The Role of Corporate Governance as Moderating Variable Between Capital Structure and Mining Company Performance

Abstract

The performance of a company has been becoming an interest of academics in the field of corporate finance since a decade ago. Mining companies are an important industry for the government as sources of funds to finance the country's development. However, studies on the relationship between capital structure and company performance which is moderated by corporate governance are very limited, especially in Indonesia's context. Therefore, this study aims to investigate the relationship between capital structure and company performance which is moderated by public ownership as a proxy of corporate governance. We apply the agency theory to underpin these relationships. We use the moderated regression analysis to accept or reject the hypothesis. However, the classical assumptions must be satisfied before proceeding to the regression analysis. The findings show that company performance which is measured by Stock return is about 42.99% on average. In addition, capital structure is about 39,73%, with Supervisory Board Independence of 38,11%. The mean value of company size is Rp 26.54 Triliun with company's age is 13.60 years old. The regression result shows that there is no effect of interaction between capital structure and corporate governance on company performance. These results have a practical and theoretical contribution. The phenomena of mining company performance can not be explained by signaling theory in the sense that capital composition could not convey the valuable information for investors and they, therefore, are not influenced by this information in investment decision making. Supervisory Board Independence could not play its role as a monitoring mechanism of Management Board.