The Effects of Profitability and Liquidity on Capital Structure, with Cost of Capital as a Mediating Variable
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Liquidity,
Cost of Capital,
Capital Structure
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Abstract
This study employs a quantitative approach with an explanatory research design. The study population consists of all property and real estate companies listed on the Indonesia Stock Exchange, while the sample was selected using purposive sampling based on predetermined criteria. The data used are secondary data obtained from the companies annual financial reports. Data analysis was conducted using multiple linear regression with IBM SPSS Statistics software, along with mediation tests to examine the role of the cost of capital as an intervening variable. The results indicate that profitability has a significant effect on the cost of capital, liquidity has a significant effect on the cost of capital, profitability has a significant negative effect on capital structure, and liquidity has a significant negative effect on capital structure. Furthermore, the cost of capital was found to mediate the effect of profitability on capital structure as well as the effect of liquidity on capital structure. These findings indicate that the cost of capital is a crucial mechanism in explaining the relationship between a company’s financial performance and capital structure decisions. Therefore, companies need to improve profitability, maintain adequate liquidity levels, and manage the cost of capital efficiently in order to establish an optimal capital structure that supports an increase in corporate value.
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