Measuring Debt-Profit Relation: Evidence in Energy Sector from Indonesia Stock Exchange

Abstract

This research aims to assess the impact of debt utilization on the performance of companies listed on the Indonesia Stock Exchange during the period of 2012-2021. Panel data analysis is employed to analyze 35 companies operating in the energy sector, includes the use of a fixed effect model, common effect model, and Hausman test to determine the most suitable model for analysing the data. Short-term and long-term debt measurements are used as independent variables to evaluate their effects on company performance based on accounting metrics, including Return on Assets (ROA), Return on Equity (ROE), and Return on Sales (ROS). The findings reveal that both short-term and long-term debt significantly affect company profitability. Additionally, companies in the energy sector predominantly rely on long-term debt for financing. Tangible assets and company size exhibit varying effects on performance. Furthermore, macroeconomic factors, such as exchange rates, play a significant role. These findings are consistent with the "pecking order" theory, which suggests that debt financing is costlier and entails greater information asymmetry compared to internal resources. The study underscores the importance of considering macroeconomic indicators, such as exchange rates and loan interest rates, in understanding the dynamics of the energy sector in Indonesia. Additionally, the results provide valuable insights for policymakers and practitioners in optimizing debt utilization strategies in the energy sector. This research contributes to the existing literature by integrating macroeconomic variables, particularly exchange rates and loan interest rates, into the analysis of debt utilization and company performance in the Indonesian energy sector, thereby providing a comprehensive understanding of its dynamics.