THE EFFECT OF CAPITAL STRUCTURE ON FIRM PERFORMANCE WITH CORPORATE GOVERNANCE AS A MODERATING VARIABLE: EVIDENCE FROM CGPI-LISTED COMPANIES IN INDONESIA

Abstract

This study examines the effect of capital structure on firm performance and the moderating role of corporate governance. Firm performance is proxied by Return on Equity (ROE) and Tobin’s Q, while capital structure is measured using the Debt to Equity Ratio (DER). Corporate governance is represented by the Corporate Governance Perception Index (CGPI). The study employs a quantitative approach using purposive sampling on companies listed in the CGPI and the Indonesia Stock Exchange during the 2018–2022 period. Data were analyzed using multiple linear regression with moderation analysis (interaction effect) through SPSS 26. The findings indicate that capital structure does not have a significant effect on ROE and Tobin’s Q, suggesting that leverage decisions do not directly influence profitability or market valuation. Furthermore, corporate governance does not moderate the relationship between capital structure and ROE, indicating that governance mechanisms do not strengthen the impact of leverage on accounting-based performance. However, corporate governance significantly moderates the relationship between capital structure and Tobin’s Q, implying that strong governance enhances the positive perception of leverage in the market. These results highlight the importance of governance quality in shaping investor confidence and firm value. Keywords: capital structure, corporate governance, firm performance, tobin’s q