Government subsidy, strategic profitability and its impact on financial performance: empirical evidence from Indonesia

Assagaf, Aminullah Government subsidy, strategic profitability and its impact on financial performance: empirical evidence from Indonesia. Investment Management and Financial Innovations, 14 (3). ISSN 1810-4967

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Abstract

This paper examines the muJcraling impact uf capital structure on the relationship be­ tween government subsidy, strategic profitability and financial strength of state-owned enterprises in Indonesia. A purposive sampling is used and data were collected from seven stale-owned enterprises over the period of 2005 to 2016. The empirical evidence provided by this paper indicates that governmenl subsidy has a significant negative impact on the financial strength, which means that the state-owned enterprises are difficult to manage the company independently if the government continues In pro­ vide subsidies or additional capital. This study also found that strategic profitability has a significant positive impact on the financial strength, which means there are op­ portunities for management to perform profitability practice of earnings management as strategic to enhance the level of financial strength of the company. However, capi­tal structure is strengthening the relations of 'government subsidy' and 'real earnings management' with the financial strength. So far, it is still little known how 'capital structure' affects the relationship between government subsidy and financial strength, specifically in the case of stale-owned enterprises.

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