Sustainability Accounting Journal (SAJ) Volume 1.
No 1 October 2024
ISSN : -
THE EFFECT OF COMPANY GROWTH AND FREE CASH FLOW ON
DEBT POLICY WITH PROFITABILITY AS A MODERATING
VARIABLE
Nisa Oktaviani Economy and Business Faculty.
Universitas Palangka Raya Yohanes Joni Pambelum Economy and Business Faculty.
Universitas Palangka Raya Verra Rizki Amelia Economy and Business Faculty.
Universitas Palangka Raya Sri Lestari Hendrayati Economy and Business Faculty.
Universitas Palangka Raya Fitria Husnatarina Economy and Business Faculty.
Universitas Palangka Raya Golda Belladonna Umbing Economy and Business Faculty.
Universitas Palangka Raya
A2024
pp : 51 Ae 67
Sustainability Accounting Journal
Article Info
ABSTRACT
Keywords:
Company Growth.
Free Cash Flow.
Debt Policy.
Profitability This study aims to examine the influence of company growth and free cash flow on debt policy, with profitability as a moderating The population in this research consists of manufacturing companies in the textile and garment sub-sector listed on the Indonesia Stock Exchange from 2020 to 2023.
The sampling technique used is purposive sampling, with the criteria being companies that published consecutive financial reports from 2020 to 2023 Based on these criteria, 18 manufacturing companies in the textile and garment sub-sector were selected, resulting in 72 observations in this study.
The analysis technique used is the panel data method, with data processed using E-Views 10 software.
The results of the study indicate that company growth does not affect debt policy.
Free cash flow does not affect debt policy.
Profitability does not have an impact on the relationship between company growth and debt policy.
Additionally, profitability does not have an impact on the relationship between free cash flow and debt policy.
This is an open access article under theCC BY-NC license Corresponding Author:
Nisa Oktiviani Universitas Palangka Raya nisaoktaviani@gmail.
INTRODUCTION
written a International trade plays an important role in the Indonesian economy, especially in the export and import sectors.
Exports help increase the country's foreign exchange, while imports meet the needs of goods that are not produced domestically.
However, global developments and intense competition have caused various challenges, including pressure on the manufacturing industry that affects various sectors, including textiles and garments.
THE EFFECT OF COMPANY GROWTH AND FREE CASH FLOW ON DEBT POLICY WITH PROFITABILITY
AS A MODERATING VARIABLE Ae Oktaviani, et.
Pp : 51 - 67 The textile and garment industry in Indonesia is one of the main sectors in manufacturing and makes a significant contribution to the national economy.
This industry provides employment for 1.
million workers (Landra & Hamami, 2.
and encourages investment.
Unfortunately, this industry is experiencing a decline in competitiveness due to the onslaught of imported products, especially from China, which are cheaper.
As a result, many local companies have been forced to reduce operations or even close, as experienced by PT Dupantex in Pekalongan in 2024 (BBC News Indonesia, 2.
The rise in textile imports from China has resulted in the domestic market share being dominated by foreign products.
This is exacerbated by government policies that are not strong enough in controlling import standards and specifications.
The increase in the volume of textile imports after the issuance of Permendag Number 8 of 2024 reached 194,870 tons in May 2024, compared to 136,360 tons in April 2024 (Kompas, 2.
This condition has a negative impact on the labor sector with thousands of workers being laid off.
Debt policy is an important aspect that textile companies must pay attention to in order to survive.
Company managers often use debt as an alternative source of funding.
This policy, if not managed properly, can worsen the company's financial condition, especially when profitability declines.
Low profitability forces companies to borrow more external funds to cover operating costs (Nurjanah & Purnama, 2.
Company growth and free cash flow (FCF) also affect debt policy.
According to research by Damayanti & Warsitasari .
FCF has a positive effect on debt policy, while research by Mariska .
shows a negative effect.
In addition, research by Fauziah & Rejeki .
concluded that company growth does not affect debt policy, while Fadhilah et al.
found a negative effect of growth on the policy.
Profitability is considered to be able to moderate the influence of corporate growth and FCF on debt policy, as found by Nurfitriana & Fachrurrozie .
that profitability can moderate the influence of corporate growth.
However, the results of research by Angeline & Wijaya .
and Fitriyani & Khafid .
show otherwise, that profitability cannot moderate this influence.
This study aims to further examine the influence of company growth and FCF on debt policy with profitability as a moderating variable in the textile and garment sub-sector manufacturing sector, considering the lack of similar research in this field.
II.
LITERATURE REVIEW (Tahoma, size 11.
Left Bol.
Signaling Theory Signaling Theory, first introduced by Michael Spence .
, explains that corporate managers often have better information than shareholders and use signals such as financial statements to reduce information asymmetry.
Ross .
emphasizes the importance of financial signals, such as debt, which managers can use to demonstrate confidence in the company's prospects.
Houston et al.
stated that signals in the form of management actions are important for investors in making investment decisions, while Megginson et al.
noted that dividend signals are used by strong companies to signal their strength.
Previous research has shown that financial policy signals, including profitability, debt, and free cash flow, can influence market perceptions of a company's prospects (Damayanti & Warsitasari, 2022.
Ningsih & Hariyati, 2.
Debt policy as a signal can indicate management's THE EFFECT OF COMPANY GROWTH AND FREE CASH FLOW ON DEBT POLICY WITH PROFITABILITY AS A MODERATING VARIABLE Ae Oktaviani, et.
Pp : 51 - 67 confidence in the company's long-term prospects, but must be understood carefully because signals can be misleading if they do not match real financial conditions.
Pecking Order Theory Pecking Order Theory, first introduced by Donaldson .
and named by Myers and Majluf .
, explains that companies prefer internal funding .
etained earning.
before turning to external sources such as debt or stock issuance.
This theory assumes that the use of external equity is chosen last because it can give a negative signal to investors about the company's prospects.
Companies tend to use internal funding to avoid issuance costs and potential stock dilution (Adedeji, 1.
In company growth, the need for additional funds can be met by utilizing high free cash flow (FCF) to reduce dependence on debt, while less profitable companies often have to use more debt.
Profitability plays an important role in moderating this decision, where companies with high profitability tend to rely less on debt (Umbarwati & Fachrurrozie, 2.
Research by Veronisa et al.
shows that internal funding preferences dominate, with companies only turning to external funds if internal funds are insufficient or facing significant investment opportunities.
Debt Policy According to PSAK 57, liabilities or debts are current obligations arising from past events and resulting in the expenditure of economic resources.
Debts are classified as short-term debts, such as trade payables and accrued expenses, and long-term debts, such as bonds (Fauziah & Rejeki, 2.
Debt policy is important in corporate management because it affects capital structure and financing This policy serves as a managerial control mechanism to ensure the efficient use of company funds, given the risks that arise if debt is not managed properly (Mardiyati et al.
, 2018.
Trisnawati et , 2.
The ratios used to measure debt policy include Debt to Asset Ratio (DAR).
Debt to Equity Ratio (DER), and Time Interest Earned Ratio, where DER is often chosen to describe the proportion of debt to the company's equity.
A higher DER ratio indicates a company's greater dependence on debt in its funding (Suryani et al.
, 2.
Company Growth Company growth describes the rate of change in assets from one year to the next, reflecting success in increasing company value and achieving profits (Fauziah & Rejeki, 2022.
Rezki & Anam, 2.
Companies with high growth tend to maximize the use of resources and have the potential to generate large cash flows in the future (Fadhilah et al.
, 2.
This growth often requires additional funding, increasing dependence on external debt to meet operational and expansion needs (Amalia, 2.
This confirms the close relationship between company growth and debt policy, where the use of debt helps reduce the potential for agency conflicts through strict creditor supervision of management.
Free Cash Flow Free cash flow (FCF) reflects the amount of cash available to investors after the company meets the needs of fixed asset investment, working capital, and product development, which are essential for the continuity of operations (Sartono, 2.
A positive FCF value indicates the company's ability to support growth, pay debts, and provide benefits to shareholders through dividends or capital gains, while a negative value indicates the need for additional capital sources to fund growth and debt payments (Mariska, 2.
FCF also serves as a key indicator to measure the company's ability to reduce debt, increase dividends, or buy back shares which can ultimately increase the company's value (Veronisa et al.
, 2.
THE EFFECT OF COMPANY GROWTH AND FREE CASH FLOW ON DEBT POLICY WITH PROFITABILITY
AS A MODERATING VARIABLE Ae Oktaviani, et.
Pp : 51 - 67 Profitability Profitability measures a company's ability to generate net income during its operations, reflecting how efficiently the capital invested in the company's assets is used to generate profits for investors (Fitriyani & Khafid, 2.
According to Nurfitriana & Fachrurrozie .
, profitability refers to the relationship between revenue and costs from the use of the company's total assets, while Angeline & Wijaya .
emphasize that a company's profit depends on the efficiency and effectiveness of operations and the resources utilized.
Profitability ratios, such as Return on Assets (ROA), are used to evaluate a company's financial performance from year to year and can influence strategic decisions of stakeholders (Isnaeni et al.
, 2.
Profitability, or the efficiency of profit to capital, is also an important focus, because large profits do not always reflect efficient operations (Fitriyani & Khafid, 2.
The Influence of Corporate Growth on Debt Policy Company growth requires additional sources of funds to finance investment and expansion, and financing decisions can signal the market about the company's prospects.
The use of debt as a source of external funds is often considered a positive signal that management believes in the company's ability to generate sufficient cash flow to pay off debt, although excessive use of debt can increase financial risk (Fauziah & Rejeki, 2.
High-growth companies tend to seek external debt when internal sources are insufficient to fund expansion projects.
However, this decision must consider the risks associated with debt payments and interest expenses.
Several studies, such as those conducted by Fauziah & Rejeki .
Syachdilla .
, and Rezki & Anam .
, show that company growth has no significant effect on debt policy.
Conversely.
Fadhilah et al.
found that company growth has a negative effect on debt policy.
Therefore, the hypothesis proposed is:
H1: Company growth has a negative and significant effect on debt policy.
The Influence of Free Cash Flow on Debt Policy Free cash flow (FCF) reflects a company's financial health because it shows the amount of cash remaining after all operating and investment costs have been paid, and is an important signal to the market about the company's prospects.
High FCF can be seen as a positive sign that the company is able to fund expansion without external sources, while how management uses it, such as for dividends or share buybacks, also affects market perception (Damayanti & Warsitasari, 2.
The use of FCF for unwise projects can send a negative signal about managerial discipline.
Therefore, strict supervision and good governance are important so that FCF is used efficiently and in line with the company's longterm goals.
Previous studies have shown mixed results: Damayanti & Warsitasari .
Nofiani & Gunawan .
, and Veronisa et al.
found that FCF has a positive effect on debt policy, while Mariska .
showed a negative effect.
Therefore, the proposed hypothesis is:
H2: Free Cash Flow has a positive and significant effect on Debt Policy Profitability in Moderating Corporate Growth to Debt Policy Firm profitability plays a role in moderating the relationship between firm growth and debt policy by providing a positive signal to the market regarding the firm's financial stability.
According to signaling theory, highly profitable firms tend to rely more on internal funding sources, such as free cash flow, and may require less debt.
However, when a profitable firm chooses to use debt to fund its growth.
THE EFFECT OF COMPANY GROWTH AND FREE CASH FLOW ON DEBT POLICY WITH PROFITABILITY AS A MODERATING VARIABLE Ae Oktaviani, et.
Pp : 51 - 67 this may signal management's confidence in its ability to repay the debt and the firm's prospects.
Conversely, if a profitable firm does not use debt, the market may see it as an indication of uncertainty about future prospects.
Research by Nurfitriana & Fachrurrozie .
shows that profitability is able to moderate the relationship between firm growth and debt policy, while Angeline & Wijaya .
found the opposite.
Thus, the proposed hypothesis is:
H3: Profitability is able to positively moderate the relationship between Company Growth and Debt Policy.
Profitability in Moderating Free Cash Flow to Debt Policy Profitability can moderate the relationship between free cash flow (FCF) and debt policy, because more profitable companies tend to have larger FCF, which can be used to send positive signals to the According to signaling theory, the use of FCF to pay off debt indicates a strong financial position and commitment to reducing financial risk, while investment in profitable projects indicates confidence in future growth.
High profitability strengthens the relationship between FCF and debt policy, because profitable companies are more likely to use FCF strategically, both to pay off debt and to invest.
Isnaeni et al.
's .
research shows that profitability moderates the relationship between FCF and debt policy, while Fitriyani & Khafid .
find that profitability does not moderate the Thus, the proposed hypothesis is:
H4: Profitability is able to positively moderate the relationship between Free Cash Flow and Debt Policy.
METHODS
This study uses quantitative methods.
The data used in this study are secondary data.
The data sources used come from the financial reports of sample companies listed on the Indonesia Stock Exchange or on the company's website.
The population in this study is textile and garment sub-sector manufacturing companies listed on the Indonesia Stock Exchange (IDX) during the 2020-2023 period totaling 22 companies.
The sampling technique used purposive sampling.
Based on these criteria, 18 companies were obtained, resulting in 72 observations in this study.
Operational Definition of Variables Table 1 Operationalization and Measurement of Variables Variables Definition Indicator/Measure Scale Company Growth (X.
Company growth or firm ycEyceycycycycoycaycEaycaycu ycEyceycycycycaEaycaycaycu Ratio ycNycuycycayco yaycyceyc ycycaEaycycu yc Oe growth is the rate of change in total assets from year to year.
= ycNycuycycayco yaycyceyc ycycaEaycycu yc-1 ycNycuycycayco yaycyceyc ycycaEaycycu yc-1 The difference in total assets of the company in the current (Amalia, 2.
period with the previous period is the definition of company growth.
THE EFFECT OF COMPANY GROWTH AND FREE CASH FLOW ON DEBT POLICY WITH PROFITABILITY
AS A MODERATING VARIABLE Ae Oktaviani, et.
Pp : 51 - 67 Variables Definition Free Cash Free cash flow is an indicator Flow(X.
to measure the company's ability to return profits to shareholders through debt dividends or buying back shares and with this the company's value will also Indicator/Measure yayaya = Scale yayaycC Ae yayaya ycNycuycycayco yaycyceyc Ratio FCF = Free Cash Flow CFO=Cash Operations Flow CFI=Cash Flow Investment (Isnaeni et al.
, 2.
Policy The company's debt policy is yayaycI ycNycuycycayco ycOycycaycuyci ycu100% management to determine the ycNycuycycayco ycAycuyccycayco amount of debt in its funding (Fauziah & Rejeki, 2.
sources that are useful for financing the company's Financing activities with debt makes the company have an obligation to return the loan, pay interest periodically, thus forcing managers to optimize the use of existing funds.
Ratio Profitability is the company's ycIycCya yaycaycayca yaAyceycycycnEa ability to make a profit.
ycu100% Profitability is measured using ycNycuycycayco yaycycyceyc the return on assets ratio.
(Fitriyani & Khafid, 2.
Return on assets (ROA) is the ratio of profit .
before tax
The measurement scale is a ratio
scale and is expressed in Ratio
Debt
(Y)
Profitability (M) This study examines the impact of two independent variables and one moderating variable, namely company growth, free cash flow on debt policy and profitability as a moderating variable.
The research model used in this study is as follows:
THE EFFECT OF COMPANY GROWTH AND FREE CASH FLOW ON DEBT POLICY WITH PROFITABILITY
AS A MODERATING VARIABLE Ae Oktaviani, et.
Pp : 51 - 67 Figure 1 Research Model The following is the regression model equation that will be investigated:
ycU = yu yu1 ycU1 yu2 ycU2 yuA Information:
yu1 yu2 X1.
yuA = Debt Policy = Constant = Coefficient of each independent variable = Company Growth,Free Cash Flow = Standard Error The following is the Moderated Regression Analysis (MRA) regression equation:
Y =yu yu1 ycU1 yu2 ycU2 yu3 ycA yu4 .
cU1 O ycA) yu5 .
cU2 O ycA) yuA Information:
yu1 yu2 yu3 yu4 yu5 X1.
X2,
yuA = Debt Policy = Constant = Coefficient of each independent variable = Company Growth,Free Cash Flow = Profitability = Standard Error IV.
RESULTS AND DISCUSSION
In Table 2 above, it can be concluded that the Debt Policy Variable (Y), as measured by the Debt To Equity Ratio (DER), has an average of 1.
422902, indicating that the company has 1.
4 times more debt than its capital.
The maximum DER value reached 114.
2896, indicating a very large debt in the MYTX issuer in 2020, while the minimum value was -30.
15344 in 2021, reflecting a smaller debt than The DER standard deviation of 14.
86545 indicates high variation.
The Company Growth Variable (X.
has an average of -0.
030062, with a maximum value of 0.
187742 in 2020 and a minimum value of -0.
380337 in 2022, indicating large fluctuations in the company's total assets.
The standard deviation of 0.
101579 also reflects high variation.
Free Cash Flow (X.
has an average of 0.
with a maximum value of 0.
492515 in 2022 and a minimum value of -0.
365195 in 2021, indicating highly variable cash flow.
The standard deviation value of FCF is 0.
124019, also indicating high For Profitability (M), measured by ROA, the average is -0.
091807, with a maximum value of THE EFFECT OF COMPANY GROWTH AND FREE CASH FLOW ON DEBT POLICY WITH PROFITABILITY AS A MODERATING VARIABLE Ae Oktaviani, et.
Pp : 51 - 67 123095 in 2021 and a minimum of -4.
167738 in 2020, reflecting highly variable earnings performance, with a standard deviation of 0.
Table 2 Descriptive Statistics Mean Maximum Minimum Std.
Dev.
Source: Eviews 10 Output Results Based on table 3 above, it is known that the cross-section probability value F is 1.
0000 and the cross-section chi-square is also 1.
The cross-section chi-square value is greater than the significance value = 0.
Therefore, based on the provisions of the Chow test, it can be concluded that the selected estimation model is the Common Effect Model (CEM).
Table 3 Chow Test Estimates Effects Test Statistics Prob.
Cross-section F Cross-section Chi-square .
Source: Eviews 10 Output Results Based on table 4 above, it can be seen that the random cross-section probability value is 0.
This value is greater than the value of = 0.
Thus, based on the provisions of the Hausman test, the selected model estimate is the Random Effect Model (REM).
Table 4 Hausman Test Estimates Test Summary Chi-Sq.
Statistic Chi-Sq.
Prob.
Random cross section Source: Eviews 10 Output Results Based on table 5 above, the Breusch-Pagan Cross-section value is 0.
This value is smaller than the value of = 0.
05, so, according to the provisions of the Lagrange Multiplier Test, the better estimation model in this study is the Random Effect Model (REM).
Table 5 Lagrange Multiplier Test Estimates Null .
o rand.
Cross section Alternative One sided Period One sided Both THE EFFECT OF COMPANY GROWTH AND FREE CASH FLOW ON DEBT POLICY WITH PROFITABILITY AS A MODERATING VARIABLE Ae Oktaviani, et.
Pp : 51 - 67
Breusch Pagan
Honda
King Wu
GHM
---
---
Source: Eviews 10 Output Results Classical Assumption Test Results According to Gujarati and Porter .
, equations that meet classical assumptions can only be achieved through the Generalized Least Squares (GLS) method.
In Eviews, the estimation model that uses the GLS method is the Random Effect Model.
On the other hand, the Common Effect and Fixed Effect Models use Ordinary Least Squares (OLS).
Therefore, the need to conduct classical assumption testing in this study depends on the estimation method chosen.
If the appropriate estimation method for the regression equation is the Random Effect Model, then classical assumption testing is not necessary.
However, if the more appropriate estimation method is Common Effect or Fixed Effect (OLS), then classical assumption testing needs to be done.
In this study, the regression equation model chosen is the Random Effect Model (REM) so that classical assumption testing is not required.
This is in accordance with the central limit theorem (Dielman, 1961 in Gustiana & Zupiryadi, 2.
which states that for large samples, especially those numbering more than 30 .
Ou .
, the sample distribution can be considered normal.
Because this study uses more than 18 samples, namely 72 samples, the normality test in long-term estimation is considered to meet the normal distribution.
Table 6 Results of Random Effect Model Regression Analysis Variable Coefficient Std.
Error t-Statistic Prob.
Source: Eviews 10 Output Results From table 6 above, the results of panel data regression analysis using the Random Effect Model approach are shown.
Based on the table, the regression equation can be seen as follows:
Y = 2.
69601X1 Ae 1.
THE EFFECT OF COMPANY GROWTH AND FREE CASH FLOW ON DEBT POLICY WITH PROFITABILITY
AS A MODERATING VARIABLE Ae Oktaviani, et.
Pp : 51 - 67 Interpretation of the regression equation shows that the constant value of 2.
056450 illustrates that without Corporate Growth (X.
and Free Cash Flow (X.
Debt Policy (Y) will be at the base level of The Corporate Growth coefficient of 17.
69601 indicates a positive relationship between Corporate Growth and Debt Policy, where every 1 unit increase in Corporate Growth will increase Debt Policy by 17.
69601 or 1769.
Conversely, the Free Cash Flow coefficient of -1.
871654 indicates a negative relationship, meaning that every 1 unit increase in Free Cash Flow will reduce Debt Policy 871654 or 187.
Table 7 T-Test Results Variable Coefficient Std.
Error t-Statistic Prob.
Source: Eviews 10 Output Results Based on table 7 above, it can be interpreted as follows:
The first hypothesis in this study states that Company Growth (X.
has a negative effect on Debt Policy (Y).
The regression coefficient for Company Growth is 17.
69601 with a significance value At a 5% error rate, this regression coefficient is not significant because the significance value of 0.
4062> 0.
Therefore, it can be concluded that Company Growth has no effect on Debt Policy, so the H1 hypothesis is rejected.
The second hypothesis of this study states that Free Cash Flow (X.
has a positive effect on Debt Policy (Y).
The regression coefficient for Free Cash Flow is -1.
871654 with a significance value of At a 5% error rate, this regression coefficient is also not significant because the significance value of 0.
9144> 0.
Therefore, it can be concluded that Free Cash Flow has no effect on Debt Policy, so the H2 hypothesis is also rejected.
Table 8 Results of Determination Coefficient Test R-squared Mean dependent variable 1.
Adjusted R-squared SD dependent var
SE of regression Sum squared residual F-statistic Durbin-Watson stat
THE EFFECT OF COMPANY GROWTH AND FREE CASH FLOW ON DEBT POLICY WITH PROFITABILITY
AS A MODERATING VARIABLE Ae Oktaviani, et.
Pp : 51 - 67 Prob(F-statisti.
Source: Eviews 10 Output Results The results of the determination coefficient test show how effective the independent variables are in explaining the dependent variable.
This test is expressed by the R2 value.
Based on Table 8, the R2 value obtained is 0.
013521, which means that 1.
35% of the variation in Debt Policy can be explained by the variables of Company Growth and Free Cash Flow.
The contribution of these variables in influencing Debt Policy is very low.
This value indicates that, although these independent variables have an influence, their influence is relatively small compared to other factors not included in the model.
Table 9 Results of Moderated Regression Analysis Test Variable Coefficient Std.
Error t-Statistic Prob.
X1M
X2M
Source: Eviews 10 Output Results Based on table 9 above, several things can be concluded as follows:
In the interaction between Profitability and Company Growth (X1M) has a probability value of The value is > 0.
05, then Ho is not rejected, which means that Profitability is not able to moderate the influence of Company Growth on Debt Policy.
In the interaction between Profitability and Free Cash Flow (X2M) has a probability value of The value is > 0.
05, then Ho is not rejected, which means that Profitability is not able to moderate the effect of Free Cash Flow on Debt Policy.
The model produced in this study forms a panel data regression equation as follows:
Y =2.
09201ycU1 Oe 1.
348103ycU2 Oe 4.
043826ycA Oe 43.
36955ycU1 ycA 25.
79213ycU2 ycA
THE EFFECT OF COMPANY GROWTH AND FREE CASH FLOW ON DEBT POLICY WITH PROFITABILITY
AS A MODERATING VARIABLE Ae Oktaviani, et.
Pp : 51 - 67 Information:
= Debt Policy yu = Constant yu1 yu2 yu3 yu4 yu5 = Coefficient of each independent variable X1.
X2, = Company Growth.
Free Cash Flow = Profitability Based on tables 7 & 9 above, it can be interpreted as follows:
Based on the results of the panel data regression analysis test, it is concluded that company growth has no effect on debt policy.
Thus.
H1 which states that Company Growth has a negative and significant effect on debt policy is rejected.
The results of the analysis show that company growth has no significant effect on debt With a negative average company growth (-0.
, it indicates a decrease in company assets, which reflects poor financial performance and instability in growth, so that companies tend to avoid additional risks by not increasing debt policy.
This study is in line with the research of Saputra et al.
, which states that the company's growth rate does not affect debt policy, because companies prefer to use internal funds rather than debt to finance their growth.
In addition, research by Fauziah & Rejeki .
also found that growing companies prefer equity funding to debt to avoid financial risk.
This finding confirms that other factors such as market risk and managerial preferences influence debt policy more than just company growth.
Based on the results of the panel data regression analysis test, it is concluded that free cash flow has no effect on debt policy.
Thus.
H2 which states that free cash flow has a positive and significant effect on debt policy is rejected.
The results of the analysis show that Free Cash Flow (FCF) has no significant effect on debt The low average FCF .
and large fluctuations between the maximum and minimum values indicate instability in the company's cash flow, so that companies tend to avoid increasing debt due to uncertainty in cash flow.
This finding is in line with research by Zahroh et al.
which shows that the availability of FCF does not always affect debt decisions, and Fadhilah et al.
who found that FCF is not correlated with debt policy.
This is supported by research by Nurkholik & Khasanah .
and Fauzi et al.
, which states that companies with high FCF are more likely to use internal funds to fund operations and expansion, reducing dependence on debt.
The implication of this finding is that financial managers must consider factors other than FCF, such as capital structure and the company's strategic objectives, in determining debt policy.
Based on the results of the Moderated Regression Analysis (MRA) analysis test.
Profitability is unable to moderate the effect of Company Growth on Debt Policy.
This is indicated by the probability value of the interaction between Profitability and Company Growth (X1M) of 0.
7242, which is greater than 0.
05, so that the H3 hypothesis which states that Profitability is able to positively moderate the relationship between Company Growth and Debt Policy is rejected.
The results of the analysis show that profitability does not have a significant effect as a moderating variable in the relationship between company growth and debt policy.
The low average profitability (-0.
and high fluctuation .
tandard deviation 0.
indicate instability in profitability between companies, which reduces its effectiveness in moderating debt policy decisions.
This is in line with the findings of Togatorop & Susan .
and Sari .
, which state that companies often consider other factors such as market conditions and external capital costs rather than relying solely on profitability in making debt decisions.
This result also contradicts the signaling theory and trade-off theory which assume that high profitability should encourage the use of debt to show market confidence, as well as gain tax benefits from interest expenses .
ax shiel.
This finding is closer to the research results of Angeline & THE EFFECT OF COMPANY GROWTH AND FREE CASH FLOW ON DEBT POLICY WITH PROFITABILITY AS A MODERATING VARIABLE Ae Oktaviani, et.
Pp : 51 - 67 Wijaya .
, which found that profitability does not moderate the relationship between corporate growth and debt policy, but differs from the research of Nurfitriana & Fachrurrozie .
, which shows the opposite.
This discrepancy could be caused by differences in samples, industrial sectors, or corporate policies in the use of debt, as well as macroeconomic factors that influence corporate funding preferences.
Based on the results of the Moderated Regression Analysis (MRA) test.
Profitability is unable to moderate the effect of Free Cash Flow on Debt Policy.
This can be seen from the probability value of the interaction between Profitability and Company Growth (X1M) of 0.
7242, which is greater than 0.
05, so the hypothesis stating that Profitability is able to positively moderate the relationship between Free Cash Flow and Debt Policy is rejected.
The absence of a role for profitability as a moderator in the relationship between Free Cash Flow (FCF) and debt policy is due to low profitability (-0.
and high fluctuations .
tandard deviation 505.
, which indicates instability between companies in the sample.
Although high FCF should reduce the need for debt, limited profitability is not enough to strengthen this relationship, because companies tend to choose to use internal funds rather than external debt (Rezki & Anam, 2.
These results also show that despite high profitability, companies do not always avoid debt, because they may choose to utilize leverage to increase company value or achieve an optimal capital structure (Deviyanti & Riyanto, 2.
In addition, these results contradict the signaling theory and trade-off theory, which state that high profitability should encourage debt use.
This finding is in line with the research of Fitriyani & Khafid .
, which also shows that profitability does not moderate the relationship between FCF and debt policy, but contradicts the research of Isnaeni et al.
, which states the opposite.
This difference may be due to sample factors, market conditions, or different financial strategies between companies.
CONCLUSION
This study aims to explore the impact of Company Growth and Free Cash Flow on Debt Policy, with Profitability as a moderating variable, using multiple linear regression models and Moderated Regression Analysis (MRA).
The results of the study provide the following conclusions:
Company growth (X.
has no effect on debt policy.
This study found that growing companies tend to have greater access to internal funding sources, such as retained earnings, thereby reducing dependence on external debt.
In addition, companies with good growth prospects are often more attractive to equity investors, allowing them to raise funds without having to increase their debt Other factors that may influence are management preferences to avoid excessive financial risk during growth periods, or industry characteristics that allow easier access to non-debt capital.
Thus, even though company growth increases, debt policy decisions may be more influenced by managerial preferences.
Free Cash Flow(X.
has no effect on debt policy.
This study found that companies with high FCF usually have greater financial flexibility and can finance their operations and investments without having to rely on debt.
Companies with sufficient FCF often choose to use internal funds for expansion or dividend payments rather than taking debt, which reduces the need to borrow.
In addition, if management has a desire to avoid financial risk or maintain a safer capital structure, they will prefer not to add debt even though they have high FCF.
Profitability is unable to moderate the relationship between firm growth and debt policy.
The results of the analysis show that even though the firm has high profitability, this does not have a significant effect on the debt decisions taken.
Firms are more likely to use internal funding sources, such as retained earnings, rather than relying on debt.
This decision may be influenced by managerial preferences to maintain long-term financial stability, so that even though there is growth, debt policy does not increase along with profitability.
Profitability is unable to moderate the relationship between free cash flow and debt policy.
This shows that companies with high or low profitability do not affect the company's decision to choose to use free cash flow to fund growth, rather than relying on debt funding.
Although signaling and trade-off theory assumes that profitability should increase companies to rely on external funding THE EFFECT OF COMPANY GROWTH AND FREE CASH FLOW ON DEBT POLICY WITH PROFITABILITY AS A MODERATING VARIABLE Ae Oktaviani, et.
Pp : 51 - 67 sources such as debt, the reality shows that companies actually avoid financial risk by utilizing internal funds.
This is in line with the results of previous studies which also found that profitability does not have a significant moderating effect in this case.
After finding the results and concluding the results of the research that has been carried out, the following suggestions are provided:
For companies, it is better to pay more attention to managing internal funding sources.
They need to develop strategies that focus on utilizing retained earnings and free cash flow to fund expansion, rather than relying on debt.
In addition, management must remain focused on financial stability to reduce the risks that will arise.
For Management, it is necessary to evaluate their preferences for debt and other funding sources.
Management should prioritize the management of internal funds to support the company's growth.
The company can focus on strategies that optimally utilize retained earnings and free cash flow.
This approach not only helps maintain financial stability, but can also help the company reduce the risks that will arise from dependence on debt.
By optimizing internal resources, the company can achieve more sustainable and independent growth in the long term.
Investors are advised to look at factors such as profitability and use of free cash flow when assessing a company's debt policy.
They should be aware that companies with good growth do not always take on debt, so a more holistic investment approach is needed.
For further researchers, it is recommended to develop research by adding other independent variables because this study has limitations where the R Square value is 0.
013521 or 1.
35% so that the contribution of the company growth variable, free cash flow, profitability in influencing debt policy is classified as very low, which is only 1.
35% and the rest is explained by other variables outside the study.
REFERENCE