The Role of Agency Costs in Moderating the Effect of Capital Structure on Company Performance: A Study of Banks Listed on the Indonesia Stock Exchange 2014-2023
Keywords:
Agency Costs, Capital Structure, Financial PerformanceAbstract
Capital structure plays an important role in determining bank performance through funding policies chosen by management. However, agency conflicts, namely agency costs, can affect the strength of the relationship between capital structure and performance. Based on this, the purpose of this study is to examine the role of agency costs as a moderator of the influence of capital structure on bank performance. Capital structure is proxied by the Short Term Debt to Total Assets Ratio (STDTA) and Long Term Debt to Total Assets Ratio (LTDTA). Financial performance is measured using three indicators: Return on Assets (ROA), Tobin's Q, and Earnings Per Share (EPS). Agency costs are proxied by the operating expense ratio (OER). The population of this study consists of all banks listed on the Indonesia Stock Exchange during 2014-2023, totaling 443 banks/year. The number of observations was 200 banks selected purposively, then data correction was performed through outlier and data centering, resulting in 144 observations. The analytical tool in this study is panel data regression analysis. The results show that LTDTA and OER have a significant negative effect on ROA, and agency cost moderates the effect of STDTA and LTDTA on ROA. STDTA and OER also have a significant negative effect on TQ, but agency cost does not act as a moderator. In EPS, STDTA and OER have a significant effect, while agency cost only moderates the effect of LTDTA. These findings emphasize the importance of operational cost efficiency in increasing profitability and the need for proper capital structure management in maintaining market value and shareholder returns.
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