CONSTRAINTS IN INDONESIA MANUFACTURING INDUSTRY
By
Hansel Winardi 21854004
MASTER’S DEGREE in
MASTER OF ARTS
FACULTY OF BUSINESS AND COMMUNICATION
SWISS GERMAN UNIVERSITY The Prominence Tower
Jalan Jalur Sutera Barat No. 15, Alam Sutera Tangerang, Banten 15143 - Indonesia
August 2020
Revision after Thesis Defense on 10 August 2020
Hansel W.
STATEMENT BY THE AUTHOR
I hereby declare that this submission is my own work and to the best of my knowledge, it contains no material previously published or written by another person, nor material which to a substantial extent has been accepted for the award of any other degree or diploma at any educational institution, except where due acknowledgement is made in the thesis.
Hansel Winardi, S.E.
_____________________________________________
Student Date
Approved by:
Dr. Ir. Yosman Bustaman, MBuss
_____________________________________________
Thesis Advisor Date
Dr. Nila Krisnawati Hidayat, SE., MM.
_____________________________________________
Dean Date
Hansel W.
ABSTRACT
THE EFFECT OF WORKING CAPITAL FINANCING TO THE CORPORATE PERFORMANCE AND THE IMPACT OF FINANCIAL CONSTRAINTS IN
INDONESIA MANUFACTURING INDUSTRY
By
Hansel Winardi, S.E.
Dr. Ir. Yosman Bustaman, Mbuss., Advisor
SWISS GERMAN UNIVERSITY
The aim of this research is to gain empirical evidence about the effect of Working Capital Financing to the Corporate Performance of the firms in Jakarta Composite Index (JCI) during the years 2010 – 2018 directly and under the impact of moderator variable. The moderator variable used Financial Constraints. The Corporate Performance as the dependent variable was calculated by using Return on Assets (ROA) and Tobin’s Q (Q), the Working Capital Financing was calculated by using certain WCF formula, while the Financial Constraints was calculated by using dummy variable that involve some criterias which comprise Firm Size, Cash Flow, and Interest Coverage Ratio. The object of the study is the firms available in JCI in 9 consecutive years and then according to certain aspect. The number of samples should have reliable and qualified financial reports from year 2010 to 2018. Eventually, according to the data analysis and hypothesis testing, this research represented the following results : Working Capital Financing has no significant effect to the Corporate Performance, Working Capital Financing has no significant effect to the Corporate Performance under the Impact of Financial Constraints, Firm Size, Firm Leverage and Firm Growth has significant effect to the Corporate Performance, then Current Ratio has no significant effect to the Corporate Performance.
Keywords: Working Capital Financing, Financial Constraints, Firm Size, Firm Leverage, Firm Growth, Current Ratio, ROA, Tobin’s Q.
Hansel W.
© Copyright 2020 by Hansel Winardi
All rights reserved
Hansel W.
DEDICATION
I dedicate this thesis works for the future of the country I loved which is Indonesia.
Hansel W.
ACKNOWLEDGEMENTS
All the gratitude and appreciation be to Jesus Christ, the Almighty God and most Graceful.
At first, I would like to thank my advisor Dr. Ir. Yosman Bustaman, MBuss for his support, patience, and guidance. He has provided me a great amount of motivation for me during the thesis work in Swiss German University. He did not just help me to enhance the quality of my thesis but also guided me to establish the high level of standards, which might lead to the improvement of my career in the future. He was particularly helpful in guiding me toward basic technical skills for conducting academic research and quantitative methodology. My appreciation also directed to Dr.
Antonius TP. Siahaan, SE.,Akt.,MM.,CA who also support by giving some questions and test in regard to the improvent of my knowledge.
My motivators Dr. Nila K. Hidayat, S.E., M.M. and Prof. Dr. Martin Boesch since all of them deserve sincere thanks for their great lectures and guidance.
The accomplishment of MA degree would not have been possible if there is no endless encouragement from my beloved family. I would like to give a lot of thanks to my family for the patience and support in my life.
Moreover, I wish to thank the members of my MA Batch 1 colleague for their support, patience and good humor during the process of studying.
Hansel W.
TABLE OF CONTENTS
Page
STATEMEN T BY THE AUTHOR ... 2
ABSTRACT ... 3
DEDICATION... 5
ACKNOWLEDGEMENTS ... 6
TABLE OF CONTEN TS ... 7
LIST OF FIGURES ... 11
LIST OF TABLES ... 12
CHAPTER 1 - INTRODUCTION... 13
1.1 Background ... 13
1.2 Research Problems ... 20
1.3 Research Objectives ... 21
1.4 Significance of Study ... 22
1.5 Research Questions ... 23
1.6 Scope and Limitation ... 23
CHAPTER 2 – LITERATURE REVIEW ... 25
2.1 Introduction ... 25
2.1.1 Basic of Corporate Finance Framework ... 26
2.1.2 The Traditional and Modern View of Working Capital ... 26
2.2 Definition on the Relevant Variables... 27
2.2.1 Corporate Performance ... 27
2.2.2 Working Capital Financing ... 28
2.2.3 Financial Constraints ... 29
2.2.4 Firm Size... 29
2.2.5 Firm Leverage... 30
2.2.6 Firm Growth ... 31
2.2.7 Current Ratio ... 31
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2.3.2 Working Capital Financing to Corporate Performance under the
Impact of Financial Constraints ... 34
2.3.3 Corporate Size and Corporate Performance ... 36
2.3.4 Leverage and Corporate Performance ... 36
2.3.5 Corporate Growth and Corporate Performance ... 37
2.3.6 Current Ratio and Corporate Performance ... 38
2.4 Previous Study Table ... 38
2.5 State of the Arts... 40
2.6 Hypothesis Development ... 42
2.6.1 Working Capital Financing and Corporate Performance ... 42
2.6.2 Working Capital Financing, Corporate Performance and the Impact of Financial Constraints as Moderator Variable ... 42
2.6.3 Firm Size and Corporate Performance... 43
2.6.4 Firm Leverage and Corporate Performance... 43
2.6.5 Firm Growth and Corporate Performance ... 44
2.6.6 Current Ratio and Corporate Performance ... 44
CHAPTER 3 – RESEARCH METHODOLOGY... 46
3.1 Construction of the Research ... 46
3.2 Population and Sampling Methods ... 46
3.2.1 Population ... 46
3.2.2 Sampling ... 47
3.3 Research Framework... 49
3.4 Research Model... 50
3.4.1 Research Hypothesis ... 51
3.5 Operationalization Variables... 52
3.5.1 Independent Variable ... 54
3.5.1.1 Working Capital Financing ... 54
3.5.2 Moderator Variable... 54
3.5.2.1 Financial Constraints ... 54
3.5.3 Control Variable ... 56
3.5.3.1 Firm Size ... 56
3.5.3.2 Firm Leverage... 57
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3.5.3.4 Current Ratio ... 58
3.5.4 Dependent Variable... 58
3.5.4.1 Corporate Performance ... 58
3.6 Data Processing Procedures ... 59
3.6.1 Data Preparation ... 59
3.6.2 Data Screening... 60
3.7 Data Analysis Technique ... 60
3.7.1 Descriptive Statistics... 60
3.7.2 Classic Assumption Test... 60
3.7.2.1 Multicollinearity Test ... 61
3.7.3 Coefficient of Determination Test (Adjusted R Square) ... 61
3.7.4 Statistical F Test ... 61
3.7.5 Statistical t Test... 62
3.8 Hypothesis Testing Result & Analysis ... 62
3.8.1 Multiple Regression Test ... 62
CHAPTER 4 – RESULTS AND DISCUSSIONS ... 66
4.1 Research Subject ... 66
4.2 Research Object ... 66
4.3 Data Analysis ... 67
4.3.1 Data Quality Test ... 67
4.3.1.1 Descriptive Statistics ... 67
4.3.2 Classic Assumption Test... 68
4.3.2.1 Correlation Matrix Test... 68
4.3.3 Data Results ... 68
4.3.3.1 Hypothesis and Model Analysis ... 68
4.3.3.1.1 The Effect of Working Capital Financing to The Corporate Performance ... 70
4.3.3.1.2 The Effect of Working Capital Financing to the Corporate Performance under the Impact of Financial Constraints ... 77
4.4 Final Discussions ... 101
CHAPTER 5 – CONCLUSIONS AND RECOMMENDATIONS ... 102
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5.3 Recommendations ... 104
REFERENCES... 106
APPENDIX ... 110
CURRICULUM VITAE... 112
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LIST OF FIGURES
Figures Page
Figure 1.1 Indonesia Manufacturing Sector Performance (2014 – 2018) ... 14
Figure 2.1 Schematic Conceptual Framework ... 41
Figure 3.1 Research Framework ... 49
Figure 3.2 Research Model (Statistical)... 50
Figure 4.1 Descriptive Statistic Table... 67
Figure 4.2 Correlation Test Result ... 68
Figure 4.3 Multiple Regression Results (Non Linear, ROA) ... 70
Figure 4.4 Multiple Regression Results (Non Linear, Tobin's Q) ... 74
Figure 4.5 Multiple Regression Results (Non Linear, F-Constraints, ROA, Size). 77 Figure 4.6 Multiple Regression Results (Non Linear, F-Constraints, ROA, CFI) . 81 Figure 4.7 Multiple Regression Results (Non Linear, F-Constraints, ROA, ICR) . 85 Figure 4.8 Multiple Regression Results (Non Linear, F-Constraints, Tobin's Q, Size) ... 89
Figure 4.9 Multiple Regression Results (Non Linear, F-Constraints, Tobin's Q, CFI) ... 93
Figure 4.10 Multiple Regression Results (Non Linear, F-Constraints, Tobin's Q, ICR)... 97
Hansel W.
LIST OF TABLES
Tables Page
Table 2.1 Previous Research Table... 38 Table 3.1 Sample Selection... 48 Table 3.2 Variable Operationalization ... 52
