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THE INFLUENCE OF TIME INTEREST EARNED AND PROFITABILITY TOWARDS CAPITAL STRUCTURE (Study Case of PT. Bank Mandiri (Persero) Tbk Period 2009-2012)
By
Eri Rahman
014200900045
A thesis presented to the
Faculty of Economics President University
in partial fulfillment of the requirement for
Bachelor Degree in Economics Major in Management
March 2013
2
i
THESIS ADVISOR
RECOMMENDATION LETTER
This thesis entitled “THE INFLUENCE OF TIME INTEREST EARNED
AND PROFITABILITY TOWARDS CAPITAL STRUCTURE STUDY CASE
OF PT. BANK MANDIRI (PERSERO) TBK PERIOD 2009-2012” prepared and
submitted by Eri Rahman in partial fulfillment of the requirements for the degree
of Bachelor Degree in the Faculty President University has been reviewed and found
to have satisfied the requirements for a thesis fit to be examined. I therefore recommend
this thesis for Oral Defense.
Cikarang, Indonesia, January 31St, 2013
Acknowledge By Recommended by,
Irfan Z Habsjah, MBA, CMA Purwanto ST, MM Head of Management Study Program Thesis Advisor
ii
PANEL OF EXAMINERS APPROVAL SHEET
The Panel of Examiners declare that the thesis THE INFLUENCE OF TIME
INTEREST EARNED AND PROFITABILITY TOWARDS CAPITAL
STRUCTURE IN PT. BANK MANDIRI (PERSERO) TBK PERIOD 2009-2012
that was submitted by Eri Rahman majoring in Banking and Finance from the Faculty of
President University was assessed and approved to have passed the Oral Examinations
on March 4th 2013
Drs. Bruno Rumyaru MA Chair - Panel of Examiners
Irfan Z Habsjah, MBA, CMA Examiners I
Iman Heru Wijayanto, MBA Examiners II
iii
ABSTRACT
Company in determining the capital structure of corporate funds filled by two factors: it’s by own capital (equity) or by foreign capital (debt) that must be consider several factors. Here Time Interest Earned and Profitability are two from several factors that researcher use to determine the influence of the management of the company in determining the decision company in Capital Structure proportion. This study aims to determine the influence of Time interest earned and Profitability towards Capital Structure in Banking Sectors (Case Study PT. Bank Mandiri Persero Tbk Period 2009-2012). PT. Bank Mandiri (Persero) Tbk selected because become a bank that have large influence and have biggest asset in period January 2009 – 2012. This study used a sample of PT. Bank Mandiri (Persero) Tbk as a bank that will be examined in side of Capital Structure and Variables that influence it. Variables that used are Times Interest Earned and Profitability as Independent Variables then Capital Structure used as Dependent Variable in this research. This study use Multiple Regression Analysis to see and interpret the result, whether there are contributions of each Variable individually and simultaneously to Capital Structure. The result of this research is accepted the Ha Hypothesis, which means that all Independent Variable individually and Simultaneously give influence to Capital Structure of PT. Bank Mandiri (Persero) Tbk Period 2009 – 2012.
Keywords: Capital Structure, Time Interest Earned, Profitability
iv
ACKNOWLEDGEMENT
First of all, I would like to thank God Allah SWT for all the blessing and guidance all
also to Prophet Muhammad SAW, that make researcher can complete the thesis
entitled “THE INFLUENCE OF TIME INTEREST EARNED AND
PROFITABILITY TOWARD CAPITAL STRUCTURE STUDY CASE PT. BANK
MANDIRI (PERSERO) TBK PERIOD 2009 – 2012” very well, both morally and
spiritually. And not forget researcher want to say many thanks to:
1. My beloved parents, Hj. Emi and H. Rusman, who have fought hard to
support and prayed for me, moral guidance and endless trust in every step and
decision that taken by me over the years, until I can complete my studies at
President University.
2. My brother Eman Sulaeman, his wife Wati and my nephew Dicky Aditya
Nugraha thanks for your kindness, attention and support during my study.
3. Mr Purwanto ST, MM and Mr Iman Heru Wijayanto MBA, as my advisor in
this study that has given me a lot of time and attention to give me guidance
and direction during the preparation process of this thesis.
4. My beloved friends of SMA Plus Astha Hannas, Mulya, Andriyansyah, Deni
OP, Tommy WW, M Irvan T, Asep SH, Septira TSS, Dewi W, Devi WA, Lia
Y, Laela N, Diana PH, Rinda HP, Iskandar, MH Rijal, Sumarno H, Novia S,
Brillian C, Siska B, Edwin H, Gery F, Dede AW and all of SMA Plus Astha
Hannas Member that I can’t mention one by one thanks for this togetherness
and spirit of kinship.
5. Special thanks to my best friends Rendy Martindo Y, M Yogi Rahardi, M
Iqbal H, Tedy Rianto LG, Z Angga Winata, Alfian F, Agil T, Giannie Abdu,
Antonius T for their kindship to accompanying me during education process
and support me to being able to finish this thesis.
6. All who have been supported me direct and indirectly, thanks for the support
v
vi
TABLE OF CONTENT
Table of Contents THESIS ADVISOR ....................................................................................................... i
RECOMMENDATION LETTER .................................................................................. i
PANEL OF EXAMINERS APPROVAL SHEET ........................................................ ii
ABSTRACT ................................................................................................................ iii
ACKNOWLEDGEMENT .......................................................................................... iv
TABLE OF CONTENT .............................................................................................. vi
LIST OF TABLES ....................................................................................................... x
LIST OF FIGURES .................................................................................................... xi
CHAPTER I INTRODUCTION ....................................................................................................... 1
1.1 Background of the Study ................................................................................ 1
1.2 Company Profile ............................................................................................. 3
1.2.1 PT. Bank Mandiri (Persero) Tbk ............................................................. 3
1.2.2 Vision: ..................................................................................................... 3
1.2.3 Company’s Achievement: ....................................................................... 4
1.3 Problem Identified .......................................................................................... 5
1.4 Statement of Problem ..................................................................................... 5
1.5 Research Objective ......................................................................................... 6
1.6 Significance of the Study ............................................................................... 6
1.7 Theoretical Framework .................................................................................. 7
1.8 Scope and Limitations of the Study ............................................................... 8
1.9 Assumptions and Hypothesis ......................................................................... 8
1.10 Definitions of Terms ...................................................................................... 9
CHAPTER II LITERATURE REVIEW........................................................................................... 10
vii
2.1 LITERATUR REVIEW ............................................................................... 10
2.1.1 Bank ...................................................................................................... 10
2.1.2 Capital Structure.................................................................................... 12
2.1.3 Sources of Capital Structure ................................................................. 12
2.1.4 Financial Ratios ..................................................................................... 13
2.1.5 Static Trade off Theory ......................................................................... 14
2.1.6 Factors that influence Capital Structure ................................................ 15
CHAPTER III RESEARCH METHODOLOGY ............................................................................... 21
3.1 Research Method .......................................................................................... 21
3.2 Research Framework .................................................................................... 22
3.3 Research Time and Place ............................................................................. 25
3.4 Research Instrument ..................................................................................... 25
3.4.1 Method of Data Collection .................................................................... 25
3.4.2 Instrument for Data Analysis ................................................................ 26
3.5 Sampling Design .......................................................................................... 27
3.5.1 Sampling Technique.............................................................................. 28
3.5.2 Statistical Treatment.............................................................................. 28
3.6 Assumption and Hypothesis ......................................................................... 29
3.7 Classical Assumption Test ........................................................................... 29
3.7.1 Normality Test ...................................................................................... 29
3.7.2 Heterocedasticity Test ........................................................................... 30
3.7.3 Multicolinearity Test ............................................................................. 30
3.7.4 Autocorrelation Test.............................................................................. 31
3.8 Multiple Regression Analysis....................................................................... 32
3.9 Testing Hypothesis ....................................................................................... 33
3.9.1 Correlation Coefficient (R) ................................................................... 33
3.9.2 Coefficient of Determination (R2) ......................................................... 34
3.9.3 F Test ..................................................................................................... 34
viii
3.9.4 T Test .................................................................................................... 35
3.10 Limitation of Study ...................................................................................... 36
CHAPTER IV ANALYSIS OF DATA AND INTERPRETATION OF RESULT ........................... 37
4.1 Analysis of Data Collection ......................................................................... 37
4.1.1 Capital Structure.................................................................................... 37
4.1.2 Time Interest Earned ............................................................................. 40
4.1.3 Profitability ........................................................................................... 42
4.2 Descriptive Statistic of Variables ................................................................. 44
4.3 Classical Assumption Test Result ................................................................ 45
4.3.1 Normality Test ...................................................................................... 45
4.3.2 Multicollinearity Test ............................................................................ 48
4.3.3 Heterocedasticity Test ........................................................................... 49
4.3.4 Autocorrelation Test.............................................................................. 50
4.4 Multiple Regression Analysis....................................................................... 51
4.5 Model Testing ............................................................................................... 53
4.5.1 Coefficient Correlation (R) ................................................................... 53
4.5.2 Coefficient Determination (R2) ............................................................. 53
4.5.3 F-Test .................................................................................................... 54
4.5.4 T-Test .................................................................................................... 55
4.6 Results Interpretation ................................................................................... 57
4.6.1 The Influence of Time Interest Earned (X1) towards Capital Structure (Y) 57
4.6.2 The Influence of Profitability (X2) towards Capital Structure (Y) ....... 58
4.6.3 The Influence of Time Interest Earned (X1) and Profitability (X2) towards Capital Structure (Y) .............................................................................. 58
CHAPTER V CONCLUSION AND RECOMMENDATION ......................................................... 60
5.1 Conclusion .................................................................................................... 60
ix
5.2 Recommendation .......................................................................................... 62
5.2.1 Recommendation................................................................................... 62
REFERENCES ........................................................................................................... 64
APPENDICES ........................................................................................................... 66
x
LIST OF TABLES
Table 3.1 Interpretation for Correlation Coefficient ………………………………..33
Table 4.1 Capital Structure of PT. Bank Mandiri (Persero) Tbk Periods 2009-2011………...............................................................................................................39
Table 4.2 Time Interest Earned of PT. Bank Mandiri (Persero) Tbk Periods 2009-2011……………………………………………………………………………….…41
Table 4.3 Profitability of PT. Bank Mandiri (Persero) Tbk Periods 2009-2011………………………………………………………………………….………43
Table 4.4 Descriptive Statistics of Independent Variable …………………………………………………...………………………….…….…44
Table 4.5 Non Parametic Kolmogorov Smirnov Test………………………………………………..………………… …….………..47
Table 4.6 Tolerance and VIF Value………………………………………..……….…………….……………….. 48
Table 4.7 Durbin Watson Test…….……………………………………………………………………….……51
Table 4.8 Multiple Regression Analysis Result……………………………………..………………………… ……….…….. 51
Table 4.9 Coefficient Correlation (R) and Determination (R2) Test Result……………………………………………………………………..…..……...53
Table 4.10 F-Test Result………………………………………………………………………..… …....55
Table 4.11 T-Test Result………………………………………………………………………..……….56
xi
LIST OF FIGURES
Figure 1.1 Research Framework………………………………………….………..….7
Figure 1.2 Asumption Framework………………………………………………..…..7
Figure 3.1 Research Framework……………………………………………………..23
Figure 4.1 Capital Structure of PT. Bank Mandiri (Persero) Tbk Periods 2009-2011………………………………………………………………………….………38
Figure 4.2 Time Interest Earned of PT. Bank Mandiri (Persero) Tbk Periods 2009-2011……………………………………………………………………………….....40
Figure 4.3 Profitability of PT. Bank Mandiri (Persero) Tbk Periods 2009-2011………………………………………………………………….………………42
Figure 4.4 Histogram Graphics…………………………………………………………………………… .45
Figure 4.5 Normal Probability Plot………………………………………………………………………………..….46
Figure 4.6 Heterocedasticity Test………………………………………………..……………………………..…..50
xii
1
CHAPTER I
INTRODUCTION
1. INTRODUCTION
1.1 Background of the Study Within the company, capital structure indicates how the company
finances its operations or how the company finances its assets. Companies
need funds from its own capital and foreign capital. Riyanto (1993:15) says
that "capital structure reflects the way the assets are spent, thus capital
structure is reflected in the overall liabilities in the balance sheet. Capital
structure also reflects the overall balance of foreign capital (both short and
long term) with its own capital." Capital structure is the ratio between the debt
(foreign capital) and equity (own capital). In the application of capital
structure, firms need to consider a variety of variables that influence it.
Several theories were put forward many factors that influence the capital
structure decision. Baral (2004) stated that the higher the company's ability to
pay interest on the loan, the higher the firm's debt capacity. From these studies
concluded that Baral Time interest earned influence capital structure
decisions. By and Houston (2001:39) there are several factors that influence
the capital structure decision are: stability of sales, asset structure, operating
leverage, growth rate, profitability, tax, control, management attitude, the
attitude of lenders and appraisers agency ratings, market conditions, internal
conditions, financial flexibility.
2
The company's managers must consider the cost of capital will determine
whether the financing structure financing needs met by their own capital or
with foreign capital. Broadly speaking, capital structure is a combination of
debt (foreign capital) and equity (equity) of the company. The main objective
is to form a combination of financial managers to lower funding costs as low
as possible, dividend policy and revenue, and maximize shareholder wealth.
Appropriate capital structure policy will increase the company's share price,
thus prosperity shareholders also increased. To that end, the company in
deciding whether to use their own capital or foreign capital should start with
the ability to increase the prosperity of the owner.
Given the importance of capital structure in making investment decisions, the
researchers interested in studying the influence of time interest earned on
capital structure and profitability. Time interest earned researcher choose as
an aspect that represent in debt sector and profitability is sector that represent
profit in company in process or determining proportion of capital structure
decisions. Researchers wanted to know which of the time factor and the
interest earned profitability really influential in corporate capital structure
decisions. Research conducted a replication study of the previous studies were
similar.
Researchers interested in analyzing time interest and profitability as the
independent variable to the capital structure. In this study the researchers
chose because banking is a banking company or a financial institution
engaged in corporate finance. As a financial institution, the bank provides
various types of financial services.
To be able to provide services in the field of financial services, the bank
would require funds. Fulfillment bank funding comes from two sources,
namely internal sources and external sources. The selection of the source of
3
funds banks have done exactly as it relates to the size of the cost to be borne.
The amount of costs to be borne depends on the structure of loans and equity
capital.
Based on the descriptions above researcher will conduct research here re-titled
the influence of Times Interest Earned and Profitability towards Capital
Structurein PT. Bank Mandiri (Persero) Tbk. Periods January 2009 until 2012.
The difference of this study with previous studies is the study chose
researching Time Interest Earned and Profitability for both these factors are
factors that influence the capital structure of the company and at different
times.
1.2 Company Profile
1.2.1 PT. Bank Mandiri (Persero) Tbk
PT Bank Mandiri (Persero) Tbk. is a bank headquartered in Jakarta, and is the
largest bank in Indonesia in terms of assets, loans, and deposits. The bank was
established on October 2, 1998 as part of the restructuring program
implemented by the Government of Indonesia. In July 1999, the four
government-owned banks, namely, Bank Bumi Daya (BBD), Bank Dagang
Negara (BDN), Indonesia Export-Import Bank (Exim Bank), and the
Development Bank of Indonesia (Bapindo), combined into Bank Mandiri.
1.2.2 Vision:
Become a Financial Institution Indonesia's most admired and always
progressive
Mission:
1. Oriented to meeting the needs of the market
2. Developing human resources professional
4
3. Gives the maximum benefit to stakeholders
4. Implementing an open management
5. Caring for the benefit of society and the environment
1.2.3 Company’s Achievement:
As of December 2011, total assets of Bank Mandiri has reached Rp
551.9 trillion, which is double the amount of total assets in 2006 (amounting
to Rp 267 trillion), or 15.6% growth (CAGR). It cements our position as the
Bank Mandiri, Indonesia's largest bank. Credit bank also grew to Rp 314.4
trillion, an increase of 22% (CAGR) of loans in 2006 amounted to Rp 118
trillion. While we grew net profit to Rp 12.2 trillion, an increase of 28.3%
(CAGR) from 2006's Rp 2.4 trillion. In addition to being the largest lender in
Indonesia (on a consolidated basis), Bank Mandiri is the largest savings bank
in Indonesia by third party funds of Rp 422.3 trillion. Bank Mandiri has also
managed to maintain strong asset quality, as evidenced by the value of Gross
and Net NPL Ratio are respectively 2.21% and 0.52%. One of the important
moments in the second stage of the transformation process is successful rights
issue in February 2011 to strengthen bank capital. With this, the capital of
Bank Mandiri has reached Rp 62.7 trillion, an increase of 48.9% year on year
and became the first bank in Indonesia who earned his International Bank, in
accordance with the Banking Architecture or Indonesian Banking
Architecture (API).
Performance Bank Mandiri is also supported by the subsidiaries that
provide significant revenue contribution, which is about 12% of the
consolidated net profit of Bank Mandiri. Today the Bank has the largest ATM
network, namely the number of 10,000 units that have been installed and are
spread throughout Indonesia. This makes the Bank as the best bank in the
service for 4 years in a row and become the most trusted company in
5
Indonesia for Good Corporate Govenance for 5 consecutive years. After
meeting the various requirements of Bank Indonesia, Bank Mandiri is now
entitled to bear the title as the International Bank has been operating in the
regional banking sector and the banks are ready to be a role model in
Indonesia. This is also supported by our vision to be the Financial Institution
of the Most Admired and Most Progressive in Indonesia.
1.3 Problem Identified The problem identified realized that there is an influence between Time
Interest Earned and Profitability Towards Capital Structure in PT. Bank
Mandiri (Persero) Tbk. Here the capital structure will be defined as the
proportion of ratio total debt and total assets.
According to Prabansari and Kusuma (2005) show that there is positive
influence that significant profitability toward capital structure at company’s.
According to Baral (2004) assumed that the higher the company’s ability to
pay interest on the loan, the higher debt capacity.
Guided by those statements, the researcher decided to choose “The Influence
of Time Interest Earned and Profitability Towards Capital Structure in PT.
Bank Mandiri (Persero) Tbk. Periods 2009-2012” as an object for
investigation.
1.4 Statement of Problem This research conducted in order to explore:
1. Is there any influence between times interest earned to Capital
Structure in PT. Bank Mandiri (Persero) Tbk Periods 2009-2012?
6
2. Is there any influence between profitability to Capital Structure in PT.
Bank Mandiri (Persero) Tbk Periods 2009-2012?
3. How does Times Interest Earned and Profitability give influence on
Capital Structure in PT. Bank Mandiri (Persero) Tbk Periods 2009-
2012?
1.5 Research Objective The research objectives of this thesis:
1. To analyze the influence of times interest earned to capital structure in
PT. Bank Mandiri (Persero) Tbk Periods 2009-2012.
2. To analyze theinfluence of profitability to capital structure in PT.
Bank Mandiri (Persero) Tbk Periods 2009-2012.
1.6 Significance of the Study The expected benefits of this research are:
1. The result of this study are expected to be input for the company’s
management and the consideration for the company in making
decisions related the funding structure of the company so as to
increase the prosperity of the company’s stakeholders.
2. The result of this research can be an input for the development of
science academics especially in the field of financial accounting in the
knowledge about the influence of corporate funding structure.
3. The result of this research can enhance subsequent similar studies.
7
1.7 Theoretical Framework
Based on the background of the problem, literature review, and the result of
previous studies, the researcher makes the following conceptual framework:
Theoretical Framework of the research:
Figure 1.1 Research Theoretical Framework Source: Constructed by researcher
Assumption Framework if:
Figure 1.2 Assumption Framework Hypothesis Source: Constructed by researcher
CAPITAL STRUCTURE (Y)
PROFITABILITY (X2)
TIME INTEREST EARNED (X1)
HIGH:
- TIMES INTEREST EARNED (X1) - PROFITABILITY (X)
INCREASE THE AMOUNT OF CAPITAL STRUCTURE
LOW:
- TIMES INTEREST EARNED (X1) - PROFITABILITY (X)
DECREASE THE AMOUNT OF CAPITAL STRUCTURE
8
1.8 Scope and Limitations of the Study Due to the limitation of research time (September 2012 – January 2013), this
thesis will only rely on Capital Structure, Times Interest Earned, and
Profitability that taken from PT. Bank Mandiri (Persero) Tbk. that has submit
their financial statement at publication of financial statements in Bank of
Indonesia official website.
The research itself will only focus on data in time period of January 2009 –
November 2012. There is no data has been manipulated and the research is
not responsible to the other calculation based on another data that might be
different by the other institution.
1.9 Assumptions and Hypothesis In this research, the researcher assumes that Time Interest Earned and
Profitability are the most important factors compare the other Capital
Structure factors. Time Interest Earned assume as indicator for company
management to consider that how proportion of capital structure of company
financed and also how company ability to pay their interest. Profitability
could be one of the indicators for investor whether they want to invest or not
in a company with considering profitability of company.
Some hypotheses want to be tested by the researcher:
1. H0 – No significance influence on Time Interest Earned towards
Capital Structure.
Ha1 – There is a significanceinfluence on Profitability towards Capital
Structure.
9
2. H0 – No significance influence on Profitability towards Capital
Structure.
Ha1 – There is a significanceinfluence on Profitability towards Capital
Structure.
1.10 Definitions of Terms
1. Capital Structure is the particular combination of debt, equity and
other sources of finance that it uses to fund its long term financing.
2. Profitability is the company's ability to fund its own operations. The
ability company to pay for long-term debt and interest.
3. Times Interest Earned or interest coverage ratio is a measure of a
company’s ability to honor its debt payment (interest payment on debt
that come due).
4. Bank of Indonesia is the central bank of the Republic Indonesia,
which has primary responsibility to maintain monetary stability and
sets banking regulations.
5. Variable is characteristic, number, or quantity that increases or
decreases over time, or takes different values in different situations.
6. Independent Variable is factor or phenomenon that causes or
influences another associated factor or phenomenon.
7. Dependent Variable is factor or phenomenon that is changed by the
effect of an associated factor or phenomenon.
8. Influence is the capacity to have an effect on the character,
development, or behavior of someone or something, or the effect
itself.
10
CHAPTER II
LITERATURE REVIEW
2.1 LITERATUR REVIEW
2.1.1 Bank
Banks are businesses that offer savings, which can carry withdrawal requests
(using a check or make an electronic funds transfer) and distribute it in the
form of commercial loans (Rose and Hudgins, 2010). Apostolic et.al (2009)
split the core activities of the bank on 3 core activities: (1) deposit collection,
the process of raising funds from the public in the form of demand deposits,
savings and time deposits (2) payment services, providing financial services,
namely payment traffic, the transfer process money (3) loan underwriting,
distributing funds to the community in the form of loans. The primary
function of banks is financial intermediation, the process of buying surplus
funds from the business sector, government and households, to be distributed
to deficit economic units. The function of financial intermediation arise as a
result of the high cost of liquidity and price risk because of information
Asymmetric between the owner of the funds (household / net savers) to fund
corporate users (corporations / net borrowers) so it takes the middleman
(intermediary) that is able to accommodate needs of both parties (Saunders,
2008). Furthermore, Saunders (2008) suggests that the function and role of
financial intermediation, namely: (1) function as a broker, (2) function as asset
transformers, (3) role as delegated monitor, (4) role as producer information.
Banking intermediation function has changed as a result of changes economic
environment and financial market developments especially true in countries
developed (industrialized countries) such as countries in the European Union
11
(Bikker & Wesseling, 2003). The development of information technology,
deregulation, liberalization, internationalization factor cause of financial
intermediation theory becomes irrelevant to business practices that occur now
(Scholtens & Wensveen, 2003). These factors tend to reduce transaction costs
(transaction-cost) and get asymmetric between depositors (savers) with
investors and it is contrary to the classical functions of financial
intermediation. Bikker & Wesseling (2003) also stated that the liberalization
and development information technology capital market intermediation has
led to a shift from bank capital markets and non-financial institutions such as
insurance intermediary. Liberalization institutions non-bank finance is seen in
the process of facilitating people to save asset and investment. And
liberalization of society through the freedom in choosing means for storing
assets. Besides the development of technology has helped people to monitor
the progress of their assets and provide opportunities for diversification of
assets owned, thereby reducing the monitoring-cost. It is a Disintermediation
cause in the banking industry. Globalization and the level of competition that
occurs between banking institutions and markets capital also affects the
activity of banking intermediation (banking, business activity). Case led to an
increase in bank consolidation through mergers and acquisition, with the aim
to increase the capacity by increasing the scale of asset (Bikker & Wesseling,
2003). Consolidation of banks led to an increase in ownership by banks
(foreign-owned banks), this is not only happening in developed countries
(Industrialized countries) (Bikker & Wesseling, 2003), but also in developing
countries (Emerging countries) (Mian, 2003). Intermediary function can be
implemented with optimal if supported capital adequate (Buchory, 2006).
Because even if the third party funds raised very large but if it is not offset by
the additional capital the bank will be limited in lending. In line with the
results of Kishan and Opiela (2000) found that credit growth is influenced by
the size of the banks (assets) and bank capital (Leverage ratio) is to increase
12
equity (own capital). Unlike Inderst & Mueller (2008), the results showed that
the assumption in the absence of regulation, leverage has a positive
correlation to the level of credit risk. Or in other words, additional capital
through debt will affect the increased lending.
2.1.2 Capital Structure
How does the company finance its business or operations can be seen from
the proportion of the fund or the capital structure of the company, here is a
comparison between Debt, equity and funds. Riyanto (1993:15) says that
"capital structure reflects the way this company assets are spent, thus the
capital structure is reflected in the overall liabilities of the fund balance.
Capital structure also reflects the overall balance of foreign capital (both short
and long term) with its own capital. " this research using capital structure as
dependent variable with scale ratio. Capital structure is comparison or ratio
between total debt/loan to total assets (Pandey:2002).
2.1.3 Sources of Capital Structure
According to the explanation and expert opinion on the definition of capital
structure and the source or the proportion of the capital structure, here the
researcher tries to explain more clearly about the proportion of capital
structure are also supported expert opinion. According to Bambang Riyanto
(2002:209) in terms of the original Capital structure can be divided into two,
namely:
1. Internal Sources
Capital from internal sources is capital or funds created or produced within
the company itself just as accumulated depreciation (depreciation) from the
13
company's retained earnings. The amount of depreciation each year depending
on the depreciation method used by the company concerned, While the
amount of retained earnings or reserves affected by the amount of income
earned during the period, although the amount of profit earned during the
period, but because the company adopted a policy that the majority of the
profits are distributed as dividends, then the small amount of retained
earnings, which in this case means that the internal source from the reserve is
small.
2. External Sources
Spending from outside the company is spending where business needs capital
derived from sources that are outside the company's capital. Source funds
from outside the company is funding coming from the lenders and owners,
members or part of the company's decision. Capital from creditors is owed to
the company concerned and the fund is called the'' foreign'' or capital
expenditures by foreign purchases of debt (debt financing), while funding
from owners, participants or decision is part of the company's funds to be
remain invested in the company in which the method is called capital
expenditures using funds company owners called themselves spending (equity
financing)
2.1.4 Financial Ratios
Type of financial statement ratios, typically grouped into four the ratio, (R.
Agus Sartono, 1998), namely:
1. Liquidity ratio is the ratio to measure a company’s ability to short term
financial obligation on time. Liquidity ratio that commonly used are:
14
current ratio (ratio of current asset divided by current liability), quick
ratio (ratio of current asset-inventory divided by current liabilities).
2. Activity ratio is a measure of how effectively the company in use of
their resources. Activity ratio that used: receivable turnover (sales
divided by account receivable), average collection period (360divided
by receivable turnover), inventory turnover (cost of goods sold divided
by average inventory), average days in inventory (360 divided by
inventory turnover) and total asset turnover (sales divided by total
asset).
3. Leverage ratio is the ratio to measure how much the company paid
with debt. The ratio are: debt to total assets ratio (total liabilities
divided by total asset), and time interest earned ratio (EBIT divided by
interest expense).
4. Profitability ratio is the ratio to measure a company ability benefit
from the use of capital. The ratio are: gross profit margin(gross profit
divided by sales), operating profit margin (EBIT divided by sales), net
profit margin ( EAT divided by sales) and return on asset (EAT
divided by total asset).
2.1.5 Static Trade off Theory
Shanmugasundaran (2008:164) argues that "a firm's debt ratio is
optimal Viewed as determined by a trade off the costs and benefits of
borrowing, holding the firm's assets and investment plans constant." Bangun
and Sundari (2008) states that "the trade-off theory of capital structure can
explain the difference between the target capital structure of the company."
companies can perform calculations on the optimal capital structure by
considering the increase in the value of the company and the costs that will
arise. The trade off theory of capital structure can explain the difference
15
between the target capital structures of the company. Theory states that the
level of profitability implies greater debt as less risky for lenders. Moreover it
shows the company's ability to pay interest on the debt capacity is greater.
Hence, profitability and earned interest time have a positive effect on capital
structure.
2.1.6 Factors that influence Capital Structure
1. Times Interest Earned
Time interest earned indicates the company's ability to pay interest on
loans to creditors by using operating income. Ability is affecting the
confidence of creditors against the company. The company's ability to pay
interest on their loans, causing investors confident to invest their funds in the
company as it was considered healthy enough to operate. Baral (2004) stated
that the higher the company's ability to pay interest on the loan, the higher the
debt capacity of the company.
Times Interest Earned is the ratio of earnings before interest taxes to
interest expense; measures the company's ability to meet annual interest
payments by the formula Times Interest Earned: EBIT / Interest expense
This ratio measures how much of the operating profit to decline until
the company can not meet annual interest expense. Failure to meet this
obligation may result in legal action from creditors of the company, and may
lead to bankruptcy.
In this research the researcher using formula to calculate Time Interest
Earned with equation earning before interest and taxes (EBIT) divided by
16
interest expense. Greater EBIT to interest expense increased times interest
earned. Thus the company was able to pay interest expense. Decreasing Time
Interest Expense is a sign of growing interest earned lower the company's
ability to pay its debts (Mardiyanto 2009:58)
2. Profitability
Profitability is the ability of a company to make a profit (profits) in a
given period. The same meaning given by Husnan (2001) that the profitability
is the ability of a company to generate profit (profit) on the level of sales,
assets and certain capital stock. Meanwhile, according to Michelle and
Megawati (2005) Profitability is the ability of firms producing income (profit)
on which to base corporate dividends. Profitability describes the ability of the
enterprise to generate profit using all capital owned. This is consistent with
the statement Shapiro (1991:731) "Profitability ratios measure managements
objectiveness as indicated be return on sales, assets and owners equity."The
profitability of a firm will affect the investors on the investment policy that
done. Company’s ability to generate profits will be able to attract investors to
invest their funds in order to expand their business, by contrast levels Low
profitability will cause investors withdraw their funds. As for profitability of
the company itself can be used as an evaluation of the effectiveness of
management of these enterprises. According to Brigham (1993:79)
"Profitability is the net result of a large number of policies and decision. The
ratio Examined thus far reveal some interesting thing about the wry the firm
operates, but the profitability ratios show the combined objects of liquidity,
asset management, and debt management on operating income."
Profitability is the company's ability to generate profits by using the
capital tied up in it. When it is used around the capital tied up in it, in which
17
case the entire assets or equity of the company. This ratio of profit from the
sale of goods or services produced.
in this study researchers used a Net Profit Margin as a measurement
tool for a company's profitability, net profit margin itself function is
measuring how many operational advantages to be gained from every rupiah
sales. Net profit margin was formulated: net profit margin equal to net income
divided by net sales. High ratio indicates a company's ability to generate high
profits at a certain level of sales. Generally low ratio may indicate inefficient
management
The profitability of the company is one of the basic assessment of a
company, for That requires an analysis tool to be able to vote. The analysis
tool is intended ratios finance. Profitability ratios measure the effectiveness of
management by results return derived from sales and investment. Profitability
is also of significant importance in the effort to maintain continuity life in the
long run, because it indicates whether the profitability of those businesses
have good prospects in the future. Thus, any business entity will always try to
improve its profitability, because the higher level of profitability an entity
then the survival of these enterprises will be more secure. Like expressed by
Giulio Battazzi, Angelo Secchi, and Federico Tamagni (July 2008) in journal
entitled "Productivity, Profitabilty, and Financial Performance" states that A
comparative analysis of two crucial dimensions of firms performance:
profitability and productivity, and find Independently from the particular
sector of activity and from financial conditions, there seems to be a weak
market pressure and little behavioral inclination for the more efficient and
more profitable firms to grow faster.
a. Profitability Ratios for Financial Performance Measurement Tool:
18
Profitability assessment is a process to determine how well the activities
conducted business to achieve strategic objectives, eliminate waste-waste and
present timely information to carry out improvements in continuous
(Supriyono. 1999). There are several measures of performance on the
profitability of the company in which the respective measurements associated
with the volume of sales, total assets and capital. Overall these three measures
will allow an analyst to evaluate the level of earnings in relation to the volume
of sales and total assets particular investment from the owner of the company.
Financial profitability of the company described in the form of the profit and
loss is part of the corporate financial statements, which can be used by all
parties concerned to make economic decisions. Based on the financial report
issued by the company, can be explored further information regarding the
company's financial position, capital structure, cash flow, financial
performance and other information which is relevant the company's financial
statements. The profitability of the company's financial performance is
certainly a company that in terms of the company's financial condition.
Reflected in the company's financial profitability financial statements, and
therefore to measure the profitability of a company's financial required
analysis of its financial statements. In the opinion of Shapiro (1991) show that
profitability is perfect to measure the effectiveness of the management and
evaluation of performance management in running a business and
productivity in managing the company's assets are overall as visible on the
return generated by the sales and investment, and to evaluate the economic
performance of the business. In general profitability is a measure of the
overall productivity and performance of the company will eventually show the
efficiency and productivity of the company. Dwi Prastowo (2008) stated that
the performance information of the company, especially profitability is
needed to assess potential changes in economic resources may be controlled in
the future, so as to predict the capacity of the company in generate cash (and
19
cash equivalents) as well as to formulate the company's effectiveness in utilize
additional resources. Profitability ratio is the ratio of a company's ability to
assess and seek advantage. This ratio also provides a measure of the
effectiveness of a company's management. This is shown by the profit
generated from sales and investment income. The point this is the use of
converting the company's efficiency ratio. The use of profitability ratios can
be done using the comparison among the various components are reported
financial balance sheet and income statement. Measurements can be made for
some period of operation. The aim is to look the company's development over
time, either decrease or increase, while looking for the cause of the change.
The results of these measurements can be used as an evaluation tool for this
management performance, whether they have worked effectively or not. If the
target has been achieved determined they are said to have successfully
achieved the target for the period or periods, otherwise if it failed or did not
achieve the set targets, it will be lessons for management for the period ahead.
This failure should be investigated where the location of errors and
weaknesses so that the incident does not recur. Failure or success can be used
as a reference for planning future earnings, as well is likely to replace the new
management, especially after the old management failure. Profitability ratios
are often referred to as one of the performance measures management. As
with other ratios, profitability ratios also had a goal and benefits, not only for
the owner of the business or management, but also for the outside companies,
especially those who have a relationship or interest with the company.
The intended use for the company's profitability ratios, as well as for outsiders
companies, namely;
b. To measure or calculate profits derived by an enterprise during a
period certain;
c. To assess the position of the previous year earnings to current year;
20
d. To assess the earnings progression over time;
e. To assess the magnitude of the net profit after tax to equity capital;
f. To measure productivity across the enterprise funds are used both
capital loans or equity capital;
g. To measure the productivity of your entire enterprise funds are used
for both capital himself;
h. And the other goal.
Meanwhile, the benefits are for;
a. Knowing the level of profits made by the company in the period;
b. Determine the position of the previous year earnings with the current
year;
c. Knowing the profit development from time to time;
d. Knowing the amount of net profit after tax to equity capital;
e. Knowing the productivity of your entire enterprise funds are used for
both capital loans or equity
f. Other benefits.
In practice, according to Kasmir (2008: 199) the types of profitability ratios can be used are:
a. Profit margin (profit margin on sales)
b. Return on Assets (ROA)
c. Return on equity (ROE)
d. Earnings per share.
In this research, the researcher using profit margin or Net Profit Margin as a tools to calculate Profitability as a factor that influence Capital Structure in PT. Bank Mandiri (Persero) Tbk Periods 2009 -2012
21
CHAPTER III
RESEARCH METHODOLOGY
3.1 Research Method Research method can be defined into two main groups, which are qualitative
research and quantitative research (President University, 2008).
1. Richie and Lewis, (2003); Royse, (1999), Qualitative research is
naturalistic, interpretative approach concerned with understanding the
meaning of certain observed phenomena or actions. It examines,
analyzes. Interprets observations for the purpose of discovering
underlying meanings and patterns of relationships in a manner that
does not involve mathematical models. Qualitative research also
provides explanation of reasons and associations between social
variables. The data in this type of analysis is no in the form of
numbers.
2. Ross, (1999). Quantitative research on the other hand uses numbers to
prove or disapprove a notion or hypothesis. The process of
measurement is central to qualitative research because it provides the
fundamental connection between empirical observation and
mathematical expression of qualitative relationships. Qualitative
research uses data that are structured in the form of numbers or that
can be immediately transported into numbers.
This research will conduct as a quantitative research approach which involves
analysis of numerical data in an attempt to explain the matters observed. The
numerical data then will use to prove or disapprove a significant hypothesis.
22
This research will engage in hypothesis testing which is aimed to understand
the certain relationships that exist among variables at a point of time. The
objective of quantitative research is to develop and employ mathematical
models, theories and hypothesis pertaining to natural phenomena.
3.2 Research Framework In this research framework, the researcher will explain the process of data
analyzing and the steps of research. The objective of this research is to
analyzed the influence of Time Interest Earned (X1) and Profitability (X2)
towards Capital Structure (Y) in PT. Bank Mandiri (Persero) Tbk. Periods
January 2009 - November 2012 by using Multiple Regression Method.
Before go to the data analysis, the researcher will test the data first that will be
used by classical assumption test which are Normality test, Heterocedasticity
test and Multicolinearity test and Autocorrelation test between the variable. If
the data passed the test of Normality, Heterocedasticity, Multicolinearity and
Autocorrelation test then the writer will find the coefficient of correlation (R)
and coefficient of determination (R2) in order to know the degree of
correlation and how much the contribution of variable X1 (Time Intrest
Earned) to Y (Capital Structure) and Variable X2 (Profitability) to Y (Capital
Structure) Finally, the researcher will test the hypothesis whether the
hypothesis will be accepted or rejected. Research framework is a diagram or a
chart that describes the methods used in this study. Research framework in
this paper can be seen from the figure 3.1 below:
23
Figure 3.1 Research Framework Source: Constructed by Researcher
Problem Identification: In this section, first mention all the factors or
variables identified as problems that cause a major problem based on a
specific reference or research. Of course, there are many factors that lead to
other problems, but the factors and the problem that will be identify are the
factors and problems that are affordable and controlled by the researcher only.
Literature Review: This section will describe about concepts, notions,
descriptions, types, factors, characteristics, measures, rules and laws that
related with the studied variables based on literature references that support
the statement.
Problem Identification
Literature review: all Variables included
Data Gathering: From Bank of Indonesia Official Website to Ms Office Excel 2007
Data Processing: Processing the data that gathered
Result Interpretation: Interpretation of data that Tested and conducted
Conclusion and Recommendation: Conclusion and recommendation of research that conducted
Using IBM SPSS Statistic V.20
24
Data Gathering: Because this research is using secondary data, the data that
researcher gather are collected from official websites of Bank of Indonesia to
gather the financial statement that publish by PT. Bank Mandiri (Persero) Tbk
during periods January 2009 until latest of financial statement published
during research in November 2012.
Data Processing: After the data are collected and transformed, then the data
are processed using IBM SPSS Statistic V.20 and researcher get the result.
Result Interpretation: The result that researcher get are analyzed and
discussed in this part.
Conclusion and Recommendation: And based from the results above,
conclusion are drawn and recommendation for the reader and for future
research are made.
This research will conduct as a quantitative research approach which
involves analysis of numerical data in an attempt to explain the matters
observed. The numerical data then will use to prove or disprove a significant
hypothesis. The advantage of using quantitative method for the researcher it is
more controllable and more reliable to test the correlation between variables.
This research will engage in hypothesis testing which is aimed to
understand the certain relationships that exist among variables at a point of
time. The objective of quantitative research is to develop and employ
mathematical models, theories and/or hypothesis pertaining to natural
phenomena. Though, it has some qualitative approach to analyze the
mathematical result in this research
25
3.3 Research Time and Place The writer will conduct the research about the influence of Time
Interest Earned and Profitability to the Capital Structure in President
University, located in Jl. Ki HajarDewantara Kota Jababeka, Bekasi 17550,
Indonesia. Independent Variable (Time Interest Earned and Profitability) and
Dependent Variable (Capital Structure) of PT. Bank Mandiri (Persero) Tbk
during Periods January 2009 until November 2012 gathered from Bank of
Indonesia official website on December 8, 2012 until December 12, 2012.
The researcher will conduct the research about the influence of Time Interest
Earned and Profitability towards Capital Structure in PT. Bank Mandiri
(Persero) Tbk Periods 2009-2012 on December 14, in Dormitory.
3.4 Research Instrument Research instrument will describe the procedures and tools used by the
researcher to collect and analyze the data.
3.4.1 Method of Data Collection
According to Agarwal (2009), there are two categories of data, which
are primary data and secondary data. Primary data is the data which are
collected from the respondent directly for the purpose of certain study or
information. For instance, an enquiry is made from each tax payer in a city to
obtain their opinion about the tax collecting machinery.
Secondary data is the data which had been collected by certain people
or agency and statistically treated. Now the information contained in it is used
again from records, processed and statistically analyzed to extract some
information for other purpose. For instance, if the data given in different
census years is again processed to obtain trends of population growth,
26
profession changes, changes in sex ratio, mortality rate, etc. Usually
secondary data is obtained from year books, census reports, survey reports,
official records or reported experimental findings.
The research will conduct by using secondary data: Capital structure,
Time Interest Earned and Profitability gathered on January 8 – 12 December,
2012 from Publication of financial statement in Bank of Indonesia official
website.
Researcher also uses literature study in this research. Literature study
is the method of collecting data from books and other literature related to the
research materials. Literature study used in this research is the use of data
obtained as a theoretical basis as well as studied in the literature on the subject
of all theory about Capital Structure, Time Interest Earned and Profitability
itself.
3.4.2 Instrument for Data Analysis
There are several tools that writer use in this research to help writer in
processing the data which are:
1. IBM Statistics 20.0
SPSS is statistic software for windows. It is use for analyze the data in order
to find out and analyze the significance of the effect between two variables,
and perform normality test, auto-correlation test, and other analysis and test
needed for this research. Where then, the conclusion can be taken by
describing the result of test using Pearson (R), whether to accept or reject the
hypothesis.
27
2. Microsoft Excel 2007
Microsoft Excel help researcher to construct Capital Structure, Time Interest
Earned, and Profitability per month data in tables form and also in graphical
form to make the researcher easier to monitor the data movement.
3.5 Sampling Design Sample is a subgroup or subset of the population. by studying the
sample, researcher should be able to make conclusions that can be generalized
to the population (Sekaran& Roger Bougie, 2009). Sample is used if the size
of population is big and it is impossible for the researcher to study all of the
population, because of time and budget limitation of the researcher. That is
why researcher have to choose the representative sample from the population
(Sugiyono, 2007).
Roscoe (1975) proposes the following rules of thumb for determining
sample size:
1. Sample sizes larger than 30 and less than 500 are appropriate for most
research.
2. Where samples are to be broken into subsamples; (males/females,etc.);
a minimum samples size of 30 is necessary for each category.
3. In the multivariate study, the sample size should be several times
(preferably 10 or more) than the number of variables in the study.
Based on the rules above, researcher takes 47 data samples which are
collected from company’s websites from January 2012 to January 2013.
28
Data analysis is an important thing to do in conducting research. By
doing the proper analysis, the data can be meaningful and useful to solve the
problems faced. Data analysis was performed in two stages which are data
collecting and data processing using multiple regression.
3.5.1 Sampling Technique
The researcher collecting monthly financial statement data of PT.
Bank Mandiri (Persero) Tbk. which accessed from official website of Bank
Indonesia. The data that researcher used in this research are the data during
the period of January 2009 - November 2012.
3.5.2 Statistical Treatment In doing the research, it is important to make sure the instrument that
is developed by researcher to measure a particular concept is indeed
accurately measuring the variable, means, researcher is accurately measuring
the concept that he/she wants to measure (Sekaran and Bougie, 2009).
The Capital Structure, Time Interest Earned and Profitability that the
researcher collected is in form of Rupiah (Rp). The formula to count the
Capital Structure, Time Interest Earned and Profitability are:
1. Capital Structure : Total Debt / Total Assets.
2. Time Interest Earned : EBIT (Earning Before Interest and Taxes)/ Interest
Expense.
3. Profitability (Net Profit Margin): EAT(Earning After Taxes)/Sales.
29
There are several statistical technique that can be applied in order to show
the data validity or data redundancy. Statistical method that is used to analyze
the data in this research is Multiple Regression Analysis.
3.6 Assumption and Hypothesis
Some hypotheses want to be tested by the researcher:
1. H0 – No significance influence on Time Interest Earned towards
Capital Structure in PT. Bank Mandiri (Persero) Tbk Periods 2009-
2012.
Ha1 – There is a significanceinfluence on Profitability towards Capital
Structure in PT. Bank Mandiri (Persero) Tbk Periods 2009-2012.
2. H0 – No significance influence on Profitability towards Capital
Structure in PT. Bank Mandiri (Persero) Tbk Periods 2009-2012.
Ha1 – There is a significanceinfluence on Profitability towards Capital
Structure in PT. Bank Mandiri (Persero) Tbk Periods 2009-2012.
3.7 Classical Assumption Test Before performing the regression analysis, a classical assumptions test
has to be done, in order to estimate an unbiased and efficiency from multiple
regression equation. There are some classical assumptions eligibility criteria
that has to be met.
3.7.1 Normality Test
According to SinggihSantoso (2010), the purpose of the normality test
is to know whether the distribution of the data follow a normal distribution or
30
approach, which is the distribution of the data with a bell. An informal
approach to testing normality is to compare a histogram of the residuals to a
normal probability curve. The actual distribution of the residuals (the
histogram) should be bell-shaped an resemble the normal distribution. This
might be difficult to see if the sample is small. In this case one might proceed
by regressing the measured residuals against a normal distribution with the
same mean and variance as the sample. If the regression produces an
approximately straight line, then the residual can be assumed to be normally
distributed.
3.7.2 Heterocedasticity Test
According to Sulaiman (2004), if the random variables have different
variances, the term means differing variance. In contrast, a sequence of
random variables is called homoscedastic. When it is homoscedastic, it does
not have to question about the assumption of constant variance from Y to the
value of X. Homoscedasticity is not required for the estimates to be unbiased,
consistent and asymptotically normal.
To investigate the relationship between variables, it is helpful to look
at the graph of the data. Such graph is often called scatter diagram or a scatter
plot. According to Anderson (2010), normally the independent variable is
plotted on the horizontal and the dependent variable is plotted on the vertical
axis. This scatter plot reveals an approximate linear relationship between X
and Y, but more importantly, it reveals a statistical condition referred to as
heteroscedastic.
3.7.3 Multicolinearity Test
Multicollinerity means a statistical phenomenon in which two or more
independent variables in multiple regression models are highly correlated
31
(Sekaran and Bougie, 2009). In order to determine the presence or absence of
multicollinearity can be assessed from the large value of Tolerance and its
inverse Value of Inflation Factor (VIF) through SPSS program. Tolerance
measures the amount of variability of the selected independent variable not
explained by the other independent variables. Higher tolerance value means a
smaller degree of multicollinearity. Variance Inflation Factor (VIF), which is
calculated simply as the inverse of tolerance value. The VIF translates the
tolerance value, which directly expresses the degree of multicollinearity. VIF
equals 1/tolerance value, means the higher tolerance the lower VIF value, and
the lower degree of multicollinearity (Hair, Joseph F., et al., 2009).
3.7.4 Autocorrelation Test
Autocorrelation generally occur in time series data. This is because the
observations on time series data follows the natural order of intertemporal
observations, so the successive observation contain intercorrelation especially
if the time span between successive observations is short, such as days, weeks
or months. Gujarati (2012).
Gujarati (2012) also said the presence of autocorrelation in the OLS
(Ordinary Least Squares) has consequences, which are: the estimated OLS is
still linear, unbiased and also consistent and normally asumtotic distributed,
butthe estimator is no longer efficient (having the smallest variance). And
Widarjono (2009) said, if the variance is not the minimum, then the cause
OLS standard error calculation is no longer credible. Furthermore, interval
estimation and hypothesis testing based on the distribution of t and F no
longer be trusted to evaluate the results of the regression. To see the existence
of autocorrelation of dependent variable with itself can be shown from the
value of Durbin-Watson which the range of tolerance is between -2 until 2.
32
3.8 Multiple Regression Analysis Multiple Regression Analysis is used in situation where more two or
more independent variables are hypothesized to affect one dependent variable.
Multiple regression analysis provides a means of objectively assessing th
degree and the character of the relationship between independent variables
and dependent variables. The regression coefficients later used to indicate the
relative importance of each of the independent variables in the prediction of
the dependent variable. Then the model equation used in this research can be
explained as follows (Sekaran and Bougie, 2009):
𝑌 = 𝛽0 + 𝛽1𝑋1 + 𝛽2𝑋2
Where:
Y = Capital Structure
𝛽0 = Constant
𝛽1 = X1 regression coefficient
X1 = Dimension score of times interest earned
𝛽2= X2 regression coefficients
X2 = Dimension score of profitability
Before performing the regression analysis, classical test assumptions
has to be done in order to get estimate an unbiased and efficiency result
(BLUE - Best Linear Unbiased Estimated) from a multiple regression
equation.
33
3.9 Testing Hypothesis
3.9.1 Correlation Coefficient (R)
The correlation coefficient (also known as Pearson’s correlation
coefficient) is used to describe the strength and direction of the linear
relationship between two variables depending on the level of measurement of
variables. According to Rubin (2010), regardless of whether parametric or
nonparametric correlation coefficient is used, it typically ranges between 0.0
and 1.0 or between 0.0 and -1.0. the plus or minus sign in front of correlation
coefficient indicates whether the correlation is positive or negative (inverse)
as shown in table 3.1. Having a minus sign does not mean that the correlation
is weaker. It only shows that the variables are inversely related.
Table 3.1.
Interpretation for Correlation Coefficient
Coefficient Correlation Meaning
0.00> 0.20 Slight
correlation
Almost negligible
relationship
0.20 – 0.40 Low correlation Definite but small
relationship
0.40 – 0.70 Moderate
correlation
Substantial relationship
0.70 – 0.90 High correlation Marked relationship
0.90 – 1.00 Very high
correlation
Very dependable
relationship Source: Sugiyono, ( 2007)
34
3.9.2 Coefficient of Determination (R2)
Coefficient of multiple determinations in multiple regressions is
defined as the proportion variation in the dependent variable that is explained
or accounted for the co variation in the independent variables (Churchill,
Brown, and Suter, 2010). From the calculation of R, we can see the
relationship between independent variable (X1 and X2) and dependent
variable (Y) is positive or negative relationship. Meanwhile determinants are
used to view the contribution of independent variables (X1and X2) in
explaining the dependent variable (Y).
3.9.3 F Test
Significant testing in order to know whether the independent variables
have significant influence into dependent variable simultaneously, then the
equation can be described as follow (Sugiyono, 2007):
𝐹ℎ =
𝑅2𝑘�
(1 − 𝑅2)(𝑛 − 𝑘 − 1)�
Where: R = Multiple correlation coefficient
k = Number of independent variable
n = Number of sample
Here is the step in conducting F test:
1. Hypothesis formulation:
H0 = 𝛽1 = 𝛽2 = 0, mean that simultaneously the independent variables
(X1and X2) do not have significant influence on the dependent variable (Y).
35
Ha = 𝛽1 ≠ 𝛽2 ≠ 0, mean that simultaneously the independent variables (X1
and X2) have significant influence on the dependent variable (Y).
2. Find out the value of F-table with 5% significant
F table = F𝛼; numerator; denumerator
= 0.05; k-1; n-k
3. Accepted Criteria:
H0 accepted if F count < F table at 𝛼 = 5%
Ha accepted if F count > F table at 𝛼 = 5%
3.9.4 T Test
Significant testing in order to know whether the independent variables
is partially have significant influence into dependent variable simultaneously
or not, then the equation can be described as follow:
𝑡 =𝑟√𝑛 − 2√1 − 𝑟2
Where: t = Hypothesis testing
r = Coefficient regression
n = Number of sample
Here is the step in conducting T test:
1. Hypothesis formulation:
H0 = 𝛽1 = 𝛽2 = 0, mean that partially the independent variables (X1 and
X2) do not have significant influence on the dependent variable (Y).
Ha = 𝛽1 ≠ 𝛽2 ≠0, mean that partially the independent variables (X1and
X2) have significant influence on the dependent variable (Y).
36
2. Find out the value of F-table with 5% significant
T table = T(𝛼/2; n-k-1)
= T 0.025; n-k-1
3. Accepted Criteria:
H0 accepted if F count < F table at 𝛼 = 5%
Ha accepted if F count > F table at 𝛼 = 5%
3.10 Limitation of Study From this research, there are some deficiencies and weaknesses in the
preparation of this thesis. Weaknesses and deficiencies in this study are as
follows:
1. This research only takes one example of the banking company that has
biggest assets during periods January 2009 – November 2012 which is PT.
Bank Mandiri (Persero) Tbk.
2. This research is only focusing in two variables which are Capital Structure
as Dependent Variable, Times Interest Earned and Profitability as
Independent Variables.
3. The samples taken in this research is only from January 2009 until
November 2012.
37
CHAPTER IV
ANALYSIS OF DATA AND INTERPRETATION OF
RESULT
4.1 Analysis of Data Collection
4.1.1 Capital Structure
How does the company finance its business or operations can be seen
from the proportion of the fund or the capital structure of the company, here is
a comparison between Capital structure Debt equity funds. Riyanto (1993:15)
says that "capital structure reflects the way this company assets are spent, thus
the capital structure is reflected in the overall liabilities of the fund balance.
Capital structure also reflects the overall balance of foreign capital (both short
and long term) with its own capital. "
In this data collection the researcher using data of financial statement
of PT. Bank Mandiri (Persero) Tbk. As company that used for this research.
Capital Structure data taken from calculation of total ratio between total debt
and total assets from financial statement during period January 2009 until
November 2012. The data for Capital structure summarized in the figure and
table below.
38
Figure 4.1 Capital Structure of PT. Bank Mandiri (Persero) Tbk. Periods January 2009 – November 2012 Source: PT. Bank Mandiri (Persero) Tbk. Financial Statement (Monthly)
From figure above we could see from monthly data the graph show
that the data of PT. Bank Mandiri (Persero) Tbk. are fluctuated. And if w
compare the data year by year even not always increase but it show positive
condition of capital structure. And it indicates good condition for company
financing which even fluctuated or stable but the tendencies keep increase.
0,000,100,200,300,400,500,600,700,80
Janu
ary
Febr
uary
Mar
ch
April
May
June July
Augu
st
Sept
embe
r
Oct
ober
Nov
embe
r
Dece
mbe
r
Aver
age
Per Y
ear
2012 CapitalStructure
2011 CapitalStructure
2010 CapitalStructure
2009 CapitalStructure
39
Table 4.1 Capital Structure of PT. Bank Mandiri (Persero) Tbk.
Periods January 2009 – November 2012
Month
2009
2010
2011
2012
Capital Structure
Capital Structure
Capital Structure
Capital Structure
January 0.47 0.51 0.56 0.59
February 0.48 0.52 0.56 0.61
March 0.49 0.52 0.55 0.62
April 0.49 0.53 0.57 0.63
May 0.48 0.54 0.58 0.63
June 0.49 0.55 0.73 0.63
July 0.49 0.56 0.59 0.63
August 0.49 0.58 0.59 0.63
September 0.5 0.59 0.6 0.64
October 0.5 0.58 0.65 0.65
November 0.51 0.58 0.6 0.62
December 0.48 0.56 0.58 -
Average Per Year
0.49 0.55 0.6 0.62
Source: PT. Bank Mandiri (Persero) Tbk. Financial Statement (Monthly)
Based on the Figure 4.1 and explanation of data in Table 4.1 about Capital
Structure of PT. Bank Mandiri (Persero) Periods January 2009 –November
2012; it shows that although monthly report year by year fluctuate but average
year by year from Capital Structure tend increasing from 2009-2012.
40
4.1.2 Time Interest Earned
In doing this research, the data of Time Interest Earned has been collected
from official website of Bank of Indonesia. These data are monthly time
interest earned that calculated from ratio of EBIT (Earning Before Interest and
Taxes with Interest Expense. The data are monthly Time Interest Earned from
the years of January 2009 - November 2012. The data for Time Interest
Earned are summarized in the figure and table below.
Figure 4.2 Time Interest Earned of PT. Bank Mandiri (Persero) Tbk.
Periods January 2009 – November 2012 Source: Constructed by Researcher from financial Statement of PT. Bank Mandiri (Persero)
Tbk. Periods January 2009 – November 2012.
0,00
0,50
1,00
1,50
2,00
2,50
3,00
Janu
ary
Febr
uary
Mar
chAp
rilM
ayJu
ne July
Augu
stSe
ptem
ber
Oct
ober
Nov
embe
rDe
cem
ber
Aver
age
Per Y
ear
2012 TIE
2011 TIE
2010 TIE
2009 TIE
41
Table 4.2 Time Interest Earned (TIE) of PT. Bank Mandiri
(Persero) Tbk. Periods January 2009 – November 2012
Month
2009
2010
2011
2012
TIE
TIE
TIE
TIE
January 1.58 1.36 1.14 2.16
February 1.62 1.86 2.63 2.17
March 1.53 1.86 2.5 2.23
April 1.55 1.84 2.37 2.31
May 1.56 1.86 2.28 2.36
June 1.60 1.86 2.25 2.37
July 1.62 1.9 2.21 2.4
August 1.63 1.9 2.24 2.41
September 1.65 1.91 2.2 2.46
October 1.65 1.93 2.18 2.48
November 1.67 1.95 2.16 2.52
December 1.72 1.93 2.15 -
Average Per Year
1.61 1.85 2.19 2.35
Source: Constructed by researcher from financial statement of PT. Bank Mandiri Tbk.
Periods 2009-2012
Based on the Figure 4.2 and explanation of data in Table 4.2 about
Time Interest Earned of PT. Bank Mandiri (Persero) Periods January 2009 –
November 2012; it shows that although monthly report year by year fluctuate
but average year by year from Time Interest Earned tend increasing from
2009-2012.
42
4.1.3 Profitability
In doing this research, the data of Profitability has been collected from official
website of Bank of Indonesia. These data are monthly time interest earned that
calculated from ratio of Net Income with Operating Income. The data are
monthly Time Interest Earned from the years of January 2009 - November
2012. The data for Time Interest Earned are summarized in the figure and
table below.
Figure 4.3 Profitability of PT. Bank Mandiri (Persero) Tbk. Periods 2009 -2012
Source: Constructed by Researcher from financial Statement of PT. Bank Mandiri (Persero) Tbk. Periods 2009-2012 (monthly)
0,00
0,20
0,40
0,60
0,80
1,00
1,20
Janu
ary
Febr
uary
Mar
ch
April
May
June July
Augu
st
Sept
embe
r
Oct
ober
Nov
embe
r
Dece
mbe
r
Aver
age
Per Y
ear
2012 Profitability
2011 Profitability
2010 Profitability
2009 Profitability
43
Table 4.3 Profitability of PT. Bank Mandiri (Persero) Tbk.
Periods 2009 -2012
Month
2009
2010
2011
2012
Profitability
Profitability
Profitability
rofitability
January 0.17 0.11 1.1 0.28
February 0.17 0.24 0.35 0.28
March 0.15 0.23 0.34 0.28
April 0.16 0.22 0.31 0.29
May 0.16 0.23 0.3 0.29
June 0.16 0.22 0.29 0.29
July 0.17 0.23 0.28 0.29
August 0.17 0.23 0.19 0.29
September 0.18 0.23 0.28 0.3
October 0.18 0.23 0.28 0.3
November 0.18 0.23 0.27 0.31
December 0.19 0.23 0.26 -
Average Per Year
0.17 0.22 0.35 0.29
Source: Constructed by Researcher from financial Statement of PT. Bank Mandiri
(Persero) Tbk. Periods 2009-2012 (monthly)
Based on the Figure 4.3 and explanation of data in Table 4.3 about Time
Interest Earned of PT. Bank Mandiri (Persero) Periods January 2009 –
November 2012; it shows that although monthly report year by year fluctuate
but average year by year from Profitability tend increasing from 2009-2012.
44
With good of company profitability for last three years that indicate positive
increases, it will shows and attract investor to invest their fund to the company
and finally for good of company.
4.2 Descriptive Statistic of Variables
Descriptive statistic is made to obtain calculation results of Mean and
Standard Deviation for both, Independent and Dependent variable. In
analyzing the data, the researcher use monthly data of each of variables
(Capital Structure, Time Interest Earned and Profitability) for the period taken
from January 2009 until November 2012 as it shows from table in previous
part. The statistic descriptive research variable will be described below using
SPSS Statistics 20.0.
Table 4.4 Descriptive Statistic of Dependent and Independent Variables
(PT. Bank Mandiri (Persero) Tbk.)
Descriptive Statistics
N Mean Std. Deviation
Statistic Statistic Std. Error Statistic
Capital_Structure 47 .5645 .00867 .05941
Profitability 47 .2397 .00836 .05732
Time_Interest_Earned 47 1.9940 .05162 .35388
Valid N (listwise) 47
Source: Primary Data, Processed 2013
As we can see from the table above, the dependent variables, which is
Capital Structure, from 47 samples processed, Capital Structure has a mean or
average amount of 0.5645 with the standard deviation of 0.941. While the
independent variables results are: Time Interest Earned with mean 1.9940 and
45
standard deviation about 0.35388 and Profitability with mean 0.2397 and
standard deviation about 0.05941.
4.3 Classical Assumption Test Result Classical Assumption test that will be conducted in this research for
this correlation models is classic assumption test which includes: normality
test, multicollinearity test, heterocedascity test and autocorrelation test.
4.3.1 Normality Test
Normality test aims is to test whether the regression model, residual
confounding, or residual variable has a normal distribution or not (Ghozali,
2005). There are 2 ways to detect whether or not the residuals are normally
distributed with graphical analysis and statistical analysis.
a. Graphical Analysis
Figure 4.4 Histogram Graphics
Source: Primary Data, Processed by SPSS V.20
46
According to histogram displayed above, we can conclude that the
histogram provide a normal distribution pattern (symmetrical / not skewed).
This shows that the regression model fulfill the assumptions of normality.
b. Normal Probability Plot
Figure 4.5 Normal Probability Plot Source: Primary Data, Processed by SPSS V.20
From normal probability plot graphics shown above, the dots are
spread around the diagonal line and follow the diagonal line. This also shows
that the regression model fulfills the normality test.
c. Statistical Analysis
Normality with graphs can be misleading if not visually looks normal,
but statistically the result could be different (Ghozali, 2005). Therefore, in this
research, graphical test comes with a statistical test. The statistical test used
47
for normality test in this research is a non-parametric statistical test of
Kolmogorov-Smirnov (KS). K-S test is done by testing criteria:
1. If the significance value (Asymp.Sig.) > 0.05, then the residual data is
normally distributed.
2. If the significance value (Asymp.Sig.) < 0.05, then the residual data is
not normally distributed.
Table 4.5 Non-Parametic Kolmogorov-Smirnov Test
Source: Primary Data, Processed by SPSS V.20
According to the result of K-S Test above, it shows that the
significance value (Asymp.Sig) is 0.738 which mean its higher than 0.05. So,
we can conclude that the residual data is normally distributed. The result from
this statistical analysis is consistent with the results from graphical analysis of
normality test from before. This shows that the regression model in this
research is have a normal distribution.
One-Sample Kolmogorov-Smirnov Test
Unstandardized
Residual
N 47
Normal Parametersa,b Mean 0E-7
Std. Deviation .03614002
Most Extreme Differences
Absolute .100
Positive .099
Negative -.100
Kolmogorov-Smirnov Z .684
Asymp. Sig. (2-tailed) .738
a. Test distribution is Normal.
b. Calculated from data.
48
4.3.2 Multicollinearity Test
Multicollinearity test aims is to testing whether the independent
variables in this regression model have a correlation of each other or not. In
good regression model, the correlation between the independent variables
should not happen (Ghozali, 2005). Multicollinearity can be seen from
Tolerance value and Variance Inflation Factor (VIF) value. If Tolerance
value > 0.10 or if VIF value < 10, it can be concluded that there are no
multicollinearity between the independent variables in regression model of the
research.
Table 4.6 Tolerance and VIF value
Coefficientsa
Model Collinearity Statistics
Tolerance VIF
1
(Constant)
Time_Interest_Earned .246 4.066
Profitability .246 4.066
a. Dependent Variable: Capital_Structure
Source: Primary Data, Processed by SPSS V.20
If we see the calculation from Table 4.above, it shows that there are no
independent variables that have the Tolerance value below 0.10 (Tolerance >
0.10) which means there are no correlation between the independent variables
that have value more than 95%. The calculation result from Variance Inflation
Factor (VIF) also shows same result, none of the independent variables have
49
VIF value more than 10 (VIF < 10). Based from both Tolerance and VIF
results, we can conclude that there are no multicollinearity between the
independent variables in this regression model of the research.
4.3.3 Heterocedasticity Test
Heterocedasticity test is used to test whether inequalities occur in the
regression model from residual variance of one observation to the other
observations (Ghozali, 2005). If variance from residual of one observation to
the other observations is constant, it is called homocedasticity, and if its
different, it is called heterocedasticity. Good regression model is the
homocedasticity one or when heterocedasticity doesn’t occur. In this research,
researcher used Scatterplot diagram to test whether heterocedasticity in this
regression model is happen or not. The trick is to look at the scatterplot graph.
If there is a particular pattern, such as the existing dots forming a regular
pattern (wavy, widened and then narrowed), it has been indicated
heteroscedasticity. And if there is no clear pattern, and the points spread
above and below the 0 on the Y axis, then heteroscedasticity does not happen
(homocedasticity).
50
Figure 4.6 Heterocedasticity Test Source: Primary Data, Processed by SPSS V.20
From Scatter Plot above, we can see that there is no particular pattern
formed, and the dots are spreading below and above 0 on Y axis. It can be
concluded that heterocedacity did not occurs on regression model.
4.3.4 Autocorrelation Test
Autocorrelation test is used to test the correlation between the
variables from the data time series. Sunyoto (2011) said if autocorrelation
happens, the sample cannot show its variance of population and as a result it
can’t be used to predict the value of dependent variable towards the
independent variable. Furthermore, interval estimation and hypothesis testing
based on the distribution of T and F no longer be trusted to evaluate the result
of the regression. To se the existence of autocorrelation of dependent variable
with itself can be shown from the value of Durbin-Watson which the range of
tolerance is between -2 and 2. And to decide whether there is autocorrelation
or not are based on:
1. Autocorrelation positive if the value of DW is -2 or (DW < -2)
2. No autocorrelation between -2 and +2 or -2 ≤ DW ≤ +2
3. Autocorrelation negative if the value of DW is +2 (DW > +2)
51
Table 4.7 Durbin-Watson Test
Source: Primary Data, Processed by SPSS V.20
Based on the result above, it shows that DW value is 1.470. and
because of counted DW value is between -2 and +2 or -2 ≤ DW ≤ +2, we can
conclude that there is no autocorrelation in this regression model. So the
regression model can be used to see whether the independent variables: Time
Interest Earned and Profitability have an effect to Capital Structure.
4.4 Multiple Regression Analysis From multiple regression analysis tests, the following results are
obtained: regression coefficient, t counted value, and level of significance as
shown from table below.
Table 4.8 Multiple Regression Analysis Result
Coefficientsa
Model Unstandardized
Coefficients
Standardized
Coefficients
t Sig.
B Std. Error Beta
1
(Constant) .328 .032 10.210 .000
Time_Interest_Earn
ed .063 .031 .375 2.030 .048
Profitability .462 .192 .446 2.410 .020
a. Dependent Variable: Capital_Structure Source: Primary Data, Processed by SPSS V.20
Model Summaryb
Model R R Square Adjusted R
Square
Std. Error of the
Estimate
Durbin-Watson
1 .794a .630 .613 .03695 1.470
a. Predictors: (Constant), Profitability, Time_Interest_Earned
b. Dependent Variable: Capital_Structure
52
This study used a standardized regression test results due to match the
size of the independent variables (Time Interest Earned and Profitability)
which have different measurement. The advantage of using a standardized
regression results are able to eliminate the differences in units of measurement
in the independent variable. Besides the standardized regression test results
are used because researcher wants to see the level of priority.
According to the result of multiple regression analysis test that has
been done, formed the following regression equation:
Y = 0.328 + 0.063X1 + 0.426X2
Where:
Y = Capital Structure
X1 = Times Interest Earned
X2 = Profitability
From the regression linear above, we can conclude that:
1. The equation have a Constanta of 0.328 which means that even tough
there are no changes in Time Interest Earned (X1) and Profitability
(X2), there is still an increase in Capital Structure of 0.308 point.
2. Independent Variable Time Interest Earned (X1) have positive
influence on Capital Structure of PT. Bank Mandiri (Persero) Tbk.
with coefficient of 0.063
3. Independent Variable Profitability (X2) have positive influence on
Capital Structure of PT. Bank Mandiri (Persero) Tbk. with coefficient
of 0.426
53
4.5 Model Testing
4.5.1 Coefficient Correlation (R)
Coefficient correlation is used to measure to depict the strength and
direction of the linear relationship between two variables depending on the
level of measurement of variables. If R values are close to 1, it means that it
have strong relationship and can predict perfect correlations between variable
X and Y.
Table 4.9 Coefficient Correlation (R) and Determination (R2) Test Result
Source: Primary Data, Processed by SPSS
From the table above, we can see that the R value is 0.794. It means
that the independent variable (Time Interest Earned and Profitability) have
high and positive correlation towards its dependent variable (Capital
Structure). Also, it means that every increase in one variable, there is a
corresponding increase in other variable.
4.5.2 Coefficient Determination (R2) Coefficient of determination (R2) is used to measure how far the
model's ability to explain variation in the dependent variable (Ghozali, 2005).
R2 values are getting close to 1, meaning the independent variables provide
Model Summaryb
Model R R Square Adjusted R
Square
Std. Error of the
Estimate
1 .794a .630 .613 .03695
a. Predictors: (Constant), Profitability, Time_Interest_Earned
b. Dependent Variable: Capital_Structure
54
almost all the information needed to predict the variation in the independent
variable.
The coefficient of determination being used is the value of Adjusted R
Square because it is more reliable in evaluating the regression model.
Adjusted R Square value can go up or down when the independent variable is
added to the model. In contrast to the value of R2 which would have increased
an additional independent variable, regardless of whether these variables
significantly influence the dependent variable.
From the table 4.10 above, it shows that the value of Adjusted R
Square is 0.613 it means that the change of dependent variable, Capital
Structure of PT. Bank Mandiri (Persero) Tbk. 61, 3% can be explained by the
independent variables (Time Interest Earned and Profitability). And the other
38, 7% is explained by other causes outside the model.
Standard Error of the Estimate (SEE) in the table above is 0.03695,
which have value smaller than the standard deviation which is 0.05941.
Smaller value of SEE will make regression equation more precise in
predicting the dependent variable.
4.5.3 F-Test F test shows whether all the independent variables included in the
model have an influence together on the dependent variable (Ghozali, 2005).
This test is done by comparing the value of F calculated by the value of F
table using a significant level of 5%. If the count value of F is greater than F
table then simultaneously all the independent variables affect the dependent
variable. In addition, you can also see the value of probability. If the
probability value less than 0.05 (for a significance level = 5%), the
independent variables simultaneously affect the dependent variable.
55
Meanwhile, if the probability is greater than 0.05 then the independent
variables simultaneously has no effect on the dependent variable.
Table 4.10 F-Test Result
Source:Primary data processed using SPSS V.20
According to ANOVA test or F-Test Above, the result shows F value
of 37.453 with probability of 0.000. Because F counted > F Table (α =0,05)
3.209, then the regression model can be used to predict the dependent variable
(Capital Structure) and all the independent variable which are Time Interest
Earned and Profitability simultaneously affect to the dependent variable which
is Capital Structure.
4.5.4 T-Test T test is used to see whether independent variables (Time Interest
Earned and Profitability) individually affect Capital Structure dependent
variable or not. T table value in this study is 1.680 (Based on T-Table with
significance level of 0.05).
ANOVAa
Model Sum of Squares df Mean Square F Sig.
1
Regression .102 2 .051 37.453 .000b
Residual .060 44 .001 Total .162 46
a. Dependent Variable: Capital_Structure
b. Predictors: (Constant), Profitability, Time_Interest_Earned
56
Table 4.11 T-Test Result
S
Source: Primary Data, Processed by SPSS V.20
The descriptions about T-Test result above are as follows:
1. Value of T counted of Time Interest Earned variable (X1) is 2.030 with
significance level of 0.048. Because the value of T counted > T table
and significance level <α significance probability = 0.05, then Ho is
rejected and Ha is accepted. It means that Time Interest Earned
variable individually have positive and significant effect on dependent
variable.
2. Value of T counted of Profitability variable (X2) is 2.410 with
significance level of 0.020. Because the value of T counted > T table
and significance level <α significance probability = 0.05, then Ho is
rejected and Ha is accepted. It means that Probability variable
individually have positive and significant effect on dependent variable.
Coefficientsa
Model Unstandardized
Coefficients
Standardized
Coefficients
t Sig.
B Std. Error Beta
1
(Constant) .328 .032 10.210 .000
Time_Interest_Earne
d .063 .031 .375 2.030 .048
Profitability .462 .192 .446 2.410 .020
a. Dependent Variable: Capital_Structure
57
4.6 Results Interpretation This part will present the discussion about the results of the analysis
that has been done before. The results are described as follows:
4.6.1 The Influence of Time Interest Earned (X1) towards Capital Structure (Y)
Time Interest Earned, have positive and significant effect to the
Capital Structure with regression coefficient of 0.063 which means that each
increases of 1 unit of Time Interest Earned (X1), while the other variable is
constant, it will cause an increase of Capital Structure of PT. Bank Mandiri
(Persero) Tbk. by 0.063.
It is proved by the result of t test which shows the t counted value of
2.030> t table which is 1.680 and with significance level of 0.048<α
significance probability = 0.05. Thus, this research proves that the higher the
company’s ability to pay interest on loan to creditor (Time Interest Earned),
the higher the firm’s debt capacity to financing their capital structure. Thus,
it’s matched with Baral (2004) that stated the higher the company’s ability to
pay interest on the loan, the higher the firm’s debt capacity.
It also supported by the data of Times interest Earned and Capital Structure
that parallel show positive or stable trend during 2009 to 2010 (24%) and
followed by capital structure that remain increase from 2009 to 2010 (6%),
then Times Interest Earned from 2010 to 2011 (34%) and for Capital structure
from 2010 to 2011 increase (5%) for period 2011 to 2012 the value of Time
interest earned increase as much 16% followed by increase in Capital
structure worth 2%. if we observe from that data even the percentage not
always increase but it could be show how the Time Interest Earned influence
of the capital structure.
58
4.6.2 The Influence of Profitability (X2) towards Capital Structure (Y)
Statement of the second hypothesis (H2) which states that “Higher
Profitability (X2) will results in higher Capital Structure” can be accepted
because the variable, Profitability, have positive and significant influence to
the Capital Structure with regression coefficient of 0.426 which means that
each increases of 1 unit of Inflation rate (X2), while the other variable is
constant, it will cause an increase of Capital Structure of PT. Bank Mandiri
(Persero) Tbk. by 0.426. It is proved by the result of t test which shows the t
counted value of 2,410> t table which is 1.680 and with significance level of
0.020<α significance probability = 0.05. Thus, this research proves previous
research from Prabansari and Kusuma (2005) which showed a positive and
significant effect on the capital structure of the company.
This research also supported by the data that shows about Profitability and
capital structure that parallel influence, which means high in Profitability will
make increase in Capital Structure and even the data not always increase year
by year like for Profitability 2009-2010 (5%) , 2010-2011(13%), and 2011-
November 2012 (-6%) and for Capital Structure 2009-2010(6%). Based on
the percentage of the data that mentioned it prove that Profitability have a
portion to affect or influence of Capital Structure.
4.6.3 The Influence of Time Interest Earned (X1) and Profitability (X2) towards Capital Structure (Y)
The results of this research show that Capital Structure will be affected
by Time Interest Earned and Profitability. This is proved with the F Test that
had been done before, with the score of 37.453. It means that all the
59
independent variable which is Time Interest Earned and Profitability Rate
simultaneously influence the dependent variable. If the independent variables
show the change, it surely will influence the Capital Structure.
60
CHAPTER V
CONCLUSION AND RECOMMENDATION
5.1 Conclusion This research was made to determine how much Time Interest Earned
and Profitability influenced the Capital Structure in order to make investor
aware about the factors and can be used to define how. Specifically, the study
reviews the Capital Structure, Time Interest Earned and Profitability of PT.
Bank Mandiri (Persero) Tbk. Because PT.BankMandiri (Persero) Tbk Is the
best bank in highest asset for three consecutive year.
Based on the analysis and discussion that has been done, it can be
concluded as follows:
1. According to the results of linear regression that have been done in
this research, the results are as follows:
Y = 0.328+ 0.063X1 + 0.426X2
Based on the equation above, the two Independent Time Interest Earned and
Profitability have positive coefficient. Thus, we can conclude that:
a. The equation have constanta value of 0.328 which means that
eventough there are no change in the variables, Time Interest Earned
and Profitability, the company capital structure can still financed by
others variable outside this research.
61
b. Time Interest Earned (X1) have positive influence to Capital Structure
(Y) with coefficient number of 0.063. This means that higher Time
Interest Earned will result in higher Capital Structure.
c. Profitability (X2) have positive influence to Capital Structure (Y) with
coefficient number of 0.426. This means that Profitability will result in
higher Capital Structure.
2. Time Interest Earned (X1) is an independent variable which have
second highest positive influence to Capital Structure of PT. Bank
Mandiri (Persero) Tbk. with T value of 2.030. This indicates that Time
Interest Earned movements have a quite strong influence on the
movement of Capital Structure. Thus, Time Interest Earned movement
can be used as a reference in predicting Capital Structure of the
Company.
3. Profitability (X2) is an independent variable which have the highest
positive influence to Profitability of PT. Bank Mandiri (Persero) Tbk.
with T value of 2.410. This indicates that Profitability strong influence
to Capital Structure. With the increasing of company’s profitability, it
can gain investor trust and make them want to invest more.
4. All of the independent variables, which are Time Interest Earned and
Profitability simultaneously, have significant influence into the
dependent variable, Capital Structure. This is proved by using F Test
that showed F value of 37.453> F Table (α = 0.05) which is 3.209.
5. The dependent variable, Capital Structure, and independent variables
(Time Interest Earned and Profitability) have Coefficient correlations
62
(R) of 0.794 which show high and positive correlation towards each
other, also it have Coefficient determination adjusted (R2) of 0,613
which means that the dependent variable, Capital Structure of PT.
Bank Mandiri (Persero) Tbk. 61,3% can be explained by
theindependent variables (Time Interest Earned and Profitability). And
the other 38,7% is explained by other causes outside the model.
5.2 Recommendation
5.2.1 Recommendation
After finish the analysis and give the conclusion for this research, the
research also will give some recommendations and suggestions for
investor and Company manager and the next researcher.
1. For the investor: since profitability give high significance influence to
the capital structure, and the number of profitability consecutively year
by year 0.170 (17%) in 2009, 0.218 (21%) in 2010, 0.354 (35%) in
2011 and 0.29 (29%) in 2012 (until November) it prove the company
ability to generate high profits continue rise towards the positive way,
and certainly gives good condition for investment.
2. For management : As what we can see that Time Interest earned give
strong significance influence to capital structure, with average value
from three consecutive years 1.61 (2009), 1.85 (2010), 2.19 (2011).
And 2.35 (until November 2012) Here even the number increases year
by year but its still below 4 (normal) that indicate high use of debt in
capital structure, it’s require management attention.
3. for further research: needs to be used for more than one company and
from all types of company.for further research is recommended also to
use the varible such as business risk, interest rates, company size and
other variables that also affect the capital structure.
63
64
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66
APPENDICES
APPENDIX 1: Capital Structure Ratio Calculation
Month
PT. BANK MANDIRI
2012 CAPITAL
STRUCTURE Total Loans
Total Assets
January 286,066,468 483,429,659 0.59
February 289,525,827 478,404,459 0.61
March 298,653,167 482,126,923 0.62
April 305,187,810 485,839,439 0.63
May 312,246,003 498,984,397 0.63
June 319,212,649 506,552,770 0.63
July 319,680,201 509,889,530 0.63
August 324,899,943 513,072,434 0.63
September 332,215,692 519,572,030 0.64
October 335,874,593 517,070,761 0.65
November 343,452,144 550,746,754 0.62
December - - -
AVERAGE PER YEAR 0.62
67
Month
PT. BANK MANDIRI
2011
CAPITAL
STRUCTURE
Total Loans
Total Assets
January 225,329,594 400,797,268 0.56
February 227,963,968 406,315,901 0.56
March 231,746,401 418,880,194 0.55
April 236,176,883 414,956,830 0.57
May 243,291,930 419,046,845 0.58
June 54,002,831 73,835,775 0.73
July 255,446,777 432,638,502 0.59
August 262,259,672 440,917,550 0.59
September 269,643,462 446,966,030 0.60
October 335,884,322 517,070,761 0.65
November 278,660,459 464,561,819 0.60
December 285,038,303 491,224,513 0.58
AVERAGE PER YEAR
0.60
68
Month
PT. BANK MANDIRI
2010
CAPITAL STRUCTURE
Total Loans Total Assets
January 186,927,646 365,820,644 0.51
February 189,301,006 363,739,325 0.52
March 192,113,043 366,541,645 0.52
April 194,275,894 364,251,422 0.53
May 197,400,901 365,268,742 0.54
June 205,844,441 373,593,390 0.55
July 206,369,723 370,203,132 0.56
August 213,622,641 370,510,348 0.58
September 217,738,810 371,907,147 0.59
October 218,112,842 374,092,412 0.58
November 222,305,327 382,221,902 0.58
December 229,122,440 408,771,732 0.56
AVERAGE PER YEAR 0,55
69
Month
PT. BANK MANDIRI
2009
CAPITAL
STRUCTURE Total Loans
Total Assets
January 156,537,635 331,193,636 0.47
February 158,867,415 329,915,828 0.48
March 160,072,261 325,862,700 0.49
April 158,257,060 326,162,790 0.49
May 157,239,110 329,224,781 0.48
June 164,535,342 336,517,056 0.49
July 164,990,193 335,162,804 0.49
August 168,880,518 345,018,132 0.49
September 170,715,069 344,269,997 0.50
October 171,571,690 341,982,108 0.50
November 175,935,647 347,474,119 0.51
December 179,687,845 373,508,708 0.48
AVERAGE PER YEAR
0.49
70
APPENDIX 2: Time Interest Earned Ratio Calculation
Month
PT. BANK MANDIRI 2012
TIE EBIT INTEREST EXPENSE
January 2,451,199
1,134,565 2.16
February 4,723,944
2,172,841 2.17
March 7,066,660
3,165,714 2.23
April 9,440,738
4,088,962 2.31
May 11,906,643
5,046,775 2.36
June 14,171,744
5,989,246 2.37
July 16,681,383
6,946,808 2.40
August 19,042,365
7,902,099 2.41
September 21,798,805
8,846,247 2.46
October 24,348,568
9,831,043 2.48
November 27,230,492
10,788,906 2.52
December - - -
AVERAGE PER YEAR 2.35
71
Month
PT. BANK MANDIRI
2011
TIE EBIT
INTEREST EXPENSE
January 1.283.000 1.127.222 1.14
February 5.561.862 2.113.855 2.63
March 8.000.216 3.195.325 2.50
April 10.121.432 4.263.861 2.37
May 12.242.065 5.365.221 2.28
June 14.476.778 6.438.501 2.25
July 16.672.907 7.553.108 2.21
August 19.348.949 8.650.887 2.24
September 21.419.818 9.721.756 2.20
October 23.649.359 10.835.715 2.18
November 25.791.835 11.936.309 2.16
December 28.009.234 13.053.097 2.15
AVERAGE PER YEAR
2.19
72
Month
PT. BANK MANDIRI
2010
TIE
EBIT INTEREST EXPENSE
January 3.139.241 2.302.811 1.36
February 3.817.026 2.050.764 1.86
March 5.755.897 3.089.313 1.86
April 7.640.298 4.160.343 1.84
May 9.627.776 5.164.982 1.86
June 11.542.065 6.194.082 1.86
July 13.741.479 7.238.663 1.90
August 15.743.597 8.271.834 1.90
September 17.659.859 9.253.676 1.91
October 19.780.697 10.272.071 1.93
November 21.932.530 11.258.180 1.95
December 23.867.090 12.344.711 1.93
AVERAGE PER YEAR
1.85
73
Month
PT. BANK MANDIRI
2009
TIE
EBIT INTEREST EXPENSE
January 2.218.789 1.404.644 1.58
February 4.223.446 2.613.934 1.62
March 5.863.982 3.839.072 1.53
April 7.690.308 4.964.426 1.55
May 9.619.178 6.154.475 1.56
June 11.699.567 7.297.206 1.60
July 13.712.332 8.473.570 1.62
August 15.747.630 9.665.502 1.63
September 17.725.932 10.763.262 1.65
October 19.605.810 11.886.327 1.65
November 21.539.633 12.886.383 1.67
December 23.980.202 13.980.545 1.72
AVERAGE PER YEAR
1.61
74
APPENDICE 3: Profitability Ratio Calculation
Month
PT. BANK MANDIRI
2012
Net Profit
Margin(Profitability) Net Income
Operating Income
January 1,072,667 3,853,803 0.28
February 2,090,464 7,349,374 0.28
March 3,106,908 10,987,902 0.28
April 4,263,287 14,615,206 0.29
May 5,461,738 18,680,901 0.29
June 6,512,356 22,669,589 0.29
July 7,803,168 26,901,592 0.29
August 8,921,507 30,669,395 0.29
September 10,363,976 35,077,616 0.30
October 11,607,305 39,186,899 0.30
November 13,211,273 43,294,978 0.31
December - - -
AVERAGE PER YEAR
0,29
75
Month
PT. BANK MANDIRI
2011
Net Profit
Margin(Profitability)
Net Income Operating
Income
January 881,409 799,125 1.103
February 2,725,023 7,802,585 0.349
March 3,780,063 11,276,181 0.335
April 4,600,073 14,695,993 0.313
May 5,401,142 18,226,545 0.296
June 6,322,918 21,904,503 0.289
July 7,162,676 25,389,169 0.282
August 8,154,003 42,897,650 0.190
September 9,172,620 32,583,815 0.282
October 10,063,499 36,311,265 0.277
November 10,884,738 40,272,373 0.270
December 11,718,334 44,794,212 0.262
AVERAGE PER YEAR
0,36
76
Month
PT. BANK MANDIRI
2010
Net Profit
Margin(Profitability) Net Income
Operating Income
January 632.859 5.999.546 0.105
February 1.333.615 5.651.513 0.236
March 2.003.444 8.763.196 0.229
April 2.621.180 11.790.089 0.222
May 3.364.069 14.872.112 0.226
June 4.034.090 18.188.930 0.222
July 4.910.492 21.329.586 0.230
August 5.658.731 24.405.149 0.232
September 6.385.628 28.128.811 0.227
October 7.235.448 31.456.231 0.230
November 8.133.530 35.011.942 0.232
December 8.851.051 38.715.925 0.229
AVERAGE PER YEAR
0.22
77
Month
PT. BANK MANDIRI
2009
Net Profit
Margin(Profitability)
Net Income Operating
Income
January 520,395 3,103,924 0.168
February 1,001,319 6,012,313 0.167
March 1,400,395 9,111,406 0.154
April 1,921,189 11,974,483 0.160
May 2,373,619 14,887,853 0.159
June 2,926,657 17,822,162 0.164
July 3,464,255 20,741,524 0.167
August 3,926,123 23,545,905 0.167
September 4,619,712 26,292,889 0.176
October 5,048,453 28,475,901 0.177
November 5,719,916 31,145,655 0.184
December 6,724,401 35,060,794 0.192
AVERAGE PER YEAR
0.17