 2006 (amounting

to Rp 267 trillion), or 15.6% growth (CAGR). It cements our position as the

Bank Mandiri, Indonesia's largest bank. Credit bank also grew to Rp 314.4

trillion, an increase of 22% (CAGR) of loans in 2006 amounted to Rp 118

trillion. While we grew net profit to Rp 12.2 trillion, an increase of 28.3%

(CAGR) from 2006's Rp 2.4 trillion. In addition to being the largest lender in

Indonesia (on a consolidated basis), Bank Mandiri is the largest savings bank

in Indonesia by third party funds of Rp 422.3 trillion. Bank Mandiri has also

managed to maintain strong asset quality, as evidenced by the value of Gross

and Net NPL Ratio are respectively 2.21% and 0.52%. One of the important

moments in the second stage of the transformation process is successful rights

issue in February 2011 to strengthen bank capital. With this, the capital of

Bank Mandiri has reached Rp 62.7 trillion, an increase of 48.9% year on year

and became the first bank in Indonesia who earned his International Bank, in

accordance with the Banking Architecture or Indonesian Banking

Architecture (API).

Performance Bank Mandiri is also supported by the subsidiaries that

provide significant revenue contribution, which is about 12% of the

consolidated net profit of Bank Mandiri. Today the Bank has the largest ATM

network, namely the number of 10,000 units that have been installed and are

spread throughout Indonesia. This makes the Bank as the best bank in the

service for 4 years in a row and become the most trusted company in

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Indonesia for Good Corporate Govenance for 5 consecutive years. After

meeting the various requirements of Bank Indonesia, Bank Mandiri is now

entitled to bear the title as the International Bank has been operating in the

regional banking sector and the banks are ready to be a role model in

Indonesia. This is also supported by our vision to be the Financial Institution

of the Most Admired and Most Progressive in Indonesia.

1.3 Problem Identified The problem identified realized that there is an influence between Time

Interest Earned and Profitability Towards Capital Structure in PT. Bank

Mandiri (Persero) Tbk. Here the capital structure will be defined as the

proportion of ratio total debt and total assets.

According to Prabansari and Kusuma (2005) show that there is positive

influence that significant profitability toward capital structure at company’s.

According to Baral (2004) assumed that the higher the company’s ability to

pay interest on the loan, the higher debt capacity.

Guided by those statements, the researcher decided to choose “The Influence

of Time Interest Earned and Profitability Towards Capital Structure in PT.

Bank Mandiri (Persero) Tbk. Periods 2009-2012” as an object for

investigation.

1.4 Statement of Problem This research conducted in order to explore:

1. Is there any influence between times interest earned to Capital

Structure in PT. Bank Mandiri (Persero) Tbk Periods 2009-2012?

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2. Is there any influence between profitability to Capital Structure in PT.

Bank Mandiri (Persero) Tbk Periods 2009-2012?

3. How does Times Interest Earned and Profitability give influence on

Capital Structure in PT. Bank Mandiri (Persero) Tbk Periods 2009-

2012?

1.5 Research Objective The research objectives of this thesis:

1. To analyze the influence of times interest earned to capital structure in

PT. Bank Mandiri (Persero) Tbk Periods 2009-2012.

2. To analyze theinfluence of profitability to capital structure in PT.

Bank Mandiri (Persero) Tbk Periods 2009-2012.

1.6 Significance of the Study The expected benefits of this research are:

1. The result of this study are expected to be input for the company’s

management and the consideration for the company in making

decisions related the funding structure of the company so as to

increase the prosperity of the company’s stakeholders.

2. The result of this research can be an input for the development of

science academics especially in the field of financial accounting in the

knowledge about the influence of corporate funding structure.

3. The result of this research can enhance subsequent similar studies.

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1.7 Theoretical Framework

Based on the background of the problem, literature review, and the result of

previous studies, the researcher makes the following conceptual framework:

Theoretical Framework of the research:

Figure 1.1 Research Theoretical Framework Source: Constructed by researcher

Assumption Framework if:

Figure 1.2 Assumption Framework Hypothesis Source: Constructed by researcher

CAPITAL STRUCTURE (Y)

PROFITABILITY (X2)

TIME INTEREST EARNED (X1)

HIGH:

- TIMES INTEREST EARNED (X1) - PROFITABILITY (X)

INCREASE THE AMOUNT OF CAPITAL STRUCTURE

LOW:

- TIMES INTEREST EARNED (X1) - PROFITABILITY (X)

DECREASE THE AMOUNT OF CAPITAL STRUCTURE

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1.8 Scope and Limitations of the Study Due to the limitation of research time (September 2012 – January 2013), this

thesis will only rely on Capital Structure, Times Interest Earned, and

Profitability that taken from PT. Bank Mandiri (Persero) Tbk. that has submit

their financial statement at publication of financial statements in Bank of

Indonesia official website.

The research itself will only focus on data in time period of January 2009 –

November 2012. There is no data has been manipulated and the research is

not responsible to the other calculation based on another data that might be

different by the other institution.

1.9 Assumptions and Hypothesis In this research, the researcher assumes that Time Interest Earned and

Profitability are the most important factors compare the other Capital

Structure factors. Time Interest Earned assume as indicator for company

management to consider that how proportion of capital structure of company

financed and also how company ability to pay their interest. Profitability

could be one of the indicators for investor whether they want to invest or not

in a company with considering profitability of company.

Some hypotheses want to be tested by the researcher:

1. H0 – No significance influence on Time Interest Earned towards

Capital Structure.

Ha1 – There is a significanceinfluence on Profitability towards Capital

Structure.

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2. H0 – No significance influence on Profitability towards Capital

Structure.

Ha1 – There is a significanceinfluence on Profitability towards Capital

Structure.

1.10 Definitions of Terms

1. Capital Structure is the particular combination of debt, equity and

other sources of finance that it uses to fund its long term financing.

2. Profitability is the company's ability to fund its own operations. The

ability company to pay for long-term debt and interest.

3. Times Interest Earned or interest coverage ratio is a measure of a

company’s ability to honor its debt payment (interest payment on debt

that come due).

4. Bank of Indonesia is the central bank of the Republic Indonesia,

which has primary responsibility to maintain monetary stability and

sets banking regulations.

5. Variable is characteristic, number, or quantity that increases or

decreases over time, or takes different values in different situations.

6. Independent Variable is factor or phenomenon that causes or

influences another associated factor or phenomenon.

7. Dependent Variable is factor or phenomenon that is changed by the

effect of an associated factor or phenomenon.

8. Influence is the capacity to have an effect on the character,

development, or behavior of someone or something, or the effect

itself.

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CHAPTER II

LITERATURE REVIEW

2.1 LITERATUR REVIEW

2.1.1 Bank

Banks are businesses that offer savings, which can carry withdrawal requests

(using a check or make an electronic funds transfer) and distribute it in the

form of commercial loans (Rose and Hudgins, 2010). Apostolic et.al (2009)

split the core activities of the bank on 3 core activities: (1) deposit collection,

the process of raising funds from the public in the form of demand deposits,

savings and time deposits (2) payment services, providing financial services,

namely payment traffic, the transfer process money (3) loan underwriting,

distributing funds to the community in the form of loans. The primary

function of banks is financial intermediation, the process of buying surplus

funds from the business sector, government and households, to be distributed

to deficit economic units. The function of financial intermediation arise as a

result of the high cost of liquidity and price risk because of information

Asymmetric between the owner of the funds (household / net savers) to fund

corporate users (corporations / net borrowers) so it takes the middleman

(intermediary) that is able to accommodate needs of both parties (Saunders,

2008). Furthermore, Saunders (2008) suggests that the function and role of

financial intermediation, namely: (1) function as a broker, (2) function as asset

transformers, (3) role as delegated monitor, (4) role as producer information.

Banking intermediation function has changed as a result of changes economic

environment and financial market developments especially true in countries

developed (industrialized countries) such as countries in the European Union

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(Bikker & Wesseling, 2003). The development of information technology,

deregulation, liberalization, internationalization factor cause of financial

intermediation theory becomes irrelevant to business practices that occur now

(Scholtens & Wensveen, 2003). These factors tend to reduce transaction costs

(transaction-cost) and get asymmetric between depositors (savers) with

investors and it is contrary to the classical functions of financial

intermediation. Bikker & Wesseling (2003) also stated that the liberalization

and development information technology capital market intermediation has

led to a shift from bank capital markets and non-financial institutions such as

insurance intermediary. Liberalization institutions non-bank finance is seen in

the process of facilitating people to save asset and investment. And

liberalization of society through the freedom in choosing means for storing

assets. Besides the development of technology has helped people to monitor

the progress of their assets and provide opportunities for diversification of

assets owned, thereby reducing the monitoring-cost. It is a Disintermediation

cause in the banking industry. Globalization and the level of competition that

occurs between banking institutions and markets capital also affects the

activity of banking intermediation (banking, business activity). Case led to an

increase in bank consolidation through mergers and acquisition, with the aim

to increase the capacity by increasing the scale of asset (Bikker & Wesseling,

2003). Consolidation of banks led to an increase in ownership by banks

(foreign-owned banks), this is not only happening in developed countries

(Industrialized countries) (Bikker & Wesseling, 2003), but also in developing

countries (Emerging countries) (Mian, 2003). Intermediary function can be

implemented with optimal if supported capital adequate (Buchory, 2006).

Because even if the third party funds raised very large but if it is not offset by

the additional capital the bank will be limited in lending. In line with the

results of Kishan and Opiela (2000) found that credit growth is influenced by

the size of the banks (assets) and bank capital (Leverage ratio) is to increase

12

equity (own capital). Unlike Inderst & Mueller (2008), the results showed that

the assumption in the absence of regulation, leverage has a positive

correlation to the level of credit risk. Or in other words, additional capital

through debt will affect the increased lending.

2.1.2 Capital Structure

How does the company finance its business or operations can be seen from

the proportion of the fund or the capital structure of the company, here is a

comparison between Debt, equity and funds. Riyanto (1993:15) says that

"capital structure reflects the way this company assets are spent, thus the

capital structure is reflected in the overall liabilities of the fund balance.

Capital structure also reflects the overall balance of foreign capital (both short

and long term) with its own capital. " this research using capital structure as

dependent variable with scale ratio. Capital structure is comparison or ratio

between total debt/loan to total assets (Pandey:2002).

2.1.3 Sources of Capital Structure

According to the explanation and expert opinion on the definition of capital

structure and the source or the proportion of the capital structure, here the

researcher tries to explain more clearly about the proportion of capital

structure are also supported expert opinion. According to Bambang Riyanto

(2002:209) in terms of the original Capital structure can be divided into two,

namely:

1. Internal Sources

Capital from internal sources is capital or funds created or produced within

the company itself just as accumulated depreciation (depreciation) from the

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company's retained earnings. The amount of depreciation each year depending

on the depreciation method used by the company concerned, While the

amount of retained earnings or reserves affected by the amount of income

earned during the period, although the amount of profit earned during the

period, but because the company adopted a policy that the majority of the

profits are distributed as dividends, then the small amount of retained

earnings, which in this case means that the internal source from the reserve is

small.

2. External Sources

Spending from outside the company is spending where business needs capital

derived from sources that are outside the company's capital. Source funds

from outside the company is funding coming from the lenders and owners,

members or part of the company's decision. Capital from creditors is owed to

the company concerned and the fund is called the'' foreign'' or capital

expenditures by foreign purchases of debt (debt financing), while funding

from owners, participants or decision is part of the company's funds to be

remain invested in the company in which the method is called capital

expenditures using funds company owners called themselves spending (equity

financing)

2.1.4 Financial Ratios

Type of financial statement ratios, typically grouped into four the ratio, (R.

Agus Sartono, 1998), namely:

1. Liquidity ratio is the ratio to measure a company’s ability to short term

financial obligation on time. Liquidity ratio that commonly used are:

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current ratio (ratio of current asset divided by current liability), quick

ratio (ratio of current asset-inventory divided by current liabilities).

2. Activity ratio is a measure of how effectively the company in use of

their resources. Activity ratio that used: receivable turnover (sales

divided by account receivable), average collection period (360divided

by receivable turnover), inventory turnover (cost of goods sold divided

by average inventory), average days in inventory (360 divided by

inventory turnover) and total asset turnover (sales divided by total

asset).

3. Leverage ratio is the ratio to measure how much the company paid

with debt. The ratio are: debt to total assets ratio (total liabilities

divided by total asset), and time interest earned ratio (EBIT divided by

interest expense).

4. Profitability ratio is the ratio to measure a company ability benefit

from the use of capital. The ratio are: gross profit margin(gross profit

divided by sales), operating profit margin (EBIT divided by sales), net

profit margin ( EAT divided by sales) and return on asset (EAT

divided by total asset).

2.1.5 Static Trade off Theory

Shanmugasundaran (2008:164) argues that "a firm's debt ratio is

optimal Viewed as determined by a trade off the costs and benefits of

borrowing, holding the firm's assets and investment plans constant." Bangun

and Sundari (2008) states that "the trade-off theory of capital structure can

explain the difference between the target capital structure of the company."

companies can perform calculations on the optimal capital structure by

considering the increase in the value of the company and the costs that will

arise. The trade off theory of capital structure can explain the difference

15

between the target capital structures of the company. Theory states that the

level of profitability implies greater debt as less risky for lenders. Moreover it

shows the company's ability to pay interest on the debt capacity is greater.

Hence, profitability and earned interest time have a positive effect on capital

structure.

2.1.6 Factors that influence Capital Structure

1. Times Interest Earned

Time interest earned indicates the company's ability to pay interest on

loans to creditors by using operating income. Ability is affecting the

confidence of creditors against the company. The company's ability to pay

interest on their loans, causing investors confident to invest their funds in the

company as it was considered healthy enough to operate. Baral (2004) stated

that the higher the company's ability to pay interest on the loan, the higher the

debt capacity of the company.

Times Interest Earned is the ratio of earnings before interest taxes to

interest expense; measures the company's ability to meet annual interest

payments by the formula Times Interest Earned: EBIT / Interest expense

This ratio measures how much of the operating profit to decline until

the company can not meet annual interest expense. Failure to meet this

obligation may result in legal action from creditors of the company, and may

lead to bankruptcy.

In this research the researcher using formula to calculate Time Interest

Earned with equation earning before interest and taxes (EBIT) divided by

16

interest expense. Greater EBIT to interest expense increased times interest

earned. Thus the company was able to pay interest expense. Decreasing Time

Interest Expense is a sign of growing interest earned lower the company's

ability to pay its debts (Mardiyanto 2009:58)

2. Profitability

Profitability is the ability of a company to make a profit (profits) in a

given period. The same meaning given by Husnan (2001) that the profitability

is the ability of a company to generate profit (profit) on the level of sales,

assets and certain capital stock. Meanwhile, according to Michelle and

Megawati (2005) Profitability is the ability of firms producing income (profit)

on which to base corporate dividends. Profitability describes the ability of the

enterprise to generate profit using all capital owned. This is consistent with

the statement Shapiro (1991:731) "Profitability ratios measure managements

objectiveness as indicated be return on sales, assets and owners equity."The

profitability of a firm will affect the investors on the investment policy that

done. Company’s ability to generate profits will be able to attract investors to

invest their funds in order to expand their business, by contrast levels Low

profitability will cause investors withdraw their funds. As for profitability of

the company itself can be used as an evaluation of the effectiveness of

management of these enterprises. According to Brigham (1993:79)

"Profitability is the net result of a large number of policies and decision. The

ratio Examined thus far reveal some interesting thing about the wry the firm

operates, but the profitability ratios show the combined objects of liquidity,

asset management, and debt management on operating income."

Profitability is the company's ability to generate profits by using the

capital tied up in it. When it is used around the capital tied up in it, in which

17

case the entire assets or equity of the company. This ratio of profit from the

sale of goods or services produced.

in this study researchers used a Net Profit Margin as a measurement

tool for a company's profitability, net profit margin itself function is

measuring how many operational advantages to be gained from every rupiah

sales. Net profit margin was formulated: net profit margin equal to net income

divided by net sales. High ratio indicates a company's ability to generate high

profits at a certain level of sales. Generally low ratio may indicate inefficient

management

The profitability of the company is one of the basic assessment of a

company, for That requires an analysis tool to be able to vote. The analysis

tool is intended ratios finance. Profitability ratios measure the effectiveness of

management by results return derived from sales and investment. Profitability

is also of significant importance in the effort to maintain continuity life in the

long run, because it indicates whether the profitability of those businesses

have good prospects in the future. Thus, any business entity will always try to

improve its profitability, because the higher level of profitability an entity

then the survival of these enterprises will be more secure. Like expressed by

Giulio Battazzi, Angelo Secchi, and Federico Tamagni (July 2008) in journal

entitled "Productivity, Profitabilty, and Financial Performance" states that A

comparative analysis of two crucial dimensions of firms performance:

profitability and productivity, and find Independently from the particular

sector of activity and from financial conditions, there seems to be a weak

market pressure and little behavioral inclination for the more efficient and

more profitable firms to grow faster.

a. Profitability Ratios for Financial Performance Measurement Tool:

18

Profitability assessment is a process to determine how well the activities

conducted business to achieve strategic objectives, eliminate waste-waste and

present timely information to carry out improvements in continuous

(Supriyono. 1999). There are several measures of performance on the

profitability of the company in which the respective measurements associated

with the volume of sales, total assets and capital. Overall these three measures

will allow an analyst to evaluate the level of earnings in relation to the volume

of sales and total assets particular investment from the owner of the company.

Financial profitability of the company described in the form of the profit and

loss is part of the corporate financial statements, which can be used by all

parties concerned to make economic decisions. Based on the financial report

issued by the company, can be explored further information regarding the

company's financial position, capital structure, cash flow, financial

performance and other information which is relevant the company's financial

statements. The profitability of the company's financial performance is

certainly a company that in terms of the company's financial condition.

Reflected in the company's financial profitability financial statements, and

therefore to measure the profitability of a company's financial required

analysis of its financial statements. In the opinion of Shapiro (1991) show that

profitability is perfect to measure the effectiveness of the management and

evaluation of performance management in running a business and

productivity in managing the company's assets are overall as visible on the

return generated by the sales and investment, and to evaluate the economic

performance of the business. In general profitability is a measure of the

overall productivity and performance of the company will eventually show the

efficiency and productivity of the company. Dwi Prastowo (2008) stated that

the performance information of the company, especially profitability is

needed to assess potential changes in economic resources may be controlled in

the future, so as to predict the capacity of the company in generate cash (and

19

cash equivalents) as well as to formulate the company's effectiveness in utilize

additional resources. Profitability ratio is the ratio of a company's ability to

assess and seek advantage. This ratio also provides a measure of the

effectiveness of a company's management. This is shown by the profit

generated from sales and investment income. The point this is the use of

converting the company's efficiency ratio. The use of profitability ratios can

be done using the comparison among the various components are reported

financial balance sheet and income statement. Measurements can be made for

some period of operation. The aim is to look the company's development over

time, either decrease or increase, while looking for the cause of the change.

The results of these measurements can be used as an evaluation tool for this

management performance, whether they have worked effectively or not. If the

target has been achieved determined they are said to have successfully

achieved the target for the period or periods, otherwise if it failed or did not

achieve the set targets, it will be lessons for management for the period ahead.

This failure should be investigated where the location of errors and

weaknesses so that the incident does not recur. Failure or success can be used

as a reference for planning future earnings, as well is likely to replace the new

management, especially after the old management failure. Profitability ratios

are often referred to as one of the performance measures management. As

with other ratios, profitability ratios also had a goal and benefits, not only for

the owner of the business or management, but also for the outside companies,

especially those who have a relationship or interest with the company.

The intended use for the company's profitability ratios, as well as for outsiders

companies, namely;

b. To measure or calculate profits derived by an enterprise during a

period certain;

c. To assess the position of the previous year earnings to current year;

20

d. To assess the earnings progression over time;

e. To assess the magnitude of the net profit after tax to equity capital;

f. To measure productivity across the enterprise funds are used both

capital loans or equity capital;

g. To measure the productivity of your entire enterprise funds are used

for both capital himself;

h. And the other goal.

Meanwhile, the benefits are for;

a. Knowing the level of profits made by the company in the period;

b. Determine the position of the previous year earnings with the current

year;

c. Knowing the profit development from time to time;

d. Knowing the amount of net profit after tax to equity capital;

e. Knowing the productivity of your entire enterprise funds are used for

both capital loans or equity

f. Other benefits.

In practice, according to Kasmir (2008: 199) the types of profitability ratios can be used are:

a. Profit margin (profit margin on sales)

b. Return on Assets (ROA)

c. Return on equity (ROE)

d. Earnings per share.

In this research, the researcher using profit margin or Net Profit Margin as a tools to calculate Profitability as a factor that influence Capital Structure in PT. Bank Mandiri (Persero) Tbk Periods 2009 -2012

21

CHAPTER III

RESEARCH METHODOLOGY

3.1 Research Method Research method can be defined into two main groups, which are qualitative

research and quantitative research (President University, 2008).

1. Richie and Lewis, (2003); Royse, (1999), Qualitative research is

naturalistic, interpretative approach concerned with understanding the

meaning of certain observed phenomena or actions. It examines,

analyzes. Interprets observations for the purpose of discovering

underlying meanings and patterns of relationships in a manner that

does not involve mathematical models. Qualitative research also

provides explanation of reasons and associations between social

variables. The data in this type of analysis is no in the form of

numbers.

2. Ross, (1999). Quantitative research on the other hand uses numbers to

prove or disapprove a notion or hypothesis. The process of

measurement is central to qualitative research because it provides the

fundamental connection between empirical observation and

mathematical expression of qualitative relationships. Qualitative

research uses data that are structured in the form of numbers or that

can be immediately transported into numbers.

This research will conduct as a quantitative research approach which involves

analysis of numerical data in an attempt to explain the matters observed. The

numerical data then will use to prove or disapprove a significant hypothesis.

22

This research will engage in hypothesis testing which is aimed to understand

the certain relationships that exist among variables at a point of time. The

objective of quantitative research is to develop and employ mathematical

models, theories and hypothesis pertaining to natural phenomena.

3.2 Research Framework In this research framework, the researcher will explain the process of data

analyzing and the steps of research. The objective of this research is to

analyzed the influence of Time Interest Earned (X1) and Profitability (X2)

towards Capital Structure (Y) in PT. Bank Mandiri (Persero) Tbk. Periods

January 2009 - November 2012 by using Multiple Regression Method.

Before go to the data analysis, the researcher will test the data first that will be

used by classical assumption test which are Normality test, Heterocedasticity

test and Multicolinearity test and Autocorrelation test between the variable. If

the data passed the test of Normality, Heterocedasticity, Multicolinearity and

Autocorrelation test then the writer will find the coefficient of correlation (R)

and coefficient of determination (R2) in order to know the degree of

correlation and how much the contribution of variable X1 (Time Intrest

Earned) to Y (Capital Structure) and Variable X2 (Profitability) to Y (Capital

Structure) Finally, the researcher will test the hypothesis whether the

hypothesis will be accepted or rejected. Research framework is a diagram or a

chart that describes the methods used in this study. Research framework in

this paper can be seen from the figure 3.1 below:

23

Figure 3.1 Research Framework Source: Constructed by Researcher

Problem Identification: In this section, first mention all the factors or

variables identified as problems that cause a major problem based on a

specific reference or research. Of course, there are many factors that lead to

other problems, but the factors and the problem that will be identify are the

factors and problems that are affordable and controlled by the researcher only.

Literature Review: This section will describe about concepts, notions,

descriptions, types, factors, characteristics, measures, rules and laws that

related with the studied variables based on literature references that support

the statement.

Problem Identification

Literature review: all Variables included

Data Gathering: From Bank of Indonesia Official Website to Ms Office Excel 2007

Data Processing: Processing the data that gathered

Result Interpretation: Interpretation of data that Tested and conducted

Conclusion and Recommendation: Conclusion and recommendation of research that conducted

Using IBM SPSS Statistic V.20

24

Data Gathering: Because this research is using secondary data, the data that

researcher gather are collected from official websites of Bank of Indonesia to

gather the financial statement that publish by PT. Bank Mandiri (Persero) Tbk

during periods January 2009 until latest of financial statement published

during research in November 2012.

Data Processing: After the data are collected and transformed, then the data

are processed using IBM SPSS Statistic V.20 and researcher get the result.

Result Interpretation: The result that researcher get are analyzed and

discussed in this part.

Conclusion and Recommendation: And based from the results above,

conclusion are drawn and recommendation for the reader and for future

research are made.

This research will conduct as a quantitative research approach which

involves analysis of numerical data in an attempt to explain the matters

observed. The numerical data then will use to prove or disprove a significant

hypothesis. The advantage of using quantitative method for the researcher it is

more controllable and more reliable to test the correlation between variables.

This research will engage in hypothesis testing which is aimed to

understand the certain relationships that exist among variables at a point of

time. The objective of quantitative research is to develop and employ

mathematical models, theories and/or hypothesis pertaining to natural

phenomena. Though, it has some qualitative approach to analyze the

mathematical result in this research

25

3.3 Research Time and Place The writer will conduct the research about the influence of Time

Interest Earned and Profitability to the Capital Structure in President

University, located in Jl. Ki HajarDewantara Kota Jababeka, Bekasi 17550,

Indonesia. Independent Variable (Time Interest Earned and Profitability) and

Dependent Variable (Capital Structure) of PT. Bank Mandiri (Persero) Tbk

during Periods January 2009 until November 2012 gathered from Bank of

Indonesia official website on December 8, 2012 until December 12, 2012.

The researcher will conduct the research about the influence of Time Interest

Earned and Profitability towards Capital Structure in PT. Bank Mandiri

(Persero) Tbk Periods 2009-2012 on December 14, in Dormitory.

3.4 Research Instrument Research instrument will describe the procedures and tools used by the

researcher to collect and analyze the data.

3.4.1 Method of Data Collection

According to Agarwal (2009), there are two categories of data, which

are primary data and secondary data. Primary data is the data which are

collected from the respondent directly for the purpose of certain study or

information. For instance, an enquiry is made from each tax payer in a city to

obtain their opinion about the tax collecting machinery.

Secondary data is the data which had been collected by certain people

or agency and statistically treated. Now the information contained in it is used

again from records, processed and statistically analyzed to extract some

information for other purpose. For instance, if the data given in different

census years is again processed to obtain trends of population growth,

26

profession changes, changes in sex ratio, mortality rate, etc. Usually

secondary data is obtained from year books, census reports, survey reports,

official records or reported experimental findings.

The research will conduct by using secondary data: Capital structure,

Time Interest Earned and Profitability gathered on January 8 – 12 December,

2012 from Publication of financial statement in Bank of Indonesia official

website.

Researcher also uses literature study in this research. Literature study

is the method of collecting data from books and other literature related to the

research materials. Literature study used in this research is the use of data

obtained as a theoretical basis as well as studied in the literature on the subject

of all theory about Capital Structure, Time Interest Earned and Profitability

itself.

3.4.2 Instrument for Data Analysis

There are several tools that writer use in this research to help writer in

processing the data which are:

1. IBM Statistics 20.0

SPSS is statistic software for windows. It is use for analyze the data in order

to find out and analyze the significance of the effect between two variables,

and perform normality test, auto-correlation test, and other analysis and test

needed for this research. Where then, the conclusion can be taken by

describing the result of test using Pearson (R), whether to accept or reject the

hypothesis.

27

2. Microsoft Excel 2007

Microsoft Excel help researcher to construct Capital Structure, Time Interest

Earned, and Profitability per month data in tables form and also in graphical

form to make the researcher easier to monitor the data movement.

3.5 Sampling Design Sample is a subgroup or subset of the population. by studying the

sample, researcher should be able to make conclusions that can be generalized

to the population (Sekaran& Roger Bougie, 2009). Sample is used if the size

of population is big and it is impossible for the researcher to study all of the

population, because of time and budget limitation of the researcher. That is

why researcher have to choose the representative sample from the population

(Sugiyono, 2007).

Roscoe (1975) proposes the following rules of thumb for determining

sample size:

1. Sample sizes larger than 30 and less than 500 are appropriate for most

research.

2. Where samples are to be broken into subsamples; (males/females,etc.);

a minimum samples size of 30 is necessary for each category.

3. In the multivariate study, the sample size should be several times

(preferably 10 or more) than the number of variables in the study.

Based on the rules above, researcher takes 47 data samples which are

collected from company’s websites from January 2012 to January 2013.

28

Data analysis is an important thing to do in conducting research. By

doing the proper analysis, the data can be meaningful and useful to solve the

problems faced. Data analysis was performed in two stages which are data

collecting and data processing using multiple regression.

3.5.1 Sampling Technique

The researcher collecting monthly financial statement data of PT.

Bank Mandiri (Persero) Tbk. which accessed from official website of Bank

Indonesia. The data that researcher used in this research are the data during

the period of January 2009 - November 2012.

3.5.2 Statistical Treatment In doing the research, it is important to make sure the instrument that

is developed by researcher to measure a particular concept is indeed

accurately measuring the variable, means, researcher is accurately measuring

the concept that he/she wants to measure (Sekaran and Bougie, 2009).

The Capital Structure, Time Interest Earned and Profitability that the

researcher collected is in form of Rupiah (Rp). The formula to count the

Capital Structure, Time Interest Earned and Profitability are:

1. Capital Structure : Total Debt / Total Assets.

2. Time Interest Earned : EBIT (Earning Before Interest and Taxes)/ Interest

Expense.

3. Profitability (Net Profit Margin): EAT(Earning After Taxes)/Sales.

29

There are several statistical technique that can be applied in order to show

the data validity or data redundancy. Statistical method that is used to analyze

the data in this research is Multiple Regression Analysis.

3.6 Assumption and Hypothesis

Some hypotheses want to be tested by the researcher:

1. H0 – No significance influence on Time Interest Earned towards

Capital Structure in PT. Bank Mandiri (Persero) Tbk Periods 2009-

2012.

Ha1 – There is a significanceinfluence on Profitability towards Capital

Structure in PT. Bank Mandiri (Persero) Tbk Periods 2009-2012.

2. H0 – No significance influence on Profitability towards Capital

Structure in PT. Bank Mandiri (Persero) Tbk Periods 2009-2012.

Ha1 – There is a significanceinfluence on Profitability towards Capital

Structure in PT. Bank Mandiri (Persero) Tbk Periods 2009-2012.

3.7 Classical Assumption Test Before performing the regression analysis, a classical assumptions test

has to be done, in order to estimate an unbiased and efficiency from multiple

regression equation. There are some classical assumptions eligibility criteria

that has to be met.

3.7.1 Normality Test

According to SinggihSantoso (2010), the purpose of the normality test

is to know whether the distribution of the data follow a normal distribution or

30

approach, which is the distribution of the data with a bell. An informal

approach to testing normality is to compare a histogram of the residuals to a

normal probability curve. The actual distribution of the residuals (the

histogram) should be bell-shaped an resemble the normal distribution. This

might be difficult to see if the sample is small. In this case one might proceed

by regressing the measured residuals against a normal distribution with the

same mean and variance as the sample. If the regression produces an

approximately straight line, then the residual can be assumed to be normally

distributed.

3.7.2 Heterocedasticity Test

According to Sulaiman (2004), if the random variables have different

variances, the term means differing variance. In contrast, a sequence of

random variables is called homoscedastic. When it is homoscedastic, it does

not have to question about the assumption of constant variance from Y to the

value of X. Homoscedasticity is not required for the estimates to be unbiased,

consistent and asymptotically normal.

To investigate the relationship between variables, it is helpful to look

at the graph of the data. Such graph is often called scatter diagram or a scatter

plot. According to Anderson (2010), normally the independent variable is

plotted on the horizontal and the dependent variable is plotted on the vertical

axis. This scatter plot reveals an approximate linear relationship between X

and Y, but more importantly, it reveals a statistical condition referred to as

heteroscedastic.

3.7.3 Multicolinearity Test

Multicollinerity means a statistical phenomenon in which two or more

independent variables in multiple regression models are highly correlated

31

(Sekaran and Bougie, 2009). In order to determine the presence or absence of

multicollinearity can be assessed from the large value of Tolerance and its

inverse Value of Inflation Factor (VIF) through SPSS program. Tolerance

measures the amount of variability of the selected independent variable not

explained by the other independent variables. Higher tolerance value means a

smaller degree of multicollinearity. Variance Inflation Factor (VIF), which is

calculated simply as the inverse of tolerance value. The VIF translates the

tolerance value, which directly expresses the degree of multicollinearity. VIF

equals 1/tolerance value, means the higher tolerance the lower VIF value, and

the lower degree of multicollinearity (Hair, Joseph F., et al., 2009).

3.7.4 Autocorrelation Test

Autocorrelation generally occur in time series data. This is because the

observations on time series data follows the natural order of intertemporal

observations, so the successive observation contain intercorrelation especially

if the time span between successive observations is short, such as days, weeks

or months. Gujarati (2012).

Gujarati (2012) also said the presence of autocorrelation in the OLS

(Ordinary Least Squares) has consequences, which are: the estimated OLS is

still linear, unbiased and also consistent and normally asumtotic distributed,

butthe estimator is no longer efficient (having the smallest variance). And

Widarjono (2009) said, if the variance is not the minimum, then the cause

OLS standard error calculation is no longer credible. Furthermore, interval

estimation and hypothesis testing based on the distribution of t and F no

longer be trusted to evaluate the results of the regression. To see the existence

of autocorrelation of dependent variable with itself can be shown from the

value of Durbin-Watson which the range of tolerance is between -2 until 2.

32

3.8 Multiple Regression Analysis Multiple Regression Analysis is used in situation where more two or

more independent variables are hypothesized to affect one dependent variable.

Multiple regression analysis provides a means of objectively assessing th

degree and the character of the relationship between independent variables

and dependent variables. The regression coefficients later used to indicate the

relative importance of each of the independent variables in the prediction of

the dependent variable. Then the model equation used in this research can be

explained as follows (Sekaran and Bougie, 2009):

𝑌 = 𝛽0 + 𝛽1𝑋1 + 𝛽2𝑋2

Where:

Y = Capital Structure

𝛽0 = Constant

𝛽1 = X1 regression coefficient

X1 = Dimension score of times interest earned

𝛽2= X2 regression coefficients

X2 = Dimension score of profitability

Before performing the regression analysis, classical test assumptions

has to be done in order to get estimate an unbiased and efficiency result

(BLUE - Best Linear Unbiased Estimated) from a multiple regression

equation.

33

3.9 Testing Hypothesis

3.9.1 Correlation Coefficient (R)

The correlation coefficient (also known as Pearson’s correlation

coefficient) is used to describe the strength and direction of the linear

relationship between two variables depending on the level of measurement of

variables. According to Rubin (2010), regardless of whether parametric or

nonparametric correlation coefficient is used, it typically ranges between 0.0

and 1.0 or between 0.0 and -1.0. the plus or minus sign in front of correlation

coefficient indicates whether the correlation is positive or negative (inverse)

as shown in table 3.1. Having a minus sign does not mean that the correlation

is weaker. It only shows that the variables are inversely related.

Table 3.1.

Interpretation for Correlation Coefficient

Coefficient Correlation Meaning

0.00> 0.20 Slight

correlation

Almost negligible

relationship

0.20 – 0.40 Low correlation Definite but small

relationship

0.40 – 0.70 Moderate

correlation

Substantial relationship

0.70 – 0.90 High correlation Marked relationship

0.90 – 1.00 Very high

correlation

Very dependable

relationship Source: Sugiyono, ( 2007)

34

3.9.2 Coefficient of Determination (R2)

Coefficient of multiple determinations in multiple regressions is

defined as the proportion variation in the dependent variable that is explained

or accounted for the co variation in the independent variables (Churchill,

Brown, and Suter, 2010). From the calculation of R, we can see the

relationship between independent variable (X1 and X2) and dependent

variable (Y) is positive or negative relationship. Meanwhile determinants are

used to view the contribution of independent variables (X1and X2) in

explaining the dependent variable (Y).

3.9.3 F Test

Significant testing in order to know whether the independent variables

have significant influence into dependent variable simultaneously, then the

equation can be described as follow (Sugiyono, 2007):

𝐹ℎ =

𝑅2𝑘�

(1 − 𝑅2)(𝑛 − 𝑘 − 1)�

Where: R = Multiple correlation coefficient

k = Number of independent variable

n = Number of sample

Here is the step in conducting F test:

1. Hypothesis formulation:

H0 = 𝛽1 = 𝛽2 = 0, mean that simultaneously the independent variables

(X1and X2) do not have significant influence on the dependent variable (Y).

35

Ha = 𝛽1 ≠ 𝛽2 ≠ 0, mean that simultaneously the independent variables (X1

and X2) have significant influence on the dependent variable (Y).

2. Find out the value of F-table with 5% significant

F table = F𝛼; numerator; denumerator

= 0.05; k-1; n-k

3. Accepted Criteria:

H0 accepted if F count < F table at 𝛼 = 5%

Ha accepted if F count > F table at 𝛼 = 5%

3.9.4 T Test

Significant testing in order to know whether the independent variables

is partially have significant influence into dependent variable simultaneously

or not, then the equation can be described as follow:

𝑡 =𝑟√𝑛 − 2√1 − 𝑟2

Where: t = Hypothesis testing

r = Coefficient regression

n = Number of sample

Here is the step in conducting T test:

1. Hypothesis formulation:

H0 = 𝛽1 = 𝛽2 = 0, mean that partially the independent variables (X1 and

X2) do not have significant influence on the dependent variable (Y).

Ha = 𝛽1 ≠ 𝛽2 ≠0, mean that partially the independent variables (X1and

X2) have significant influence on the dependent variable (Y).

36

2. Find out the value of F-table with 5% significant

T table = T(𝛼/2; n-k-1)

= T 0.025; n-k-1

3. Accepted Criteria:

H0 accepted if F count < F table at 𝛼 = 5%

Ha accepted if F count > F table at 𝛼 = 5%

3.10 Limitation of Study From this research, there are some deficiencies and weaknesses in the

preparation of this thesis. Weaknesses and deficiencies in this study are as

follows:

1. This research only takes one example of the banking company that has

biggest assets during periods January 2009 – November 2012 which is PT.

Bank Mandiri (Persero) Tbk.

2. This research is only focusing in two variables which are Capital Structure

as Dependent Variable, Times Interest Earned and Profitability as

Independent Variables.

3. The samples taken in this research is only from January 2009 until

November 2012.

37

CHAPTER IV

ANALYSIS OF DATA AND INTERPRETATION OF

RESULT

4.1 Analysis of Data Collection

4.1.1 Capital Structure

How does the company finance its business or operations can be seen

from the proportion of the fund or the capital structure of the company, here is

a comparison between Capital structure Debt equity funds. Riyanto (1993:15)

says that "capital structure reflects the way this company assets are spent, thus

the capital structure is reflected in the overall liabilities of the fund balance.

Capital structure also reflects the overall balance of foreign capital (both short

and long term) with its own capital. "

In this data collection the researcher using data of financial statement

of PT. Bank Mandiri (Persero) Tbk. As company that used for this research.

Capital Structure data taken from calculation of total ratio between total debt

and total assets from financial statement during period January 2009 until

November 2012. The data for Capital structure summarized in the figure and

table below.

38

Figure 4.1 Capital Structure of PT. Bank Mandiri (Persero) Tbk. Periods January 2009 – November 2012 Source: PT. Bank Mandiri (Persero) Tbk. Financial Statement (Monthly)

From figure above we could see from monthly data the graph show

that the data of PT. Bank Mandiri (Persero) Tbk. are fluctuated. And if w

compare the data year by year even not always increase but it show positive

condition of capital structure. And it indicates good condition for company

financing which even fluctuated or stable but the tendencies keep increase.

0,000,100,200,300,400,500,600,700,80

Janu

ary

Febr

uary

Mar

ch

April

May

June July

Augu

st

Sept

embe

r

Oct

ober

Nov

embe

r

Dece

mbe

r

Aver

age

Per Y

ear

2012 CapitalStructure

2011 CapitalStructure

2010 CapitalStructure

2009 CapitalStructure

39

Table 4.1 Capital Structure of PT. Bank Mandiri (Persero) Tbk.

Periods January 2009 – November 2012

Month

2009

2010

2011

2012

Capital Structure

Capital Structure

Capital Structure

Capital Structure

January 0.47 0.51 0.56 0.59

February 0.48 0.52 0.56 0.61

March 0.49 0.52 0.55 0.62

April 0.49 0.53 0.57 0.63

May 0.48 0.54 0.58 0.63

June 0.49 0.55 0.73 0.63

July 0.49 0.56 0.59 0.63

August 0.49 0.58 0.59 0.63

September 0.5 0.59 0.6 0.64

October 0.5 0.58 0.65 0.65

November 0.51 0.58 0.6 0.62

December 0.48 0.56 0.58 -

Average Per Year

0.49 0.55 0.6 0.62

Source: PT. Bank Mandiri (Persero) Tbk. Financial Statement (Monthly)

Based on the Figure 4.1 and explanation of data in Table 4.1 about Capital

Structure of PT. Bank Mandiri (Persero) Periods January 2009 –November

2012; it shows that although monthly report year by year fluctuate but average

year by year from Capital Structure tend increasing from 2009-2012.

40

4.1.2 Time Interest Earned

In doing this research, the data of Time Interest Earned has been collected

from official website of Bank of Indonesia. These data are monthly time

interest earned that calculated from ratio of EBIT (Earning Before Interest and

Taxes with Interest Expense. The data are monthly Time Interest Earned from

the years of January 2009 - November 2012. The data for Time Interest

Earned are summarized in the figure and table below.

Figure 4.2 Time Interest Earned of PT. Bank Mandiri (Persero) Tbk.

Periods January 2009 – November 2012 Source: Constructed by Researcher from financial Statement of PT. Bank Mandiri (Persero)

Tbk. Periods January 2009 – November 2012.

0,00

0,50

1,00

1,50

2,00

2,50

3,00

Janu

ary

Febr

uary

Mar

chAp

rilM

ayJu

ne July

Augu

stSe

ptem

ber

Oct

ober

Nov

embe

rDe

cem

ber

Aver

age

Per Y

ear

2012 TIE

2011 TIE

2010 TIE

2009 TIE

41

Table 4.2 Time Interest Earned (TIE) of PT. Bank Mandiri

(Persero) Tbk. Periods January 2009 – November 2012

Month

2009

2010

2011

2012

TIE

TIE

TIE

TIE

January 1.58 1.36 1.14 2.16

February 1.62 1.86 2.63 2.17

March 1.53 1.86 2.5 2.23

April 1.55 1.84 2.37 2.31

May 1.56 1.86 2.28 2.36

June 1.60 1.86 2.25 2.37

July 1.62 1.9 2.21 2.4

August 1.63 1.9 2.24 2.41

September 1.65 1.91 2.2 2.46

October 1.65 1.93 2.18 2.48

November 1.67 1.95 2.16 2.52

December 1.72 1.93 2.15 -

Average Per Year

1.61 1.85 2.19 2.35

Source: Constructed by researcher from financial statement of PT. Bank Mandiri Tbk.

Periods 2009-2012

Based on the Figure 4.2 and explanation of data in Table 4.2 about

Time Interest Earned of PT. Bank Mandiri (Persero) Periods January 2009 –

November 2012; it shows that although monthly report year by year fluctuate

but average year by year from Time Interest Earned tend increasing from

2009-2012.

42

4.1.3 Profitability

In doing this research, the data of Profitability has been collected from official

website of Bank of Indonesia. These data are monthly time interest earned that

calculated from ratio of Net Income with Operating Income. The data are

monthly Time Interest Earned from the years of January 2009 - November

2012. The data for Time Interest Earned are summarized in the figure and

table below.

Figure 4.3 Profitability of PT. Bank Mandiri (Persero) Tbk. Periods 2009 -2012

Source: Constructed by Researcher from financial Statement of PT. Bank Mandiri (Persero) Tbk. Periods 2009-2012 (monthly)

0,00

0,20

0,40

0,60

0,80

1,00

1,20

Janu

ary

Febr

uary

Mar

ch

April

May

June July

Augu

st

Sept

embe

r

Oct

ober

Nov

embe

r

Dece

mbe

r

Aver

age

Per Y

ear

2012 Profitability

2011 Profitability

2010 Profitability

2009 Profitability

43

Table 4.3 Profitability of PT. Bank Mandiri (Persero) Tbk.

Periods 2009 -2012

Month

2009

2010

2011

2012

Profitability

Profitability

Profitability

rofitability

January 0.17 0.11 1.1 0.28

February 0.17 0.24 0.35 0.28

March 0.15 0.23 0.34 0.28

April 0.16 0.22 0.31 0.29

May 0.16 0.23 0.3 0.29

June 0.16 0.22 0.29 0.29

July 0.17 0.23 0.28 0.29

August 0.17 0.23 0.19 0.29

September 0.18 0.23 0.28 0.3

October 0.18 0.23 0.28 0.3

November 0.18 0.23 0.27 0.31

December 0.19 0.23 0.26 -

Average Per Year

0.17 0.22 0.35 0.29

Source: Constructed by Researcher from financial Statement of PT. Bank Mandiri

(Persero) Tbk. Periods 2009-2012 (monthly)

Based on the Figure 4.3 and explanation of data in Table 4.3 about Time

Interest Earned of PT. Bank Mandiri (Persero) Periods January 2009 –

November 2012; it shows that although monthly report year by year fluctuate

but average year by year from Profitability tend increasing from 2009-2012.

44

With good of company profitability for last three years that indicate positive

increases, it will shows and attract investor to invest their fund to the company

and finally for good of company.

4.2 Descriptive Statistic of Variables

Descriptive statistic is made to obtain calculation results of Mean and

Standard Deviation for both, Independent and Dependent variable. In

analyzing the data, the researcher use monthly data of each of variables

(Capital Structure, Time Interest Earned and Profitability) for the period taken

from January 2009 until November 2012 as it shows from table in previous

part. The statistic descriptive research variable will be described below using

SPSS Statistics 20.0.

Table 4.4 Descriptive Statistic of Dependent and Independent Variables

(PT. Bank Mandiri (Persero) Tbk.)

Descriptive Statistics

N Mean Std. Deviation

Statistic Statistic Std. Error Statistic

Capital_Structure 47 .5645 .00867 .05941

Profitability 47 .2397 .00836 .05732

Time_Interest_Earned 47 1.9940 .05162 .35388

Valid N (listwise) 47

Source: Primary Data, Processed 2013

As we can see from the table above, the dependent variables, which is

Capital Structure, from 47 samples processed, Capital Structure has a mean or

average amount of 0.5645 with the standard deviation of 0.941. While the

independent variables results are: Time Interest Earned with mean 1.9940 and

45

standard deviation about 0.35388 and Profitability with mean 0.2397 and

standard deviation about 0.05941.

4.3 Classical Assumption Test Result Classical Assumption test that will be conducted in this research for

this correlation models is classic assumption test which includes: normality

test, multicollinearity test, heterocedascity test and autocorrelation test.

4.3.1 Normality Test

Normality test aims is to test whether the regression model, residual

confounding, or residual variable has a normal distribution or not (Ghozali,

2005). There are 2 ways to detect whether or not the residuals are normally

distributed with graphical analysis and statistical analysis.

a. Graphical Analysis

Figure 4.4 Histogram Graphics

Source: Primary Data, Processed by SPSS V.20

46

According to histogram displayed above, we can conclude that the

histogram provide a normal distribution pattern (symmetrical / not skewed).

This shows that the regression model fulfill the assumptions of normality.

b. Normal Probability Plot

Figure 4.5 Normal Probability Plot Source: Primary Data, Processed by SPSS V.20

From normal probability plot graphics shown above, the dots are

spread around the diagonal line and follow the diagonal line. This also shows

that the regression model fulfills the normality test.

c. Statistical Analysis

Normality with graphs can be misleading if not visually looks normal,

but statistically the result could be different (Ghozali, 2005). Therefore, in this

research, graphical test comes with a statistical test. The statistical test used

47

for normality test in this research is a non-parametric statistical test of

Kolmogorov-Smirnov (KS). K-S test is done by testing criteria:

1. If the significance value (Asymp.Sig.) > 0.05, then the residual data is

normally distributed.

2. If the significance value (Asymp.Sig.) < 0.05, then the residual data is

not normally distributed.

Table 4.5 Non-Parametic Kolmogorov-Smirnov Test

Source: Primary Data, Processed by SPSS V.20

According to the result of K-S Test above, it shows that the

significance value (Asymp.Sig) is 0.738 which mean its higher than 0.05. So,

we can conclude that the residual data is normally distributed. The result from

this statistical analysis is consistent with the results from graphical analysis of

normality test from before. This shows that the regression model in this

research is have a normal distribution.

One-Sample Kolmogorov-Smirnov Test

Unstandardized

Residual

N 47

Normal Parametersa,b Mean 0E-7

Std. Deviation .03614002

Most Extreme Differences

Absolute .100

Positive .099

Negative -.100

Kolmogorov-Smirnov Z .684

Asymp. Sig. (2-tailed) .738

a. Test distribution is Normal.

b. Calculated from data.

48

4.3.2 Multicollinearity Test

Multicollinearity test aims is to testing whether the independent

variables in this regression model have a correlation of each other or not. In

good regression model, the correlation between the independent variables

should not happen (Ghozali, 2005). Multicollinearity can be seen from

Tolerance value and Variance Inflation Factor (VIF) value. If Tolerance

value > 0.10 or if VIF value < 10, it can be concluded that there are no

multicollinearity between the independent variables in regression model of the

research.

Table 4.6 Tolerance and VIF value

Coefficientsa

Model Collinearity Statistics

Tolerance VIF

1

(Constant)

Time_Interest_Earned .246 4.066

Profitability .246 4.066

a. Dependent Variable: Capital_Structure

Source: Primary Data, Processed by SPSS V.20

If we see the calculation from Table 4.above, it shows that there are no

independent variables that have the Tolerance value below 0.10 (Tolerance >

0.10) which means there are no correlation between the independent variables

that have value more than 95%. The calculation result from Variance Inflation

Factor (VIF) also shows same result, none of the independent variables have

49

VIF value more than 10 (VIF < 10). Based from both Tolerance and VIF

results, we can conclude that there are no multicollinearity between the

independent variables in this regression model of the research.

4.3.3 Heterocedasticity Test

Heterocedasticity test is used to test whether inequalities occur in the

regression model from residual variance of one observation to the other

observations (Ghozali, 2005). If variance from residual of one observation to

the other observations is constant, it is called homocedasticity, and if its

different, it is called heterocedasticity. Good regression model is the

homocedasticity one or when heterocedasticity doesn’t occur. In this research,

researcher used Scatterplot diagram to test whether heterocedasticity in this

regression model is happen or not. The trick is to look at the scatterplot graph.

If there is a particular pattern, such as the existing dots forming a regular

pattern (wavy, widened and then narrowed), it has been indicated

heteroscedasticity. And if there is no clear pattern, and the points spread

above and below the 0 on the Y axis, then heteroscedasticity does not happen

(homocedasticity).

50

Figure 4.6 Heterocedasticity Test Source: Primary Data, Processed by SPSS V.20

From Scatter Plot above, we can see that there is no particular pattern

formed, and the dots are spreading below and above 0 on Y axis. It can be

concluded that heterocedacity did not occurs on regression model.

4.3.4 Autocorrelation Test

Autocorrelation test is used to test the correlation between the

variables from the data time series. Sunyoto (2011) said if autocorrelation

happens, the sample cannot show its variance of population and as a result it

can’t be used to predict the value of dependent variable towards the

independent variable. Furthermore, interval estimation and hypothesis testing

based on the distribution of T and F no longer be trusted to evaluate the result

of the regression. To se the existence of autocorrelation of dependent variable

with itself can be shown from the value of Durbin-Watson which the range of

tolerance is between -2 and 2. And to decide whether there is autocorrelation

or not are based on:

1. Autocorrelation positive if the value of DW is -2 or (DW < -2)

2. No autocorrelation between -2 and +2 or -2 ≤ DW ≤ +2

3. Autocorrelation negative if the value of DW is +2 (DW > +2)

51

Table 4.7 Durbin-Watson Test

Source: Primary Data, Processed by SPSS V.20

Based on the result above, it shows that DW value is 1.470. and

because of counted DW value is between -2 and +2 or -2 ≤ DW ≤ +2, we can

conclude that there is no autocorrelation in this regression model. So the

regression model can be used to see whether the independent variables: Time

Interest Earned and Profitability have an effect to Capital Structure.

4.4 Multiple Regression Analysis From multiple regression analysis tests, the following results are

obtained: regression coefficient, t counted value, and level of significance as

shown from table below.

Table 4.8 Multiple Regression Analysis Result

Coefficientsa

Model Unstandardized

Coefficients

Standardized

Coefficients

t Sig.

B Std. Error Beta

1

(Constant) .328 .032 10.210 .000

Time_Interest_Earn

ed .063 .031 .375 2.030 .048

Profitability .462 .192 .446 2.410 .020

a. Dependent Variable: Capital_Structure Source: Primary Data, Processed by SPSS V.20

Model Summaryb

Model R R Square Adjusted R

Square

Std. Error of the

Estimate

Durbin-Watson

1 .794a .630 .613 .03695 1.470

a. Predictors: (Constant), Profitability, Time_Interest_Earned

b. Dependent Variable: Capital_Structure

52

This study used a standardized regression test results due to match the

size of the independent variables (Time Interest Earned and Profitability)

which have different measurement. The advantage of using a standardized

regression results are able to eliminate the differences in units of measurement

in the independent variable. Besides the standardized regression test results

are used because researcher wants to see the level of priority.

According to the result of multiple regression analysis test that has

been done, formed the following regression equation:

Y = 0.328 + 0.063X1 + 0.426X2

Where:

Y = Capital Structure

X1 = Times Interest Earned

X2 = Profitability

From the regression linear above, we can conclude that:

1. The equation have a Constanta of 0.328 which means that even tough

there are no changes in Time Interest Earned (X1) and Profitability

(X2), there is still an increase in Capital Structure of 0.308 point.

2. Independent Variable Time Interest Earned (X1) have positive

influence on Capital Structure of PT. Bank Mandiri (Persero) Tbk.

with coefficient of 0.063

3. Independent Variable Profitability (X2) have positive influence on

Capital Structure of PT. Bank Mandiri (Persero) Tbk. with coefficient

of 0.426

53

4.5 Model Testing

4.5.1 Coefficient Correlation (R)

Coefficient correlation is used to measure to depict the strength and

direction of the linear relationship between two variables depending on the

level of measurement of variables. If R values are close to 1, it means that it

have strong relationship and can predict perfect correlations between variable

X and Y.

Table 4.9 Coefficient Correlation (R) and Determination (R2) Test Result

Source: Primary Data, Processed by SPSS

From the table above, we can see that the R value is 0.794. It means

that the independent variable (Time Interest Earned and Profitability) have

high and positive correlation towards its dependent variable (Capital

Structure). Also, it means that every increase in one variable, there is a

corresponding increase in other variable.

4.5.2 Coefficient Determination (R2) Coefficient of determination (R2) is used to measure how far the

model's ability to explain variation in the dependent variable (Ghozali, 2005).

R2 values are getting close to 1, meaning the independent variables provide

Model Summaryb

Model R R Square Adjusted R

Square

Std. Error of the

Estimate

1 .794a .630 .613 .03695

a. Predictors: (Constant), Profitability, Time_Interest_Earned

b. Dependent Variable: Capital_Structure

54

almost all the information needed to predict the variation in the independent

variable.

The coefficient of determination being used is the value of Adjusted R

Square because it is more reliable in evaluating the regression model.

Adjusted R Square value can go up or down when the independent variable is

added to the model. In contrast to the value of R2 which would have increased

an additional independent variable, regardless of whether these variables

significantly influence the dependent variable.

From the table 4.10 above, it shows that the value of Adjusted R

Square is 0.613 it means that the change of dependent variable, Capital

Structure of PT. Bank Mandiri (Persero) Tbk. 61, 3% can be explained by the

independent variables (Time Interest Earned and Profitability). And the other

38, 7% is explained by other causes outside the model.

Standard Error of the Estimate (SEE) in the table above is 0.03695,

which have value smaller than the standard deviation which is 0.05941.

Smaller value of SEE will make regression equation more precise in

predicting the dependent variable.

4.5.3 F-Test F test shows whether all the independent variables included in the

model have an influence together on the dependent variable (Ghozali, 2005).

This test is done by comparing the value of F calculated by the value of F

table using a significant level of 5%. If the count value of F is greater than F

table then simultaneously all the independent variables affect the dependent

variable. In addition, you can also see the value of probability. If the

probability value less than 0.05 (for a significance level = 5%), the

independent variables simultaneously affect the dependent variable.

55

Meanwhile, if the probability is greater than 0.05 then the independent

variables simultaneously has no effect on the dependent variable.

Table 4.10 F-Test Result

Source:Primary data processed using SPSS V.20

According to ANOVA test or F-Test Above, the result shows F value

of 37.453 with probability of 0.000. Because F counted > F Table (α =0,05)

3.209, then the regression model can be used to predict the dependent variable

(Capital Structure) and all the independent variable which are Time Interest

Earned and Profitability simultaneously affect to the dependent variable which

is Capital Structure.

4.5.4 T-Test T test is used to see whether independent variables (Time Interest

Earned and Profitability) individually affect Capital Structure dependent

variable or not. T table value in this study is 1.680 (Based on T-Table with

significance level of 0.05).

ANOVAa

Model Sum of Squares df Mean Square F Sig.

1

Regression .102 2 .051 37.453 .000b

Residual .060 44 .001 Total .162 46

a. Dependent Variable: Capital_Structure

b. Predictors: (Constant), Profitability, Time_Interest_Earned

56

Table 4.11 T-Test Result

S

Source: Primary Data, Processed by SPSS V.20

The descriptions about T-Test result above are as follows:

1. Value of T counted of Time Interest Earned variable (X1) is 2.030 with

significance level of 0.048. Because the value of T counted > T table

and significance level <α significance probability = 0.05, then Ho is

rejected and Ha is accepted. It means that Time Interest Earned

variable individually have positive and significant effect on dependent

variable.

2. Value of T counted of Profitability variable (X2) is 2.410 with

significance level of 0.020. Because the value of T counted > T table

and significance level <α significance probability = 0.05, then Ho is

rejected and Ha is accepted. It means that Probability variable

individually have positive and significant effect on dependent variable.

Coefficientsa

Model Unstandardized

Coefficients

Standardized

Coefficients

t Sig.

B Std. Error Beta

1

(Constant) .328 .032 10.210 .000

Time_Interest_Earne

d .063 .031 .375 2.030 .048

Profitability .462 .192 .446 2.410 .020

a. Dependent Variable: Capital_Structure

57

4.6 Results Interpretation This part will present the discussion about the results of the analysis

that has been done before. The results are described as follows:

4.6.1 The Influence of Time Interest Earned (X1) towards Capital Structure (Y)

Time Interest Earned, have positive and significant effect to the

Capital Structure with regression coefficient of 0.063 which means that each

increases of 1 unit of Time Interest Earned (X1), while the other variable is

constant, it will cause an increase of Capital Structure of PT. Bank Mandiri

(Persero) Tbk. by 0.063.

It is proved by the result of t test which shows the t counted value of

2.030> t table which is 1.680 and with significance level of 0.048<α

significance probability = 0.05. Thus, this research proves that the higher the

company’s ability to pay interest on loan to creditor (Time Interest Earned),

the higher the firm’s debt capacity to financing their capital structure. Thus,

it’s matched with Baral (2004) that stated the higher the company’s ability to

pay interest on the loan, the higher the firm’s debt capacity.

It also supported by the data of Times interest Earned and Capital Structure

that parallel show positive or stable trend during 2009 to 2010 (24%) and

followed by capital structure that remain increase from 2009 to 2010 (6%),

then Times Interest Earned from 2010 to 2011 (34%) and for Capital structure

from 2010 to 2011 increase (5%) for period 2011 to 2012 the value of Time

interest earned increase as much 16% followed by increase in Capital

structure worth 2%. if we observe from that data even the percentage not

always increase but it could be show how the Time Interest Earned influence

of the capital structure.

58

4.6.2 The Influence of Profitability (X2) towards Capital Structure (Y)

Statement of the second hypothesis (H2) which states that “Higher

Profitability (X2) will results in higher Capital Structure” can be accepted

because the variable, Profitability, have positive and significant influence to

the Capital Structure with regression coefficient of 0.426 which means that

each increases of 1 unit of Inflation rate (X2), while the other variable is

constant, it will cause an increase of Capital Structure of PT. Bank Mandiri

(Persero) Tbk. by 0.426. It is proved by the result of t test which shows the t

counted value of 2,410> t table which is 1.680 and with significance level of

0.020<α significance probability = 0.05. Thus, this research proves previous

research from Prabansari and Kusuma (2005) which showed a positive and

significant effect on the capital structure of the company.

This research also supported by the data that shows about Profitability and

capital structure that parallel influence, which means high in Profitability will

make increase in Capital Structure and even the data not always increase year

by year like for Profitability 2009-2010 (5%) , 2010-2011(13%), and 2011-

November 2012 (-6%) and for Capital Structure 2009-2010(6%). Based on

the percentage of the data that mentioned it prove that Profitability have a

portion to affect or influence of Capital Structure.

4.6.3 The Influence of Time Interest Earned (X1) and Profitability (X2) towards Capital Structure (Y)

The results of this research show that Capital Structure will be affected

by Time Interest Earned and Profitability. This is proved with the F Test that

had been done before, with the score of 37.453. It means that all the

59

independent variable which is Time Interest Earned and Profitability Rate

simultaneously influence the dependent variable. If the independent variables

show the change, it surely will influence the Capital Structure.

60

CHAPTER V

CONCLUSION AND RECOMMENDATION

5.1 Conclusion This research was made to determine how much Time Interest Earned

and Profitability influenced the Capital Structure in order to make investor

aware about the factors and can be used to define how. Specifically, the study

reviews the Capital Structure, Time Interest Earned and Profitability of PT.

Bank Mandiri (Persero) Tbk. Because PT.BankMandiri (Persero) Tbk Is the

best bank in highest asset for three consecutive year.

Based on the analysis and discussion that has been done, it can be

concluded as follows:

1. According to the results of linear regression that have been done in

this research, the results are as follows:

Y = 0.328+ 0.063X1 + 0.426X2

Based on the equation above, the two Independent Time Interest Earned and

Profitability have positive coefficient. Thus, we can conclude that:

a. The equation have constanta value of 0.328 which means that

eventough there are no change in the variables, Time Interest Earned

and Profitability, the company capital structure can still financed by

others variable outside this research.

61

b. Time Interest Earned (X1) have positive influence to Capital Structure

(Y) with coefficient number of 0.063. This means that higher Time

Interest Earned will result in higher Capital Structure.

c. Profitability (X2) have positive influence to Capital Structure (Y) with

coefficient number of 0.426. This means that Profitability will result in

higher Capital Structure.

2. Time Interest Earned (X1) is an independent variable which have

second highest positive influence to Capital Structure of PT. Bank

Mandiri (Persero) Tbk. with T value of 2.030. This indicates that Time

Interest Earned movements have a quite strong influence on the

movement of Capital Structure. Thus, Time Interest Earned movement

can be used as a reference in predicting Capital Structure of the

Company.

3. Profitability (X2) is an independent variable which have the highest

positive influence to Profitability of PT. Bank Mandiri (Persero) Tbk.

with T value of 2.410. This indicates that Profitability strong influence

to Capital Structure. With the increasing of company’s profitability, it

can gain investor trust and make them want to invest more.

4. All of the independent variables, which are Time Interest Earned and

Profitability simultaneously, have significant influence into the

dependent variable, Capital Structure. This is proved by using F Test

that showed F value of 37.453> F Table (α = 0.05) which is 3.209.

5. The dependent variable, Capital Structure, and independent variables

(Time Interest Earned and Profitability) have Coefficient correlations

62

(R) of 0.794 which show high and positive correlation towards each

other, also it have Coefficient determination adjusted (R2) of 0,613

which means that the dependent variable, Capital Structure of PT.

Bank Mandiri (Persero) Tbk. 61,3% can be explained by

theindependent variables (Time Interest Earned and Profitability). And

the other 38,7% is explained by other causes outside the model.

5.2 Recommendation

5.2.1 Recommendation

After finish the analysis and give the conclusion for this research, the

research also will give some recommendations and suggestions for

investor and Company manager and the next researcher.

1. For the investor: since profitability give high significance influence to

the capital structure, and the number of profitability consecutively year

by year 0.170 (17%) in 2009, 0.218 (21%) in 2010, 0.354 (35%) in

2011 and 0.29 (29%) in 2012 (until November) it prove the company

ability to generate high profits continue rise towards the positive way,

and certainly gives good condition for investment.

2. For management : As what we can see that Time Interest earned give

strong significance influence to capital structure, with average value

from three consecutive years 1.61 (2009), 1.85 (2010), 2.19 (2011).

And 2.35 (until November 2012) Here even the number increases year

by year but its still below 4 (normal) that indicate high use of debt in

capital structure, it’s require management attention.

3. for further research: needs to be used for more than one company and

from all types of company.for further research is recommended also to

use the varible such as business risk, interest rates, company size and

other variables that also affect the capital structure.

63

64

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66

APPENDICES

APPENDIX 1: Capital Structure Ratio Calculation

Month

PT. BANK MANDIRI

2012 CAPITAL

STRUCTURE Total Loans

Total Assets

January 286,066,468 483,429,659 0.59

February 289,525,827 478,404,459 0.61

March 298,653,167 482,126,923 0.62

April 305,187,810 485,839,439 0.63

May 312,246,003 498,984,397 0.63

June 319,212,649 506,552,770 0.63

July 319,680,201 509,889,530 0.63

August 324,899,943 513,072,434 0.63

September 332,215,692 519,572,030 0.64

October 335,874,593 517,070,761 0.65

November 343,452,144 550,746,754 0.62

December - - -

AVERAGE PER YEAR 0.62

67

Month

PT. BANK MANDIRI

2011

CAPITAL

STRUCTURE

Total Loans

Total Assets

January 225,329,594 400,797,268 0.56

February 227,963,968 406,315,901 0.56

March 231,746,401 418,880,194 0.55

April 236,176,883 414,956,830 0.57

May 243,291,930 419,046,845 0.58

June 54,002,831 73,835,775 0.73

July 255,446,777 432,638,502 0.59

August 262,259,672 440,917,550 0.59

September 269,643,462 446,966,030 0.60

October 335,884,322 517,070,761 0.65

November 278,660,459 464,561,819 0.60

December 285,038,303 491,224,513 0.58

AVERAGE PER YEAR

0.60

68

Month

PT. BANK MANDIRI

2010

CAPITAL STRUCTURE

Total Loans Total Assets

January 186,927,646 365,820,644 0.51

February 189,301,006 363,739,325 0.52

March 192,113,043 366,541,645 0.52

April 194,275,894 364,251,422 0.53

May 197,400,901 365,268,742 0.54

June 205,844,441 373,593,390 0.55

July 206,369,723 370,203,132 0.56

August 213,622,641 370,510,348 0.58

September 217,738,810 371,907,147 0.59

October 218,112,842 374,092,412 0.58

November 222,305,327 382,221,902 0.58

December 229,122,440 408,771,732 0.56

AVERAGE PER YEAR 0,55

69

Month

PT. BANK MANDIRI

2009

CAPITAL

STRUCTURE Total Loans

Total Assets

January 156,537,635 331,193,636 0.47

February 158,867,415 329,915,828 0.48

March 160,072,261 325,862,700 0.49

April 158,257,060 326,162,790 0.49

May 157,239,110 329,224,781 0.48

June 164,535,342 336,517,056 0.49

July 164,990,193 335,162,804 0.49

August 168,880,518 345,018,132 0.49

September 170,715,069 344,269,997 0.50

October 171,571,690 341,982,108 0.50

November 175,935,647 347,474,119 0.51

December 179,687,845 373,508,708 0.48

AVERAGE PER YEAR

0.49

70

APPENDIX 2: Time Interest Earned Ratio Calculation

Month

PT. BANK MANDIRI 2012

TIE EBIT INTEREST EXPENSE

January 2,451,199

1,134,565 2.16

February 4,723,944

2,172,841 2.17

March 7,066,660

3,165,714 2.23

April 9,440,738

4,088,962 2.31

May 11,906,643

5,046,775 2.36

June 14,171,744

5,989,246 2.37

July 16,681,383

6,946,808 2.40

August 19,042,365

7,902,099 2.41

September 21,798,805

8,846,247 2.46

October 24,348,568

9,831,043 2.48

November 27,230,492

10,788,906 2.52

December - - -

AVERAGE PER YEAR 2.35

71

Month

PT. BANK MANDIRI

2011

TIE EBIT

INTEREST EXPENSE

January 1.283.000 1.127.222 1.14

February 5.561.862 2.113.855 2.63

March 8.000.216 3.195.325 2.50

April 10.121.432 4.263.861 2.37

May 12.242.065 5.365.221 2.28

June 14.476.778 6.438.501 2.25

July 16.672.907 7.553.108 2.21

August 19.348.949 8.650.887 2.24

September 21.419.818 9.721.756 2.20

October 23.649.359 10.835.715 2.18

November 25.791.835 11.936.309 2.16

December 28.009.234 13.053.097 2.15

AVERAGE PER YEAR

2.19

72

Month

PT. BANK MANDIRI

2010

TIE

EBIT INTEREST EXPENSE

January 3.139.241 2.302.811 1.36

February 3.817.026 2.050.764 1.86

March 5.755.897 3.089.313 1.86

April 7.640.298 4.160.343 1.84

May 9.627.776 5.164.982 1.86

June 11.542.065 6.194.082 1.86

July 13.741.479 7.238.663 1.90

August 15.743.597 8.271.834 1.90

September 17.659.859 9.253.676 1.91

October 19.780.697 10.272.071 1.93

November 21.932.530 11.258.180 1.95

December 23.867.090 12.344.711 1.93

AVERAGE PER YEAR

1.85

73

Month

PT. BANK MANDIRI

2009

TIE

EBIT INTEREST EXPENSE

January 2.218.789 1.404.644 1.58

February 4.223.446 2.613.934 1.62

March 5.863.982 3.839.072 1.53

April 7.690.308 4.964.426 1.55

May 9.619.178 6.154.475 1.56

June 11.699.567 7.297.206 1.60

July 13.712.332 8.473.570 1.62

August 15.747.630 9.665.502 1.63

September 17.725.932 10.763.262 1.65

October 19.605.810 11.886.327 1.65

November 21.539.633 12.886.383 1.67

December 23.980.202 13.980.545 1.72

AVERAGE PER YEAR

1.61

74

APPENDICE 3: Profitability Ratio Calculation

Month

PT. BANK MANDIRI

2012

Net Profit

Margin(Profitability) Net Income

Operating Income

January 1,072,667 3,853,803 0.28

February 2,090,464 7,349,374 0.28

March 3,106,908 10,987,902 0.28

April 4,263,287 14,615,206 0.29

May 5,461,738 18,680,901 0.29

June 6,512,356 22,669,589 0.29

July 7,803,168 26,901,592 0.29

August 8,921,507 30,669,395 0.29

September 10,363,976 35,077,616 0.30

October 11,607,305 39,186,899 0.30

November 13,211,273 43,294,978 0.31

December - - -

AVERAGE PER YEAR

0,29

75

Month

PT. BANK MANDIRI

2011

Net Profit

Margin(Profitability)

Net Income Operating

Income

January 881,409 799,125 1.103

February 2,725,023 7,802,585 0.349

March 3,780,063 11,276,181 0.335

April 4,600,073 14,695,993 0.313

May 5,401,142 18,226,545 0.296

June 6,322,918 21,904,503 0.289

July 7,162,676 25,389,169 0.282

August 8,154,003 42,897,650 0.190

September 9,172,620 32,583,815 0.282

October 10,063,499 36,311,265 0.277

November 10,884,738 40,272,373 0.270

December 11,718,334 44,794,212 0.262

AVERAGE PER YEAR

0,36

76

Month

PT. BANK MANDIRI

2010

Net Profit

Margin(Profitability) Net Income

Operating Income

January 632.859 5.999.546 0.105

February 1.333.615 5.651.513 0.236

March 2.003.444 8.763.196 0.229

April 2.621.180 11.790.089 0.222

May 3.364.069 14.872.112 0.226

June 4.034.090 18.188.930 0.222

July 4.910.492 21.329.586 0.230

August 5.658.731 24.405.149 0.232

September 6.385.628 28.128.811 0.227

October 7.235.448 31.456.231 0.230

November 8.133.530 35.011.942 0.232

December 8.851.051 38.715.925 0.229

AVERAGE PER YEAR

0.22

77

Month

PT. BANK MANDIRI

2009

Net Profit

Margin(Profitability)

Net Income Operating

Income

January 520,395 3,103,924 0.168

February 1,001,319 6,012,313 0.167

March 1,400,395 9,111,406 0.154

April 1,921,189 11,974,483 0.160

May 2,373,619 14,887,853 0.159

June 2,926,657 17,822,162 0.164

July 3,464,255 20,741,524 0.167

August 3,926,123 23,545,905 0.167

September 4,619,712 26,292,889 0.176

October 5,048,453 28,475,901 0.177

November 5,719,916 31,145,655 0.184

December 6,724,401 35,060,794 0.192

AVERAGE PER YEAR

0.17