The Effect of Debt Policy on Manufacturing Company Investment Activities on the Jakarta Stock Exchange

Oct 13, 2025 by miodeya.com 112 views

The Effect of Debt Policy on Manufacturing Company Investment Activities on the Jakarta Stock Exchange

Introduction

The 1997 economic crisis that hit Indonesia resulted in a significant decline in the exchange rate of the rupiah against the US dollar. This condition led to a surge in companies taking on debt to overcome financial difficulties. As a result, the ratio of debt and leverage in the company's capital structure increased. However, if the debt ratio exceeds the optimal capital structure, the company's value can be eroded. Therefore, it is essential to understand the effect of debt policy on the investment activities of manufacturing companies listed on the Jakarta Stock Exchange.

Debt and Investment Relationship

In general, debt can be a source of funding for companies to invest. However, the use of debt must be done wisely. If it is too high, the company will be burdened by interest payment obligations and principal debt. This can hamper operational smoothness and reduce the company's ability to invest in the future. Debt can be a double-edged sword for companies, providing funding for investment but also increasing financial risk.

Impact Analysis of Debt Policy

Based on empirical studies, there are several effects of debt policy on manufacturing company investment:

Increased Leverage

Companies with high debt ratios tend to have obstacles in getting additional funding. This is caused by increased credit risk and causes investors to be reluctant to provide loans. This condition can hamper the company's investment plan. High debt ratios can limit a company's ability to invest in the future.

Economic Uncertainty

Economic crisis and financial market uncertainty can increase debt costs and make companies more careful in making investment decisions. Economic uncertainty can make debt more expensive and reduce a company's ability to invest.

Company Strategy

Aggressive debt policy may not always be effective in increasing investment. The company needs to consider a long-term investment strategy and ensure that the debt taken can be paid back smoothly. A company's debt policy must be aligned with its overall investment strategy.

Implications for Manufacturing Companies

Understanding the effect of debt policy on investment is very important for manufacturing companies. Here are some implications that need to be considered:

Debt Risk Management

The company must have a strong debt risk management system to control the level of leverage and minimize financial risk. Effective debt risk management is crucial for companies to avoid financial distress.

Diversified Funding Strategies

Relying on debt is not an ideal strategy. Companies need to find other sources of funding such as equity or profit sharing so that the capital structure remains balanced. Diversified funding strategies can help companies manage financial risk and achieve sustainable growth.

Transparency and Accountability

The application of good corporate governance principles (GCG) with transparency and accountability is important to build investor confidence and gain access to better funding. Transparency and accountability are essential for companies to attract investors and achieve sustainable growth.

Conclusion

Debt policy has a significant influence on manufacturing company investment activities. Increased leverage and economic uncertainty can hamper investment. Therefore, companies need to carefully consider the right debt and investment strategies to achieve sustainable growth. A well-managed debt policy is crucial for companies to achieve their investment goals and maintain financial stability.

Recommendations

Based on the analysis, the following recommendations are made:

Companies should have a strong debt risk management system to control the level of leverage and minimize financial risk.
Companies should diversify their funding strategies to include equity or profit sharing to maintain a balanced capital structure.
Companies should apply good corporate governance principles (GCG) with transparency and accountability to build investor confidence and gain access to better funding.
Companies should carefully consider their debt and investment strategies to achieve sustainable growth.

Limitations of the Study

This study has several limitations. Firstly, the study only focuses on manufacturing companies listed on the Jakarta Stock Exchange. Secondly, the study only analyzes the effect of debt policy on investment activities and does not consider other factors that may influence investment decisions. Thirdly, the study only uses empirical data and does not consider theoretical models.

Future Research Directions

Future research should consider the following directions:

Analyze the effect of debt policy on investment activities of companies in other industries.
Consider other factors that may influence investment decisions, such as market conditions and company performance.
Use theoretical models to analyze the effect of debt policy on investment activities.
Conduct case studies of companies that have successfully managed their debt policy to achieve sustainable growth.

References

[1] [Author's Name]. (Year). [Title of the Study]. [Journal Name], [Volume], [Issue], [Pages].
[2] [Author's Name]. (Year). [Title of the Study]. [Journal Name], [Volume], [Issue], [Pages].
[3] [Author's Name]. (Year). [Title of the Study]. [Journal Name], [Volume], [Issue], [Pages].

Note: The references should be in a standard format, such as APA or MLA, and should include the author's name, year of publication, title of the study, journal name, volume, issue, and pages.
Frequently Asked Questions (FAQs) about the Effect of Debt Policy on Manufacturing Company Investment Activities on the Jakarta Stock Exchange

Q1: What is the impact of debt policy on manufacturing company investment activities?

A1: The impact of debt policy on manufacturing company investment activities is significant. Increased leverage and economic uncertainty can hamper investment, while a well-managed debt policy can help companies achieve sustainable growth.

Q2: How can companies manage their debt risk effectively?

A2: Companies can manage their debt risk effectively by having a strong debt risk management system, diversifying their funding strategies, and applying good corporate governance principles (GCG) with transparency and accountability.

Q3: What are the implications of relying too heavily on debt for funding?

A3: Relying too heavily on debt for funding can lead to increased financial risk, reduced operational smoothness, and decreased ability to invest in the future.

Q4: How can companies balance their capital structure to achieve sustainable growth?

A4: Companies can balance their capital structure by diversifying their funding strategies to include equity or profit sharing, and by having a well-managed debt policy.

Q5: What is the role of good corporate governance principles (GCG) in debt management?

A5: Good corporate governance principles (GCG) play a crucial role in debt management by promoting transparency, accountability, and investor confidence.

Q6: How can companies ensure that their debt policy is aligned with their overall investment strategy?

A6: Companies can ensure that their debt policy is aligned with their overall investment strategy by having a clear and well-defined investment strategy, and by regularly reviewing and updating their debt policy.

Q7: What are the benefits of having a well-managed debt policy?

A7: The benefits of having a well-managed debt policy include reduced financial risk, increased operational smoothness, and improved ability to invest in the future.

Q8: How can companies measure the effectiveness of their debt policy?

A8: Companies can measure the effectiveness of their debt policy by regularly reviewing their financial performance, debt levels, and investment activities.

Q9: What are the consequences of failing to manage debt effectively?

A9: The consequences of failing to manage debt effectively can include financial distress, reduced operational smoothness, and decreased ability to invest in the future.

Q10: How can companies stay up-to-date with the latest developments in debt management?

A10: Companies can stay up-to-date with the latest developments in debt management by attending industry conferences, reading industry publications, and participating in online forums and discussions.

Conclusion

Debt policy has a significant impact on manufacturing company investment activities. Companies must carefully consider their debt policy to achieve sustainable growth. By having a well-managed debt policy, companies can reduce financial risk, increase operational smoothness, and improve their ability to invest in the future.

References

[1] [Author's Name]. (Year). [Title of the Study]. [Journal Name], [Volume], [Issue], [Pages].
[2] [Author's Name]. (Year). [Title of the Study]. [Journal Name], [Volume], [Issue], [Pages].
[3] [Author's Name]. (Year). [Title of the Study]. [Journal Name], [Volume], [Issue], [Pages].

Note: The references should be in a standard format, such as APA or MLA, and should include the author's name, year of publication, title of the study, journal name, volume, issue, and pages.