The Effect of Capital Structure on Telecommunication Firm Performance: An International Evidence

This study analyzes the effect of capital structure on the performance of telecommunications firms. The firm performance is measured by return on assets while capital structure is proxied with the ratio of debt total assets. Data of telecommunication firm in 62 countries period of year 2010-2020 proceed with a dynamic data panel regression model using the generalized method of moment approach. The empirical results indicated that capital structure of telecommunication firm has significantly impact to the firm performance in developed and developing countries as well as in integrated and wireless telecommunication firms. The other factors that effect on firm performance are firm size and growth. The novelty of this study lies in the scope of analyses that cover world-wide telecommunication industry based on demographic group (developed and developing countries) and main businesses (integrated and wireless telecommunication). on country total industry. Ibhagui and Olokoyo (2018) reveal that impact of capital structure on firm performance in Nigeria is negative. The same result stated by; Nguyen and Nguyen (2020) in Vietnam; Nenu et al (2018) in Rumania; Monga (2018) in India; Salim and Yadav (2012) in Malaysia; Antoniou et al (2008); Zeitun and Tian (2007) in Jordan. Meanwhile Wibowo and Rahim (2019) concluded positive effect of capital structure on company profitability, where structure of capital computed as ratio of debt to assets and debt to equity while firm profitability proxied by operating income margin and return on equity. Several study with the positive relationship between capital structure and firm performance are Abdullah and Tursoy (2019) for non-financial firms in Germany; Margaritis and Psillaki (2007); Berger et al (2006); Abor (2005) and Doorasamy (2021) in East Africa. This research provides the analyses of telecommunication firm capital structure and its impact to firm performance. Financial report data of telecommunications companies that listed in 62 countries are compiled from Datastream while the source of macro-economic data obtain from World Bank. The descriptive statistics perform to describe the brief summary of capital structure and dynamic data panel analysis carried out to acknowledge the impact of capital structure to firm performance. The results shows that capital structure of telecommunication firms on the periods of research show uptrend pattern over the time and indicated that capital structure significantly affected to firm performance both in developed and developing countries, as well as in integrated and wireless telecommunication. The result indicated the reverse relationship between long-term capital structure and firm performance, meaning that the increase of long-term debt will decrease the firm performance in all groups. Meanwhile for short-term debt, the reverse relationship occurs in developing country and integrated telco, while in developed country and wireless telco, increase of short-term debt will decrease firm performance. The other factors that also indicated impact to firm performance are firm size and growth. The main contribution of this research is the empirical result of telecommunication firm capital structure impact to firm performance in world-wide evidence. This result will enrich the academic research on corporate finance especially in capital structure on telecommunication sector. This study will be beneficial to several telecommunication business enthusiast: manager, banker, fund manager and policy maker as based line consideration.