Effect of Leverage and Net Profit to the Firm Performance in Indonesia’s Small Medium Enterprises (SMEs) Listed Firms

Muhammad Masyhuri

doi:10.59653/ijmars.v2i01.306

Authors

Muhammad Masyhuri Faculty of Business and Economics, University of Pecs

DOI:

https://doi.org/10.59653/ijmars.v2i01.306

Keywords:

SMEs, firm leverage, net profit, firm performance, listed companies

Abstract

Whether large corporations or small medium enterprises (SMEs), it is of utmost importance for all companies to achieve good firm’s performance in order to secure their existence in the economy, especially as publicly traded companies. The purpose of this study is to investigate the impact of firm’s leverage and net profit on the performance of listed SMEs in Indonesia. A total of 148 samples of secondary data used for this study were obtained from the Pefindo25 SME Index for companies listed on the Indonesian Stock Exchange from 2012 to 2017. The result shows that the two independent variables, the leverage and net profit, have a significant impact on the firm performance of SMEs, in opposite directions; the leverage variable has a negative significant impact on firm performance, while the variable net profit has a positive impact on firm performance.

Downloads

Download data is not yet available.

References

Abu-Abbas, B. M., Alhmoud, T., & Algazo, F. A. (2019). Financial leverage and firm performance evidence from Amman stock exchange. The European Journal of Comparative Economics, 16(2), 207–237.

Ahmed, R., & Bhuyan, R. (2020). Capital structure and firm performance in Australian service sector firms: A panel data analysis. Journal of Risk and Financial Management, 13(9), 214.

Ainiyah, N., Deliar, A., & Virtriana, R. (2016). The classical assumption test to driving factors of land cover change in the development region of northern part of west Java. The International Archives of Photogrammetry, Remote Sensing and Spatial Information Sciences, 41, 205.

Aliabadi, S., Dorestani, A., & Balsara, N. (2013). The most value relevant accounting performance measure by industry. Journal of Accounting and Finance, 13(1), 22–34.

Aziz, S., & Abbas, U. (2019). Effect of debt financing on firm performance: A study on non-financial sector of Pakistan. Open Journal of Economics and Commerce, 2(1), 8–15.

Berenson, M. L., Levine, D. M., Szabat, K. A., & Stephan, D. F. (2019). Basic business statistics: Concepts and applications. Pearson.

Chen, S., Wang, Y., Albitar, K., & Huang, Z. (2021). Does ownership concentration affect corporate environmental responsibility engagement? The mediating role of corporate leverage. Borsa Istanbul Review, 21, S13–S24. https://doi.org/https://doi.org/10.1016/j.bir.2021.02.001

Fajaria, A. Z., & Isnalita, N. (2018). The effect of profitability, liquidity, leverage and firm growth of firm value with its dividend policy as a moderating variable. International Journal of Managerial Studies and Research (IJMSR), 6(10), 55–69.

Gharsalli, M. (2019). High leverage and variance of SMEs performance. The Journal of Risk Finance, 20(2), 155–175.

Greene, W. H. (2018). Econometric analysis (Eight Edition). Pearson.

Hair, J F, Black, W. C., Babin, B. J., & Anderson, R. E. (2019). Multivariate Data Analysis (Eight edition). Cengage Learning EMEA: United Kingdom.

Hair, Joseph F, Black, W. C., Babin, B. J., & Anderson, R. E. (2014). Multivariate data analysis: Pearson new international edition. In Essex: Pearson Education Limited (Vol. 1, Issue 2).

Herdjiono, I., & Sari, I. M. (2017). The effect of corporate governance on the performance of a company. Some empirical findings from Indonesia. Central European Management Journal, 25(1), 33–52.

House, W. C., & Benefield, M. E. (1995). The Impact of Sales and Income Growth on Profitability and Market Measures in Actual and Simulated Industries. Developments in Business Simulation and Experiential Learning: Proceedings of the Annual ABSEL Conference, 22.

Inam, A., & Mir, G. M. (2014). The impact of financial leverage on firm performance in fuel and energy sector, Pakistan. European Journal of Business and Management, 6(37), 339–347.

Iqbal, U., & Usman, M. (2018). Impact of Financial Leverage on Firm Performance: Textile Composite Companies of Pakistan. SEISENSE Journal of Management, 1(2), 70–78.

Li, K., Niskanen, J., & Niskanen, M. (2019). Capital structure and firm performance in European SMEs: Does credit risk make a difference? Managerial Finance, 45(5), 582–601.

Nadeem, M., Ahmad, R., Ahmed, A., Ahmad, N., Batool, S. R., & Rehman, K. U. (2015). The effect of leverage on financial health of the firms: a study from cement industry of Pakistan. Industrial Engineering Letters, 5(5), 123–127.

Ngatno, Apriatni, E. P., & Youlianto, A. (2021). Moderating effects of corporate governance mechanism on the relation between capital structure and firm performance. Cogent Business & Management, 8(1), 1866822.

Ramezani, C. A., Soenen, L., & Jung, A. (2002). Growth, corporate profitability, and value creation. Financial Analysts Journal, 58(6), 56–67.

Saidat, Z., Silva, M., & Seaman, C. (2019). The relationship between corporate governance and financial performance: Evidence from Jordanian family and nonfamily firms. Journal of Family Business Management, 9(1), 54–78.