Abstract:
This research examines how capital structure influences profitability of agriculture companies in Indonesia. Capital structure is known to be important, and the relationship with profitability cannot be ignored. This research seeks to empirically prove the significant influences of three financial ratios representing capital structure: (i) short-term debt, (ii) long-term, and (iii) debt to equity ratio towards profitability measured by return on equity. With purposive sampling, a sample of seven agriculture companies in Indonesia listed in Indonesia Stock Exchange for period 2009-2015 is selected. This research has 49 observations of panel data. In addition, this research adopts quantitative research with fixed effect model, which uses some analysis methods of descriptive analysis, classical assumption, multiple regression analysis and hypotheses testing. Based on the result, it is concluded that short-term debt, firm size, and sales growth have significant influences toward return on equity in agriculture sector. On the other hand, long-term debt and debt to equity ratio are found to have no significant influences toward return on equity. Simultaneously, those five independent variables contribute 66.75% influences towards return on equity while the rest 33.25% is influenced by other factors outside this research.
