Patya Nanda
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Financial Management
Objectives
This research has conducted based on a deep curiosity towards the issues of
which among the key variables that will genuinelly influence a company profitability
and the Firm’s Value. Clustering the companies by its asset size of Large and Small
Groups Statistical testing method employed is Generalized Structured Component
Analysis (GSCA) to measure the influence of Company Size and Capital Structure
towards Liquidity, Financial Performance and Firm Value and to prove the
moderation between the two company size clusters.
Research Scope
This research, the company have been clustered into two clusters, the large
company and the small company. This research was then conducted to investigate
whether there was a difference of the influence of Company Size and Capital
Structure towards Financial Performance, Liquidity and Firm Value within two
different clusters of company according to the size of company asset. The companies
will then be divided into two clusters according to the total amount of asset they have.
In accordance to and founded upon the provisions used in Indonesia Stock Exchange,
the groups will be defined from the amount of Total Asset of these companies, using
basic clustering; “a company is said to be a large company if that company has the
amount of Total Asset more than 1 trillion rupiahs (> USD 100,000,000)” and “a
company is said to be a small company if that company has the amount of Total Asset
less than 1 trillion rupiahs (< USD 100,000,000)”. The companies in each cluster have
been analysed by determining the influences of the Company Size and Capital
Structure towards Financial Performance, Liquidity and Firm Value, which will then
be compared. The companies observed in this research are manufacturing companies
listed in Indonesia Stock Exchange or Bursa Efek Indonesia (BEI), during the year of
2010 trough out 2012.
Patya Nanda
29117372
Financial Management
This research employs panel data, which was the combination of cross-
sectional data and data time series. The population of this research consists of
manufacturing companies listed in Indonesia Stock Exchange within the last three
years, from 2010 to 2012. Out of the 131 manufacturing companies, 30 companies are
taken as the sample of companies having large assets (> USD 100,000,000) and 30
other companies are taken as the sample of companies having small assets (< USD
100,000,000). The data of the companies is gained from ICMD within 3 years period
from 2010 to 2012.
This data analysis was conducted using Generalized Structured Component Analysis
(GSCA) that is developed by Heungsun Hwang, Hec Montreal and Yhoshio Takane
in 2004.
5. Findings and Discussions
5.1 Findings
Results of data analysis using GSCA presented on table 1.
Based on the statistical testing described by the above table, the summary of the
hypotheses testing of the Large Asset Company Cluster is explained as follows:
Patya Nanda
29117372
Financial Management
Table 1. Correlation Coefficient between Variables
LARGE ASSET CLUSTER SMALL ASSET CLUSTER
Correlation between
No Path P- Path P-
Variables Conclusion Conclusion
Coefficient Value Coefficient Value
1 Company size Significant Insignificant
0.154 0.0263 0.09 0.3447
Financial Performance
2 Company size Firm Insignificant Insignificant
0.039 0.4144 -0.024 0.8032
Value
3 Capital Structure Significant Significant
-0.69 0 -0.412 0
Financial Performance
A=0.039
Company Size
B=-0.024
Corporate A=0.679*
Firm Value
Performance B=-0.804*
Capital A=-0.699*
Liquidity
Structure B=0.172
4 Capital Structure Insignificant Significant
0.022 0.8109 -0.417 0.0018
Firm Value
5 Capital Structure Significant Insignificant
-0.699 0 0.172 0.4734
Liquidity
6 Liquidity Firm Significant Insignificant
0.262 0.0074 0.012 0.889
Value
7 Financial Performance Significant Significant
0.679 0 -0.804 0
Firm Value
Patya Nanda
29117372
Financial Management
In the Large Asset Manufacturing Company Cluster or Upper Cluster,
statistical testing results using GSCA model has been calculated and it was concluded
that the Company Size had a significant influence towards the Financial Performance,
with the Coefficient Ratio (CR) 2.26 and this value went beyond the significance
upper limit, which is 0.05. It confirmed and supported the statement stated in a journal
made by Dogan (2013), Akinbuli (2013) and Chang (2011). Basically, all economy
experts and scientists posit that the more the assets of a company the easier the
opportunities to increase sales and reduce the production cost and this condition will
provide improvement in profits for large companies which have high stability rates in
doing their jobs.
In this research it was found that in the Large Asset Company Cluster or
Upper Cluster the Company Size had a positive correlation, although not significant,
towards the Firm Value. This was in line, although not significant, with the previous
research findings conducted by Joyoung Sohn (2013), Michalski (2011), Sibilkov,
Straska and Woller (2013) which stated that the amount of total assets would have a
significant positive correlation towards Firm Value. It might be concluded that within
the period of 2010 to 2012, when there was a great depression in the world market in
general, the impacts applied to the local market which acted apathetically and was not
influenced to do share transactions.
For the Large Asset Company Cluster or Upper Cluster, it was found that
Capital Structure had a significant negative correlation towards Liquidity thus this
research supported and confirmed the statement made and previous research findings
identified by Ramhall (2009) who stated that companies with Capital Structure and
high debt rates would cause the companies to experience hardships in Liquidity.
These research findings also supported the findings of the previous research
conducted by Khanqah and Ahmadia (2013) which explained that there was a
negative influence of Capital Structure towards ratio cash flow to asset and there was
a negative influence of Capital Structure (leverage) towards ratio market value of
assets to book value of asset.
Patya Nanda
29117372
Financial Management
Advantages and Advise
Based on the facts that different company asset size has resulted different
influence on the financial variables, that was recommended to consider the effect of
asset size and to avoid bias on the next financial project research. the stock traders
and capital markets investors were recommended to take into account that different
asset size will reflects different yields. The companies which have the intention be
listed in the stock exchange, should be consider the investor’s different response
towards different company size. the banking sectors, have a good clues to guide the
credit approval processing. Government could also use this research as the
information to set up credit policies to support small scale industries.
