the correlation between working capital management

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AUTOMOTIVE AND COMPONENTS SECTOR IN INDONESIA STOCK EXCHANGE (IDX)

By

Ryan Arif Fadilla Fauzi 13112090

BACHELOR’S DEGREE in

BUSINESS ADMINISTRATION

FACULTY OF BUSINESS ADMINISTRATION & HUMANITIES

SWISS GERMAN UNIVERSITY EduTown BSD City

Tangerang 15339 Indonesia

August 2016

Revision after the Thesis Defense on 29 July 2016

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Ryan Arif Fadilla Fauzi 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.

Ryan Arif Fadilla Fauzi

____________________________________________

Student Date

Approved by:

Ida Ayu Agung Faradynawati, M.Sc

____________________________________________

Thesis Advisor Date

Eric Jos Nasution, MBA, MA, Ph.D

____________________________________________

Dean Date

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Ryan Arif Fadilla Fauzi ABSTRACT

THE CORRELATION BETWEEN WORKING CAPITAL MANAGEMENT AND CORPORATE PERFORMANCE OF LISTED COMPANIES UNDER AUTOMOTIVE AND COMPONENTS SECTOR IN INDONESIA STOCK

EXCHANGE (IDX) By

Ida Ayu Agung Faradynawati, M.Sc., Advisor SWISS GERMAN UNIVERISTY

This research observes the correlation between working capital management and corporate performance of automotive manufacturing companies that listed in Indonesia Stock Exchange (IDX) from year 2010 to 2014. The samples of this research are 12 automotive manufacturing companies that listed in Indonesia Stock Exchange under Automotive and Components sector. Working capital management is measured by Cash Conversion Cycle that is separated into three main specific indicators, which are Day Sales Outstanding (DSO), Day Inventory Outstanding (DIO), and Day Payable Outstanding (DPO). Corporate performance as the dependent variable is measured by the ratio of market value of equity and book value of debts to the book value of assets. Furthermore, firm size and Return on Assets are utilized as control variables for this research.

Based on the research analysis, it can be concluded that only DSO has significant impact toward corporate performance, while another variables of DIO and DPO has no significant impact toward corporate performance. Both firm size and ROA has significant impact toward corporate performance.

Keywords: Working Capital Management, Corporate Performance, Indonesia Automotive Manufacturing Industry, IDX

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Ryan Arif Fadilla Fauzi DEDICATION

I dedicate this work for my beloved family, lecturers, and friends.

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Ryan Arif Fadilla Fauzi ACKNOWLEDGEMENTS

First of all I want to express my gratitude to God, Allah SWT for His blessing that I can finish this final thesis paper. This research is conducted in order to complete my Bachelor Double Degrees under Faculty of Business Administration and Humanities in Swiss German University. This final thesis paper will not be succeeded without helps and supports from people around me. I would like to express my gratitude to:

 Ida Ayu Agung Faradynawati, M.Sc as my advisor. Thank you for the time, efforts, guidance, supports, and inputs during the making of this thesis paper. It is an honor to be supervised by Ms. Dayu, so this thesis paper could be finished on time.

 Margaretha Lingga, SE, MM. as the head of Banking and Finance under Faculty of Business Administration and Humanities Swiss German University. Thank you for the support and guidance during my learning process in Swiss German University.

 My beloved parents, Drs. Ahmad Fauzi, Kons. and Dra. Khairina, Kons., for supporting me in every aspect of my life.

 All of lecturers from Faculty of Business Administration and Humanities Swiss German University. Thank you for the guidance and all of precious knowledge, experience, and morals.

 Kevin Pranata Susetio and Revino Yanuandri Darwis. Thank you for the joy and laugh during the making of this thesis paper, even in every difficult time. Brothers for life!

 Angelia Ongko, Patricia Audrey Jeremialle, Sefika Fildzabiani, Chantigy Jacinda, Nico Batubara, and Setia Budiman, my thesis mates. Thank you for the support

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Ryan Arif Fadilla Fauzi and cooperation during the process of our thesis paper. Glad to have friends like all of you.

 All of friends from Finance and Banking Management, Business Administration, and International Marketing batch 2012-2016. Thank you for sharing the university life and taught me how to be a good friend.

 And last but not least, Ida Ayu Widhiadari, my favorite reminder during the making of this paper. I really want to say thank you for all of your motivation, support, patient, and reminder about every little thing. I cannot ask for more.

 For those who cannot be mentioned one by one, my gratitude and happiness for all of you.

I hope this thesis paper can provide benefits for academics, practitioners and for those whoever needs it. Danke Schön!

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Ryan Arif Fadilla Fauzi TABLE OF CONTENTS

Page

STATEMENT BY THE AUTHOR ... 2

ABSTRACT ... 3

DEDICATION ... 5

ACKNOWLEDGEMENTS ... 6

TABLE OF CONTENTS ... 8

LIST OF FIGURES ... 12

LIST OF TABLES ... 13

CHAPTER 1 - INTRODUCTION ... 14

1.2. Research Problems ... 17

1.3. Research Questions ... 17

1.4. Research Objectives ... 17

1.5. Scope and Limitation ... 18

1.6. Significance of Study ... 18

CHAPTER 2 - LITERATURE REVIEW ... 19

2.1 Framework of Thinking ... 19

2.1.1 Working Capital Management ... 20

2.1.1.1 Net Trade Cycle ... 21

2.1.1.2 Firm Specific Independent Variable ... 22

2.1.2 Corporate Performance ... 23

2.2 Previous Studies ... 24

2.3 Study Differences ... 25

2.4 Research Model ... 27

2.5 Hypothesis ... 28

CHAPTER 3 – RESEARCH METHODS ... 29

3.1 Type of Study ... 29

3.2 Unit of Analysis ... 30

3.3 Population and Sample Planning ... 31

3.4 Type of Data and Collection Method ... 34

3.5 Variable Operationalization ... 35

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3.5.1 Independent Variables ... 35

3.5.2 Dependent Variable ... 36

3.5.3 Control Variable ... 36

3.6 Analytical Method ... 38

3.6.1 Model Selection Test ... 39

3.6.2 Classic Assumption Test ... 41

3.6.3 Hypothesis Testing ... 43

3.6.4 Adjusted R-squared Test ... 44

CHAPTER 4 – RESULTS AND DISCUSSIONS ... 45

4.1 Brief Company Background ... 45

4.1.1 PT Astra International Tbk. ... 45

4.1.2 PT Astra Otoparts Tbk. ... 45

4.1.3 PT Indo Kordsa Tbk. ... 46

4.1.4 PT Goodyear Indonesia Tbk. ... 46

4.1.5 PT Gajah Tunggal Tbk. ... 47

4.1.6 PT Indomobil Sukses Internasional Tbk. ... 47

4.1.7 PT Indospring Tbk. ... 48

4.1.8 PT Multi Prima Sejahtera Tbk. ... 48

4.1.9 PT Multistrada Arah Sarana Tbk. ... 48

4.1.10 PT Nipress Tbk.... 49

4.1.11 PT Prima Alloy Steel Universal Tbk. ... 49

4.1.12 PT Selamat Sempurna Tbk. ... 49

4.2 Respondent Profile / Characteristic ... 50

4.2.1 Net Trade Cycle ... 50

4.2.1.1 Day Sales Outstanding ... 50

4.2.1.2 Day Inventories Outstanding ... 52

4.2.1.3 Day Payable Outstanding ... 53

4.2.2 Firm Size ... 54

4.2.3 Return on Assets (ROA) ... 55

4.2.4 Corporate Performance ... 56

4.3 Analysis of Research Result ... 57

4.3.1 Descriptive Statistics ... 57

4.3.2 Model Selection Test ... 60

4.3.2.1 Model Selection Test for Model 1 ... 61

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4.3.2.3 Model Selection Test for Model 3 ... 63

4.4 Classic Assumption Test ... 64

4.4.1 Normality Test ... 64

4.4.2 Heteroscedasticity Test ... 64

4.4.3 Autocorrelation Test ... 64

4.4.4 Multicollinearity Test ... 64

4.5 Hypothesis Testing ... 65

4.5.1 F-test ... 66

4.5.1.1 F-test for Model 1 ... 67

4.5.1.2 F-test for Model 2 ... 67

4.5.1.3 F-test for Model 3 ... 67

4.5.2 T-test ... 68

4.5.3 Adjusted R-square Test ... 71

4.5.3.1 Adjusted R-square Test for Model 1 ... 72

4.5.4 Result of Research Analysis ... 73

CHAPTER 5 – CONCLUSIONS AND RECCOMENDATIONS ... 78

5.1 Conclusions ... 78

5.2 Recommendations ... 79

5.2.1 For Academics ... 79

5.2.2 For Investors... 80

5.2.3 For Companies ... 80

GLOSSARY ... 81

REFERENCES ... 84

APPENDICES ... 87

APPENDIX 1: RESEARCH SAMPLES ... 87

APPENDIX 2: RESEARCH DATA ... 88

APPENDIX 3: DESCRIPTIVE STATISTICS ... 90

APPENDIX 4: REGRESSION RESULT FOR MODEL 1 ... 91

 Pooled Least Square ... 91

 Fixed Effect Model... 92

 Random Effect Model ... 93

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APPENDIX 7: MODEL SELECTION TEST FOR MODEL 1 ... 100

 Chow Test ... 100

 Hausman Test ... 101

 Chow Test ... 102

 Chow Test ... 104

APPENDIX 10: MULTICOLLINEARITY TEST RESULT ... 106

CURRICULUM VITAE ... 107