The Effect of Asset Structure on Capital Structure with Tax Shield as Moderation

Abstract

This study aims to analyze the influence of asset structure on capital structure, as well as the role of tax shield as moderation in the relationship between asset structure and capital structure in companies of basic materials sector that listed on the Indonesia Stock Exchange (IDX). Capital structure, which refers to the comparison between a company's debt and equity, plays an important role in a company's financial management, which can affect the financial health and operational sustainability of the company. The asset structure, which consists of fixed assets and current assets, has an effect on a company's ability to acquire debt. This study examines whether companies that have larger asset structures tend to rely more on debt, considering the role of tax shield as a factor that strengthens the relationship between asset structure and capital structure. The data used in this study are the audited annual financial statements of companies in the basic materials sector that listed on the IDX during the 2018-2023 period. The results of the study show that asset structure has a significant positive effect on capital structure, and tax shield is able to moderate the influence of asset structure on capital structure significantly. These findings support the trade-off theory, which states that using debt as source of funding and owning tangible fixed assets can provide tax shield through interest debt and depreciation which can reduce tax liabilities and improve the efficiency of company’s funding. This research is expected to contribute to the theory of financial management, especially in the understanding of capital structure and the importance of asset management and the benefits of tax shield in corporate funding decision-making