Optimal Capital Structure Analysis on Aggressive and Moderate Expansion Strategy to Increase Shareholder Value, Case Study on Hospital Industry in Indonesia 2017-2021

Hesty Ratnasari and Brady Rikumahu ()
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Hesty Ratnasari: Telkom University, Faculty of Economics and Business
Brady Rikumahu: Telkom University, Faculty of Economics and Business

A chapter in Proceedings of the International Conference on Sustainable Collaboration in Business, Technology, Information, and Innovation (SCBTII 2023), 2023, pp 4-20 from Springer

Abstract: Abstract After the Covid-19 pandemic, the need for hospital infrastructure has become important. The government encourages the improvement of health facilities by opening foreign and local financing opportunities and opening National Health Insurance (JKN) to meet the basic needs of decent public health. The source of funds to expand can use debt and equity, but the decision to use this source of funds will affect the cost of capital that will be borne by the company. The composition of debt and capital needs to be considered to increase the value of shareholders' value. The objective of this research is to determine the optimal capital structure of companies in the hospital industry in Indonesia, seen from the company's expansion pattern whether it is aggressive or moderate. The data analysis method used in this study is the deductive method and quantitative analysis determines the optimal capital structure of hospital companies that have been listed on IDX. The variables used are, Cost of Equity, Cost of Debt, WACC, DCF, and Cost of Financial Distress. This research calculates the optimal capital structure in the hospital industry through the highest corporate value approach by considering the lowest cost of capital and the risk of bankruptcy. From the calculation, HEAL's optimal capital structure value is 70% debt and 30% equity, MIKA is 35% debt and 65% equity, and PRIM is 2% debt and 98% equity. It can be concluded that companies that expand aggressively have a higher proportion of debt value than companies that expand moderately.

Keywords: Free Cash Flow to Firm; Optimal Capital Structure; Valuation; WACC (search for similar items in EconPapers)
Date: 2023
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DOI: 10.2991/978-94-6463-292-7_2

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