Sustainable Growth and Corporate Risk as Navigation for Shareholders (Study on Manufacturing Companies Listed on the Indonesia Stock Exchange)

Abstract

Sales growth is one indicator of company performance, but too high growth does not guarantee to provide higher value for shareholders; on the contrary, low or declining sales growth is sales growth actually achieved by companies with certain funding sources to support sustainable growth (SUS_GR). Sustainable Growth Rate (SUS_GR) is a simulation of sales growth which should be achieved with retained earnings policy,such as internal funding and constant external funds. Certainly this is important for shareholders, as a navigation control on managerial performance as to how much the role of internal funding sources will be able to have an impact on how maximum sales growth can be achieved with internal funding.The research samples are 103 manufacturing firms in Indonesia with panel time-series data from 2012 to 2018 amounting to 721 N data observations. Pair T-Samples Test results show that there are significant variances between Actual Growthof Sales(AGoS) and Sustainable Growth Rate ( SUS_GR). This is an indication that retained earnings policy is not entirely rational for investment needs in relation to supporting sales growth. Furthermore, panel data regression models have been tested using the Chow Test and Hausman Test, showing that the model of fixed effect is a more suitable model. The multiple panel regression model and the least-squares fixed-effect method proves that corporate risks include business risk, operating risk,and financial risk, as well as assets growth negatively affect SUS_GR, while inventory turnover and sales growth have a significant positive influence on SUS_GR.This finding implies that, if a company makes an effort to achieve SUS_GR, then business risk, operating business, financial risk and asset growth become the main obstacles in increasing SUS_GR, withInventory Turnover (ITO) and Actual Growth OfSales (AGoS) as supporting factors. Thus, the SUS_GR can be used as a navigation control of the company, toward the policy of "go public" manufacturing companies in Indonesia, which generally have the behavior of holding retained earnings as an investment, but not in line with the increase in actual sales, as indicated by the significant slack between SUS_GR and AGoS.

Keywords: Sustainable Growth Rate, Actual Growth Sales, Corporate Risk, Asset Growth and Inventory Turnover