The Financial Constraints and Firm’s Profitability: A Case Study of the Indonesian Transportation Companies Listed in Indonesian Stock Exchange

Author Information

Fitriani Ramadhina, Swiss German University, Indonesia
Neneng Djuaeriah, Swiss German University, Indonesia

Abstract

This study attempts to analyze the correlation between financial constraints with the firm’s profitability through return on asset (ROA), return on equity (ROE) and profit margin (PM). The indicators used in determining the financial constraints are cash flow(CF), firm size(FS), dividend payout(DP), interest coverage(IC), debt to capital ratio(DTC) and long-term debt to capital ratio(LTDC). The data set consists of 26 companies from the transportation industry listed in Indonesian Stock Exchange for the period of 2007-2012. Using panel data regression, empirical analysis indicates that debt to capital ratio significantly impact the ROA and ROE; interest coverage is significantly impact the ROE and cash flow as well as firm size are significantly impact PM. This study also finds that dividend payout and long-term debt to capital ratio has no impact to the firm’s profitability. The results expected that companies are able to improve the firm’s profitability and manage their financial better, so no constraints will arise..

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• Category: Business Administration and Business Economics, Marketing, Accounting

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