Firdaus Zuchruf

THEORETICAL FRAMEWORK AND HYPOTHESIS

Corporate Governance. Corporate governance deals with the ways in which all parties are interested in organizational well-being; efforts to ensure those leaders and other insiders take action or adopt mechanisms that protect the interests of stakeholders. Corporate governance refers to a set of rules and incentives where company management is directed and controlled (Velnampy, 2013).
According to the Cadbury Committee (1992) corporate governance is a system used by companies to mobilize and control company operations. In Corporate governance, the Board of directors is the part responsible for the implementation of Corporate Governance. Corporate governance is a principle that directs and controls the company in order to achieve a balance between the strength and authority of the company in providing accountability to shareholders in particular and stakeholders in general.
This study uses corporate governance in the form of the Proportion of Independent Commissioners and the Proportion of Independent Audit Committee, it is based that the Proportion of Independent Commissioners and the Proportion of Independent Audit
Committee reflect or reflect the implementation of good corporate governance (Adi et al. (2012).
Firm Size. Firm size is a reflection of the size of the company's wealth. The greater the firm size, the greater the amount of company wealth that can be used to support its operational activities. The size of the company is a business scale of companies that can be grouped into three categories, namely small-scale businesses, medium-scale businesses and large-scale businesses. Companies that have gone public / listed on the IDX include companies that have large-scale businesses. Company size can be measured using total assets and total sales. The size of the company can have a positive effect on debt, because large companies have large assets that can be used as collateral if the company takes the debt. Barclay and Smith (1998) suggest that large companies when compared to small companies are able to bear large long-term debt, because they have the ability to pay loans and interest on loans.
Firm Size is a value that indicates the size of the company. Firm size is usually measured using total sales, total assets, and tangibility assets. The greater the value of total sales, total assets, and tangibility assets, the greater the size of the company. More detailed, the greater the total assets, the more capital invested, the more sales, the more money turnover and the greater tangibility of assets, the greater the company is known in the community (Sudarmadji and Sularto, 2009).
In this study Firm Size is measured using Total Assets / Log of total assets (Alipour et al. 2015, Najjar, 2011 and Dogan 2013), Total Sales / log of total sales (Salawu, 2012) and Tangibility Assets Ratio (Rajan and Zingales, 1995, Najjar and Petrov, 2011, Salawu 2012).
Capital Structure. Capital structure policy is a part of financing decision as the main decision in financial management besides investment decision and dividend decision or dividend policy. Funding decisions involve decisions relating to determining the best funding sources or capital structure. Financing corporate decisions is one of the financial strategic decisions related to how to obtain the funds and use of funds (Riyanto, 2001).
Weston & Copeland (1992) state that financial structure refers to the way The Firm’s assets are financed. Financial structure is represented by the entire right-hand side of The Balance Sheet. It includes short-term, debt and long-term debt as well as shareholder’s equity. Capital structure or the capitalization of the firm is the permanen financing represented by long-term debt, preferred stock, and shareholder’ equity. Thus, a firm’s capital structure is only part of financial structure. The book value of shareholder’s equity includes common stock, paid in or capital surplus, and the accumulated amount of retained earnings. If the firm has preferred stock, it is added to the shareholder’s equity and the two together may be termed the firm’s net worth.
Capital Structure variables are measured using three dimensions, namely Long term debt to total equity ratio (Abdul Rahman, 2017, Khanam et al, 2014), debt ratio (Adi et al. 2012) and debt to total equity ratio (Ebaid, 2009, Zeitun and Tian, 2007).