ESTIMATING OF DEBT FINANCING, EQUITY FINANCING TOWARDS PROFIT EXPENSE IN INDONESIA

Abstract

The weakening of the rupiah currency causes the increase of both company's debt in the form of dollars when converted into the local currency, and interest rates. This causes many companies to experience a decrease in performance because costs, especially interest, have increased which resulted in losses and even resulted in bankruptcy. The main purpose of this empirical research was to examine whether a relationship exists between funding sources, which are debt financing and equity financing, and profit expense. A panel data regression model was carried out in this research on companies registered on the Jakarta Islamic Index (JII) Indonesia from 2015 to 2019. As many as 110 observation samples were collected through purposive sampling. The results of the current research discovered that equity financing affects the capital cost or profit expense positively and statistically significant. Meanwhile, debt financing does not have a significant effect on profit expense. Specifically, such results indicate that debt financing does not affect profit expense. However, evidence was found that equity financing significantly affects profit expense, indicating that the equity financing system is more oriented towards working capital. Our research has provided empirical evidence that the higher the source of funding, namely equity financing, the higher the profit expense.