The Effect of Capital Structure and Ownership Structure on Firm Performance

The objective of this study is to empirically examine non-linear (quadratic) effect of capital structure on firm performance (Tobin’s q dan ROA) and also the effect of Multiple Large Shareholder Structure (MLSS) and institutional ownership on firm performance. The sample is a non-financial company listed on the Indonesia Stock Exchange with the study period 2009-2012. Data obtained from Data Stream and IDX website. Using fixed effect panel regression, this research finds that the capital structure has a quadratic (concave) effect on firm performance measured by ROE with maximum point at debt to equity of 1.95. This result indicates that the total debt that maximizes the company s performance is 1.95 of the total capital. The study also finds that increasingly large multiple shareholder structures (MLSS) will decrease firm performance, while higher institutional ownership will improve company performance.