Ngatno, Ngatno and Apriatni, Endang P Moderation Effects of Organisational Environment on The Relationship Between Capital Structure and Financial Performance of Central Java Rural Branks, Indonesia. Asian Economic and Financial Review, 10 (1). ISSN 2222-6737

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Abstract

The purpose of this study is to investigate the moderating effects of the organizational
environment on the relationship between capital structure and rural banks’ performance.
The samples have been collected from 241 rural banks of Central Java for the present
study to analyze the moderating effects, and data are collected through its Financial
Services Authority (FSA) website. Moderating Regression Analysis (MRA) is used to
evaluate the impact of moderation. The capital structure as measured by the ratio of total
debt to total assets and total equity both have a significant negative effect on ROA and
ROE. The effects of savings and loans have a negative impact on ROA and ROE. While,
debt in other forms has no significant effect. Thus, the increase in savings and loans can
reduce the performance of rural banks. The effect of organizational environment
moderation on the relationship between capital structure and the performance of rural
banks shows different results: (1) environment munificence has a positive moderation
effect on the relationship between capital structure (total debt, savings and loan) and ROE;
(2) environmental dynamism has a positive moderation effect on the relationship between
capital structure (total debt, savings and loan) and ROA; (3) environmental complexity has
a positive moderation effect, especially on the relationship between other debt and ROE.

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