DIGITAL TRANSFORMATION, FINANCIAL LEVERAGE, BOARD SIZE ON THE PERFORMANCE OF MANUFACTURING COMPANIES IN INDONESIA

Authors: Arista Palupi, Muhammad Al Furqon, Henny Setyo Lestari & Farah Margaretha Leon

ABSTRACT

This research is motivated by several studies which show that many developing countries have switched from traditional production methods to digitization which can improve financial performance. To establish whether this is also true in Indonesia, the researchers undertook a study to ascertain whether digital transformation increases financial performance. Besides digital transformation, we look at how internal variables affect financial performance. Return On Assets (ROA) is used to gauge financial performance in this research. Internal factors at our firm include Financial Leverage, Board Size, Firm Size, Book to Market Ratio, and Inventory Turnover. The research’s objectives include: (1) Knowing whether there is a relationship between Digital Transformation and Return On Assets, (2) Knowing whether the firm’s internal factors influence Return On Assets.

This research was conducted at manufacturing companies in Indonesia that was listed on the Indonesia Stock Exchange (IDX) between 2017 and 2021. The number of samples studied was 40 companies. The hypothesis testing with the panel data regression approach was employed as the research design. The research’s findings indicate that digital transformation has a considerable negative effect on the return on assets. In contrast, past research has shown that digital transformation enhances the performance of manufacturing companies significantly. Financial leverage and inventory turnover are two other variables that have a substantial impact on return on assets. A rise in leverage leads to an increase in return on assets, but a decrease in inventory turnover leads to an increase in return on assets. From the test results it is recommended that managers to pay attention to the value of financial leverage to increase the value of profitability (ROA) and also inventory turnover to keep it low to improve firm performance.

Keywords: Digital Transformation, Financial Leverage, Inventory Turnover, Return on Asset, Manufacturing Enterprises

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AUTHORS

First Author – Arista Palupi, Student, Faculty of Economics and Business, Trisakti University, Jakarta,

Second Author – Muhammad AlFurqon, Student, Faculty of Economics and Business, Trisakti University, Jakarta,

Third Author – Henny Setyo Lestari, Lecturer, Faculty of Economics and Business, Trisakti University, Jakarta,

Fourth Author – Farah Margaretha, Lecturer  Faculty of Economics and Business, Trisakti University, Jakarta,