Capital structure and firm performance: A strategic insight into the role of director remuneration in the emerging economy

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Abstract

This study examines the role of directors’ remuneration on the capital structure and performance of manufacturing companies listed on the Indonesia Stock Exchange (IDX). The Indonesian manufacturing industry is one of the pillars of state revenue, but in recent years, it has experienced a delay in performance (IDX, n.d.). This study aims to explore the role of directors’ remuneration in the relationship between capital structure and company performance. This data covers 952 manufacturing companies listed in Indonesia during the period 2015–2020. Moderation regression analysis is used to test data from company websites and annual reports. This study generally provides evidence that capital structure has a negative effect on company performance. In addition, directors’ remuneration can weaken the relationship between short-term debt (STD) and total debt (TTD) on company performance but is unable to moderate long-term debt (LTD). High remuneration motivates directors to make the best decisions for the company. This study provides important implications for companies in making debt decisions and provides input for companies in considering management incentives for decision-makers. To the best of our knowledge, this is the first study to examine the moderating role of directors’ remuneration on the relationship between capital structure and company performance.

Keywords: Capital Structure, Firm Performance, Remuneration

Authors’ individual contribution: Conceptualization — M.S. and D.S.; Methodology — D.S., S.H., and Y.A.A.; Software — M.S. and D.S.; Validation — D.S., S.H., and Y.A.A.; Formal Analysis — M.S., S.H., and Y.A.A.; Investigation — M.S., D.S., S.H., and Y.A.A.; Resources — M.S., D.S., S.H., and Y.A.A.; Data Curation — M.S. and D.S.; Writing — M.S., D.S., S.H., and Y.A.A.; Visualization — M.S.; Supervision — M.S.; Project Administration — M.S.; Funding Acquisition — M.S.

Declaration of conflicting interests: The Authors declare that there is no conflict of interest.

JEL Classification: G31, G32, G35, G38

Received: 04.03.2025
Revised: 18.11.2024; 29.05.2025
Accepted: 23.06.2025
Published online: 25.06.2025

How to cite this paper: Syafik, M., Setiawan, D., Hartoko, S., & Aryani, Y. A. (2025). Capital structure and firm performance: A strategic insight into the role of director remuneration in the emerging economy. Corporate & Business Strategy Review, 6(3), 55–63. https://doi.org/10.22495/cbsrv6i3art5