The findings are based on financial data from 25 mining companies listed on the Indonesia Stock Exchange between 2019 and 2023. Using 125 observations and multiple linear regression analysis, the research concludes that firms with stronger internal financial conditions are more likely to finance operations and investments without relying heavily on debt.
The study matters because Indonesia’s mining industry remains one of the country’s most strategic economic sectors while also facing major financial risks. Commodity price volatility, fluctuating export performance, and uncertainty in exploration activities continue to pressure mining firms to maintain stable financial structures.
According to the research, companies with strong profitability and high liquidity prefer to preserve financial resilience by minimizing leverage. The results also show that firms with large fixed assets are not necessarily increasing debt exposure, despite having assets that could be used as collateral.
“Companies with better financial performance prioritize internal funding sources to maintain operational stability and reduce financial risk,” the study explains. The analysis aligns with the well-known Pecking Order Theory, which suggests firms prefer internal financing over external borrowing whenever possible.
The research was conducted during a period marked by instability in Indonesia’s mining exports. Export performance in the sector declined in 2019, 2020, and again in 2023, creating pressure on corporate cash flow and financing decisions. Under these conditions, capital structure management became increasingly important for maintaining business sustainability.
Capital structure refers to the balance between debt and equity used by companies to fund operations and investments. Poor capital structure decisions can increase financing costs and financial risk, while balanced financing strategies can improve long-term competitiveness and market value.
To examine the issue, Wiwik Tiswiyanti analyzed audited financial reports from mining companies listed on the Indonesia Stock Exchange. The study used a quantitative research design and evaluated three major factors:
- Profitability, measured through Return on Equity (ROE)
- Liquidity, measured through the Current Ratio (CR)
- Asset structure, measured through the proportion of fixed assets to total assets
The dependent variable was capital structure, measured using the Debt-to-Equity Ratio (DER).
The statistical analysis revealed several important findings:
- Profitability had a significant negative effect on capital structure
- Liquidity had the strongest negative effect on debt usage
- Asset structure also negatively influenced capital structure
- The three variables together explained 55.7 percent of variations in corporate capital structure
The results indicate that financially healthier companies are less dependent on borrowing.
Liquidity emerged as the most influential factor in the study. Companies with strong current assets and sufficient cash reserves were more capable of meeting operational needs and short-term obligations without additional loans.
This pattern reflects a broader financial strategy among mining firms to avoid excessive debt exposure during periods of economic uncertainty.
The findings regarding asset structure are particularly notable. Traditional financial theory often suggests that companies with larger fixed assets tend to borrow more because those assets can serve as collateral. However, the study found the opposite trend in Indonesia’s mining sector.
Despite owning substantial physical assets, many mining firms still chose to reduce debt levels. The research suggests that companies remain cautious due to risks associated with unstable commodity prices, fluctuating revenues, and long-term financial uncertainty.
The study also reinforces two major financial theories frequently used in corporate finance research.
The first is the Pecking Order Theory developed by Stewart C. Myers and Nicolas Majluf, which argues that firms prioritize internal funding before seeking external capital. The second is the Trade-Off Theory, which explains that companies continuously balance the benefits of debt financing against the risks of financial distress.
According to the Universitas Jambi research, Indonesian mining companies appear to follow both approaches simultaneously by maximizing internal resources while limiting financial vulnerability.
The implications of the findings extend beyond the mining industry itself.
For corporate executives, the study highlights the importance of maintaining healthy profitability and liquidity as part of long-term financing strategies. Firms that strengthen internal financial performance may reduce borrowing costs and improve resilience during economic downturns.
For investors, the research offers a clearer understanding of how mining companies manage debt risk. Companies with stable profitability and strong liquidity may be viewed as financially safer investment targets.
The findings are also relevant for policymakers and financial regulators overseeing Indonesia’s capital markets. The research suggests that stable corporate financial systems depend not only on access to credit but also on companies’ ability to generate sustainable internal funding.
As global commodity markets continue to fluctuate, the ability of mining companies to manage capital structures prudently may become increasingly important for maintaining Indonesia’s broader economic stability.
Author Profile
Wiwik Tiswiyanti is a researcher and lecturer at Universitas Jambi specializing in financial accounting, corporate finance, capital structure analysis, and financial performance of publicly listed companies in Indonesia.
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