Corporate leverage is a key indicator for measuring a company’s capital structure and financial risk. This article is sorced from a study, titled “Does the Leverage of a Company Differ When Led by a CEO from a Religious Background?” examines the influence of CEOs’ religious backgrounds on corporate leverage in Indonesia. By understanding this dynamic, we can gain new insights into how a leader’s personal values and beliefs can affect a company’s financial policies.
Research Methodology
This study uses data from companies listed on the Indonesia Stock Exchange (IDX) over a certain period. The CEOs of these companies were analyzed based on their religious backgrounds, identified through professional profiles and other relevant sources. Corporate leverage was measured using the debt-to-equity ratio, a key indicator of how much a company relies on debt to finance its operations.
Research Findings
The study found several important insights:
- Positive Influence of Religious Backgrounds: CEOs with certain religious backgrounds tend to be more cautious in making high-risk financial decisions. They prefer a more conservative capital structure with lower leverage.
- Diverse Backgrounds: The influence of religious backgrounds varies depending on the CEO’s religion. For instance, CEOs with religious backgrounds that emphasize prudence and anti-usury values tend to avoid excessive use of debt.
- Industry Differences: The impact of CEOs’ religious backgrounds on corporate leverage also varies across industries. More stable and less risky sectors tend to show a more significant influence compared to more dynamic and high-risk sectors.
Practical Implications
The findings of this study have several practical implications for stakeholders:
- Investors: Investors can consider the religious background of a CEO as one of the factors in their investment decisions, especially if they prefer companies with conservative capital structures.
- Shareholders: Shareholders can evaluate a company’s financial policies by considering the personal values and beliefs of the CEO, which can influence the company’s long-term strategy.
- Boards of Directors: In the CEO selection process, boards of directors can consider the candidates’ religious backgrounds as an aspect that affects the company’s financial policies and risk management.
Conclusion
The religious background of a CEO has a significant influence on corporate leverage. CEOs with religious backgrounds tend to adopt a more conservative approach in managing corporate debt, which in turn can reduce financial risk and increase long-term stability. Understanding this dynamic can help stakeholders make more informed and strategic decisions in the context of corporate finance.
Link Journal : https://scholar.unair.ac.id/en/publications/does-the-leverage-of-a-company-differ-when-led-by-a-ceo-from-a-re