Liquidity and Leverage as Determinants of Capital Structure: Empirical Evidence from Energy Sector Companies Listed on the Indonesia Stock Exchange, 2020–2024

Abstract

This study examines the effect of liquidity and leverage on capital structure in energy sector companies listed on the Indonesia Stock Exchange (IDX) during 2020–2024. Liquidity is proxied by the Current Ratio (CR), leverage by the Debt to Asset Ratio (DAR), and capital structure by the Debt to Equity Ratio (DER). Using a quantitative approach with secondary data from companies' annual financial statements, the sample was selected through purposive sampling, resulting in 14 companies observed over five years (70 observations). Panel data regression was conducted using the Common Effect Model (CEM), Fixed Effect Model (FEM), and Random Effect Model (REM), with Chow and Hausman tests applied to determine the most appropriate model. The Chow test favored FEM over CEM, while the Hausman test confirmed REM as the most suitable model. Results show that liquidity has a negative and significant effect on capital structure (β = −0.1560; p = 0.050), while leverage has a positive and significant effect (β = 0.0384; p < 0.001). Simultaneously, both variables significantly affect capital structure (F = 12.184; p < 0.001), with an R² of 0.2667, indicating that liquidity and leverage explain 26.67% of the variation in capital structure. These findings highlight the importance of effective liquidity management and optimal debt utilization in shaping capital structure decisions.