Does the Covid-19 Pandemic Affect the Capital Structure of Steel Companies in Indonesia?

Ayudya Puti Ramadhanty and Taufik Faturohman

A chapter in The Finance-Innovation Nexus: Implications for Socio-Economic Development, 2024, vol. 34, pp 133-145 from Emerald Group Publishing Limited

Abstract: The COVID-19 pandemic hit the demand for steel products and their derivatives by 40–50%. As a result, productivity and factory operations will inevitably suffer. Therefore, when fulfilling funding demands that will arise if the company has an appropriate capital structure, the corporation must choose between rising debt (on the liability side) or issuing shares for external funding as viable financial alternatives. This empirical study examines the effects of the COVID-19 pandemic on capital structure before and during the pandemic. This study implemented a descriptive quantitative approach, measured using a method based on panel regression and system Generalised Method of Moments (GMM) using the secondary data quarterly from 2018 to 2021 with the samples of eight steel companies listed on the IDX. The study findings show that COVID-19 influences the capital structure; firm-specific variables like COVID-19 profitability positively affect the capital structure, whereas liquidity, earning volatility, and non-debt tax shield negatively affect the capital structure. Meanwhile, the result of system GMM shows that only COVID-19 and liquidity significantly affect the debt ratio.

Keywords: Capital structure; COVID-19; steel industry; debt ratio; trade-off theory; pecking order theory; O11; Q01; Q5 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eme:isetez:s1571-038620240000034011

DOI: 10.1108/S1571-038620240000034011

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