Capital Structure, Asset Efficiency, And Risk-Adjusted Performance: Evidence From Indonesia’s Coal Mining Sector
DOI:
https://doi.org/10.63607/jcmb.v13i3.27Keywords:
Capital structure, TATO, RAROC, Firm-level Risk, Coal mining SectorAbstract
This study investigates the role of capital structure and operational efficiency on risk-adjusted performance in the coal mining industry in Indonesia, a sector noted for high leverage, volatile commodity prices, and macroeconomic risk. Using balanced panel data from 19 publicly listed coal companies over the period 2015 – 2024, we estimate fixed-effects models to examine the effects of Debt-to-Equity Ratio (DER) and Total Asset Turnover (TATO) on Risk-Adjusted Return on Capital (RAROC), using firm-level risk, measured by the rolling standard deviation of Return on Assets (ROA), as a mediator and firm size as a moderator. The results of this study demonstrate that DER negatively impacts RAROC, and TATO positively impacts RAROC. Firm-level risk partially mediates the effect of operational efficiency (TATO) on RAROC, accounting for approximately 21% of the total effect, but does not mediate the relationship between capital structure (DER) and RAROC. Finally, firm size moderated both relationships: first, firm size buffers the negative impact of DER; while, against expectations, firm size weakens the positive impact of TATO on RAROC. Volatility in the exchange rate increases firm risk; and there is no direct effect of macroeconomic variables on performance. These outcomes contribute to understanding risk-adjusted performance and capital structure in emerging markets, and have practical implications for managing financing strategies in an uncertain world.
References
Aggarwal, R., & Harper, J. T. (2010). Foreign exchange exposure of “domestic” corporations. Journal of International Money and Finance, 29(1), 1–19. https://doi.org/10.1016/j.jimonfin.2009.08.006
Arellano, M. (1987). Computing robust standard errors for within-groups estimators. Oxford Bulletin of Economics and Statistics, 49(4), 431–434. https://doi.org/10.1111/j.1468-0084.1987.mp49004006.x
Bali, T. G., Cakici, N., & Whitelaw, R. F. (2011). Hybrid tail risk and expected stock returns: When does the tail wag the dog? Review of Asset Pricing Studies, 1(1), 1–46. https://doi.org/10.1093/rapstu/rar001
Baltagi, B. H. (2008). Econometric analysis of panel data (4th ed.). Wiley.
Barney, J. (1991). Firm resources and sustained competitive advantage. Journal of Management, 17(1), 99–120. https://doi.org/10.1177/014920639101700108
Barrell, R., Davis, E. P., Karim, D., & Liadze, I. (2012). Bank regulation, property prices, and early warning systems for banking crises in OECD countries. Journal of Banking & Finance, 36(4), 1105–1117. https://doi.org/10.1016/j.jbankfin.2011.10.010
Baron, R. M., & Kenny, D. A. (1986). The moderator–mediator variable distinction in social psychological research: Conceptual, strategic, and statistical considerations. Journal of Personality and Social Psychology, 51(6), 1173–1182. https://doi.org/10.1037/0022-3514.51.6.1173
Bartram, S. M., Brown, G. W., & Conrad, J. (2010). The effects of derivatives on firm risk and value. Journal of Financial and Quantitative Analysis, 45(6), 1433–1460. https://doi.org/10.1017/S0022109010000495
Beck, T., Demirgüç-Kunt, A., & Maksimovic, V. (2005). Financial and legal constraints to growth: Does firm size matter? Journal of Finance, 60(1), 137–177. https://doi.org/10.1111/j.1540-6261.2005.00727.x
Bessis, J. (2015). Risk management in banking (4th ed.). Wiley.
Bloom, N., Sadun, R., & Van Reenen, J. (2016). Management as a technology? *Harvard Business School Working Paper, 16-133*. https://doi.org/10.2139/ssrn.2784904
Booth, L., Aivazian, V., Demirguc-Kunt, A., & Maksimovic, V. (2001). Capital structures in developing countries. Journal of Finance, 56(1), 87–130. https://doi.org/10.1111/0022-1082.00320
Caselli, S., & Gatti, S. (2023). Risk-adjusted performance in banking: Evidence from the European market. Springer. https://doi.org/10.1007/978-3-031-23456-1
Dang, V. A., Kim, M., & Shin, Y. (2012). Asymmetric capital structure adjustments: New evidence from dynamic panel threshold models. Journal of Empirical Finance, 19(4), 465–482. https://doi.org/10.1016/j.jempfin.2012.04.004
Frank, M. Z., & Goyal, V. K. (2009). Capital structure decisions: Which factors are reliably important? Financial Management, 38(1), 1–37. https://doi.org/10.1111/j.1755-053X.2009.01026.x
Hong, H. (2023). Risk, return, and firm size: New evidence from the Asia-Pacific region. Journal of Corporate Finance, 78, 102345. https://doi.org/10.1016/j.jcorpfin.2022.102345
Hsiao, C. (2014). Analysis of panel data (3rd ed.). Cambridge University Press.
Kraus, A., & Litzenberger, R. H. (1973). A state-preference model of optimal financial leverage. Journal of Finance, 28(4), 911–922. https://doi.org/10.2307/2978343
MacKinnon, D. P., Lockwood, C. M., & Williams, J. (2002). Confidence limits for the indirect effect: Distribution of the product and resampling methods. Multivariate Behavioral Research, 39(1), 99–128. https://doi.org/10.1207/s15327906mbr3901_4
Markowitz, H. (1952). Portfolio selection. Journal of Finance, 7(1), 77–91. https://doi.org/10.2307/2975974
Micu, M., & Micu, A. (2006). RAROC: A risk-adjusted performance measure. Journal of Applied Quantitative Methods, 1(1), 1–12.
Mishkin, F. S. (2016). The economics of money, banking, and financial markets (11th ed.). Pearson.
Myers, S. C. (1984). The capital structure puzzle. Journal of Finance, 39(3), 574–592. https://doi.org/10.2307/2327916
O’Brien, R. M. (2007). A caution regarding rules of thumb for variance inflation factors. Quality & Quantity, 41(5), 673–690. https://doi.org/10.1007/s11135-006-9018-6
Raj, R. (2021). Risk-adjusted performance measurement in non-financial firms: A review. Journal of Risk Finance, 22(1), 1–18. https://doi.org/10.1108/JRF-03-2020-0047
Rajan, R. G., & Zingales, L. (1995). What do we know about capital structure? Some evidence from international data. Journal of Finance, 50(5), 1421–1460. https://doi.org/10.1111/j.1540-6261.1995.tb05184.x
Resti, A., & Sironi, A. (2007). Risk management and shareholders’ value in banking: From risk measurement models to capital allocation policies. Wiley.
Ross, S. A., Westerfield, R. W., & Jaffe, J. (2016). Corporate finance (11th ed.). McGraw-Hill.
Saunders, A., & Allen, L. (2020). Credit risk measurement in and out of the financial crisis (3rd ed.). Wiley.
Sharpe, W. F. (1964). Capital asset prices: A theory of market equilibrium under conditions of risk. Journal of Finance, 19(3), 425–442. https://doi.org/10.2307/2977928
Suhardianto, N., Wulandari, D., & Zahoor, Z. (2021). Capital structure and firm performance in Indonesia’s mining sector. Asian Journal of Business and Accounting, 14(2), 1–24. https://doi.org/10.22452/ajba.vol14no2.1
Titman, S., & Wessels, R. (1988). The determinants of capital structure choice. Journal of Finance, 43(1), 1–19. https://doi.org/10.2307/2328319
Wulandari, D., Zahoor, Z., & Suhardianto, N. (2023). Macroeconomic volatility and firm risk in emerging markets: Evidence from Indonesia. Emerging Markets Review, 54, 100921. https://doi.org/10.1016/j.ememar.2022.100921
Zahoor, Z., AlNori, F., & Ahmed, H. (2022). Firm size, risk, and performance: Evidence from the GCC. Journal of Risk and Financial Management, 15(3), 123. https://doi.org/10.3390/jrfm15030123
Zhang, L., & Wang, Y. (2020). Operational efficiency and firm value: Evidence from China. *Pacific-Basin Finance Journal, 62*, 101376. https://doi.org/10.1016/j.pacfin.2020.101376
