Browse > Article
http://dx.doi.org/10.13106/jafeb.2022.vol9.no8.0047

Determinant Factors of Firm Risk - Using the Structural Equation Modeling Approach: Evidence from Indonesia  

WULANDARI, Asih Marini (Department of Business Administration, Universitas Pembangunan Nasional 'Veteran')
RAHAYU, Sri Mangesti (Department of Business Administration, Universitas Brawijaya)
SAIFI, Muhammad (Department of Business Administration, Universitas Brawijaya)
NUZULA, Nila Firdausi (Department of Business Administration, Universitas Brawijaya)
Publication Information
The Journal of Asian Finance, Economics and Business / v.9, no.8, 2022 , pp. 47-55 More about this Journal
Abstract
The purpose of this study was to determine the relationship between company risk and factors such as business size, ownership structure, and leverage. The study was conducted on 142 manufacturing sector companies listed on the Indonesia Stock Exchange from 2013 to 2018. The purposive sampling method was used to select the research sample. The sample size for this study was 21 different companies. The analytical approach uses Structural Equation Modeling (SEM) with WarpPLS. According to the findings of the investigation, the size of the company has a significant influence on both the amount of leverage the company uses and the amount of risk the company takes. The level of leverage is significantly influenced by the ownership structure. However, the ownership structure does not have a significant impact on the level of risk the company; rather, leverage has a big impact on the level of risk the company faces. The findings of this study are helpful to prospective investors in measuring the risk posed by the company to make judgments regarding investments. The findings of this study are also essential for management to consider while controlling the risk of the organization.
Keywords
Firm Size; Ownership Structure; Leverage; Firm Risk; Structural Equation Modeling;
Citations & Related Records
Times Cited By KSCI : 4  (Citation Analysis)
연도 인용수 순위
1 Kadim, A., Sunardi, N., & Husain, T. (2020). The modeling firm's value is based on financial ratios, intellectual capital, and dividend policy. Accounting, 6(5), 859-870. https://doi.org/10.5267/j.ac.2020.5.008   DOI
2 Kubler, D., Muller, W., & Normann, H. T. (2008). Job-market signaling and screening: An experimental comparison. Games and Economic Behavior, 64(1), 219-236. https://doi.org/10.1016/j.geb.2007.10.010   DOI
3 Kwarteng, A., & Aveh, F. (2018). An empirical examination of organizational culture on accounting information system and corporate performance: Evidence from a developing country perspective. Meditari Accountancy Research, 26(4), 675-698. https://doi.org/10.1108/MEDAR-01-2018-0264   DOI
4 Lane, D. (2009). The cost of capital, corporation finance and the theory of investment: A refinement. Applied Economics Letters, 16(10), 1017-1019. https://doi.org/10.1080/17446540802345448   DOI
5 Maqbool, S., & Zameer, M. N. (2018). Corporate social responsibility and financial performance: An empirical analysis of Indian banks. Future Business Journal, 4(1), 84-93. https://doi.org/10.1016/j.fbj.2017.12.002   DOI
6 Margaritis, D., & Psillaki, M. (2010). Capital structure, equity ownership, and firm performance. Journal of Banking and Finance, 34(3), 621-632. https://doi.org/10.1016/j.jbankfin.2009.08.023   DOI
7 Markonah, J. H. P. (2020). The impact of good corporate governance on financial performance: Evidence from commercial banks in Indonesia. Journal of Asian Finance, Economics, and Business, 9(6), 45-52. https://doi.org/10.2991/aer.k.201221.098   DOI
8 Mirza, N., Rahat, B., & Reddy, K. (2016). Financial leverage and stock returns: Evidence from an emerging economy. Economic Research-Ekonomska Istrazivanja, 29(1), 85-100. https://doi.org/10.1080/1331677X.2016.1160792   DOI
9 Obeidat, S., Al-Tamimi, K., & Hajjat, E. (2021). The effects of intellectual capital and financial leverage on evaluating market performance. Journal of Asian Finance, Economics, and Business, 8(3), 201-208. https://doi.org/10.13106/jafeb.2021.vol8.no3.0201   DOI
10 Al-Thuneibat, A. (2018). The relationship between the ownership structure, capital structure, and performance. JABM Journal of Accounting - Business and Management, 1(25), 1. https://doi.org/10.31966/jabminternational.v1i25.326   DOI
11 Chaibi, A., Alioui, S., & Xiao, B. (2015). On the impact of firm size on risk and return: Fresh evidence from the American stock market over the recent years. Journal of Applied Business Research, 31(1), 29-36. https://doi.org/10.19030/jabr.v31i1.8987   DOI
12 Gadhoum, Y., & Ayadi, M. A. (2003). Ownership structure and risk: A Canadian empirical analysis. Quarterly Journal of Business and Economics, 42(1), 19-39. http://www.jstor.org/stable/40473362
13 Pushner, G. M. (1995). Equity ownership structure, leverage, and productivity: Empirical evidence from Japan. Pacific-Basin Finance Journal, 3(2-3), 241-255. https://doi.org/10.1016/0927-538X(95)00003-4   DOI
14 Coles, J. L., Lemmon, M. L., & Felix Meschke, J. (2012). Structural models and endogeneity in corporate finance: The link between managerial ownership and corporate performance. Journal of Financial Economics, 103(1), 149-168. https://doi.org/10.1016/j.jfineco.2011.04.002   DOI
15 Coles, J. L., & Li, Z. F. (2019). An empirical assessment of empirical corporate finance. Journal of Financial and Quantitative Analysis, 44, 1-68. https://doi.org/10.1017/S0022109022000448   DOI
16 Daley, B., & Green, B. (2014). Market signaling with grades. Journal of Economic Theory, 151(1), 114-145. https://doi.org/10.1016/j.jet.2013.10.009   DOI
17 Dzulkirom, M., Rahayu, S. M., & Sadeli, S. (2016). Influence of corporate governance and ownership structure towards capital structure, intellectual capital disclosure, cost of capital and corporate performance: A study in fortune Indonesia magazine top 100 companies listed in Indonesian Stock Exchange. International Journal of Management and Administrative Sciences, 3(10), 83-97.
18 Ramadan, Z. S. (2012). Does leverage always mean risk? Evidence from ASE. International Journal of Economics and Finance, 4(12), 150-158. https://doi.org/10.5539/ijef.v4n12p150   DOI
19 Pindado, J., & De La Torre, C. (2011). Capital structure: New evidence from the ownership structure. International Review of Finance, 11(2), 213-226. https://doi.org/10.1111/j.1468-2443.2010.01115.x   DOI
20 Polychroniou, P., & Trivellas, P. (2018). The impact of strong and balanced organizational cultures on firm performance: Assessing moderated effects. International Journal of Quality and Service Sciences, 10(1), 16-35. https://doi.org/10.1108/IJQSS-09-2016-0065   DOI
21 Rutkowska-Ziarko, A. (2015). The influence of profitability ratios and company size on profitability and investment risk in the capital market. Folia Oeconomica Stetinensia, 15(1), 151-161. https://doi.org/10.1515/foli-2015-0025   DOI
22 Seifert, B., Gonenc, H., & Wright, J. (2005). The international evidence on performance and equity ownership by insiders, blockholders, and institutions. Journal of Multinational Financial Management, 15(2), 171-191. https://doi.org/10.1016/j.mulfin.2004.08.003   DOI
23 Shtern, M., Simmons, B., Smit, M., Lu, H., & Litoiu, M. (2015). Performance management and monitoring. Cloud Services, Networking, and Management, 65, 217-242. https://doi.org/10.1002/9781119042655.ch9   DOI
24 Mahdavi, G., Monfared Maharlouie, M., Sarikhani, M., & Ebrahimi, F. (2012). The impact of institutional ownership on risk-taking behaviors. African Journal of Business Management, 6(12), 4488-4495.
25 Bakhsh Magsi, H., Ong, T. S., Ho, J. A., & Sheikh Hassan, A. F. (2018). Organizational culture and environmental performance. Sustainability, 10(8), 2690. https://doi.org/10.3390/su10082690   DOI
26 Bhatti, A. M., Majeed, K., Rehman, I., & Khan, W. A. (2010). Affect of leverage on risk and stock returns: Evidence from Pakistani companies. International Research Journal of Finance and Economics, 58(58), 32-49.
27 Iqbal, M. J., & Shah, S. Z. A. (2012). Determinants of systematic risk. Journal of Commerce, 4(1), 47.
28 Modigliani, F., & Miller, M. H. (1958). The cost of capital, corporation finance, and the theory of investment. American Economic Review, 48(3), 261-297. http://www.jstor.org/stable/1809766
29 Alioui, S., & Bing Xiao, A. C. (2015). On the impact of firm size on risk and return: Fresh evidence from the American stock market over the recent years. Journal of Applied Business Research, 31(1), 29-36.   DOI
30 Slovin, M. B., & Sushka, M. E. (1993). Ownership concentration, corporate control activity, and firm value: Evidence from the death of inside blockholders. Journal of Finance, 48(4), 1293-1321. https://doi.org/10.1111/j.1540-6261.1993.tb04755.x   DOI
31 Jahanzeb, A., Saif, U.-R., Bajuri, N. H., Karami, M., & Ahmadimousaabad, A. (2013). Trade-off theory, pecking order theory and market timing theory: A comprehensive review of capital structure theories. International Journal of Management and Commerce Innovations (IJMCI), 1(1), 11-18.
32 Iswajuni, I., Manasikana, A., & Soetedjo, S. (2018). The effect of enterprise risk management (ERM) on firm value in manufacturing companies listed on the Indonesian Stock Exchange year 2010-2013. Asian Journal of Accounting Research, 3(2), 224-235. https://doi.org/10.1108/AJAR-06-2018-0006   DOI
33 Jaros, J., & Bartosova, V. (2015). To the capital structure choice: Miller and Modigliani model. Procedia Economics and Finance, 26, 864. https://doi.org/10.1016/S2212-5671(15)00864-3   DOI
34 Jensen, M. C., & Meckling, W. H. (2019). Theory of the firm: Managerial behavior, agency costs, and ownership structure. NY: Gower.
35 Ahmed, S. S., Guozhu, J., Mubarik, S., Khan, M., & Khan, E. (2019). Intellectual capital and business performance: The role of dimensions of absorptive capacity. Journal of Intellectual Capital, 21(1), 23-39. https://doi.org/10.1108/JIC-11-2018-0199   DOI
36 Hopkins, E. (2012). Job market signaling of relative position or becker married to Spence. Journal of the European Economic Association, 10(2), 290-322. https://doi.org/10.1111/j.1542-4774.2010.01047.x   DOI
37 Suryadi, S., Endri, E., & Yasid, M. (2021). Risk and return of Islamic and conventional indices on the Indonesia stock exchange. Journal of Asian Finance, Economics, and Business, 8(3), 23-30. https://doi.org/10.13106/jafeb.2021.vol8.no3.0023   DOI
38 Trung, H. L., & Nguyen, N. B, (2022). The impact of digital transformation on performance: Evidence from Vietnamese commercial banks. Journal of Asian Finance, Economics, and Business, 9(6), 23-32. https://doi.org/10.3390/jrfm15010021   DOI
39 Ganguli, S. K. (2013). Capital structure-does ownership structure matter? Theory and Indian evidence. Studies in Economics and Finance, 30(1), 56-72. https://doi.org/10.1108/10867371311300982   DOI
40 Spence, M. (1973). Job market signaling. Quarterly Journal of Economics, 87(3), 355-374. https://doi.org/10.2307/1882010   DOI
41 Tarchouna, A., Jarraya, B., & Bouri, A. (2022). Do board characteristics and ownership structure matter for bank nonperforming loans? Empirical evidence from US commercial banks. Journal of Management and Governance, 26(2), 479-518. https://doi.org/10.1007/s10997-020-09558-2   DOI
42 Alos-Ferrer, C., & Prat, J. (2012). Job market signaling and employer learning. Journal of Economic Theory, 147(5), 1787-1817. https://doi.org/10.1016/j.jet.2012.01.018   DOI
43 Wright, P., Ferris, S. P., Sarin, A., & Awasthi, V. (1996). Impact of a corporate insider, blockholder, and institutional equity ownership on firm risk-taking. Academy of Management Journal, 39(2), 441-458.   DOI
44 Widarjono, A., Shidiqie, J. S. A., & El Hasanah, L. L. N. (2021). The sensitivity of the Indonesian Islamic stock prices to macroeconomic variables: An asymmetric approach. Journal of Asian Finance, Economics, and Business, 8(3), 181-190. https://doi.org/10.13106/jafeb.2021.vol8.no3.0181   DOI
45 Chadha, S., & Seth, H. (2021). Ownership structure and capital structure: A panel data study. International Journal of Business Innovation and Research, 24(3), 385-396. https://doi.org/10.1504/IJBIR.2021.113515   DOI
46 Al-Najjar, B., & Taylor, P. (2008). The relationship between capital structure and ownership structure: New evidence from Jordanian panel data. Managerial Finance, 34(12), 919-933. https://doi.org/10.1108/03074350810915851   DOI