COST OF DEBT: THE IMPACT OF FINANCIAL FACTORS AND NON- FINANCIAL FACTORS

DOI:10.38035/DIJEFA Abstract: The research objective to be achieved is to provide understanding and knowledge to the public, especially investors and creditors regarding the implications of corporate financial and non-financial factors on cost of debt and can be used as a reference for further researchers as well as a reference for stakeholders (investors, creditors and government) in taking relevant and reliable decisions. The method used is quantitative research with secondary data taken from the financial statements of issuers at IDX with data collection techniques using purposive sampling method. The data analysis used is multiple linear regression. The population in this study were manufacturing companies in the basic industry and chemical sectors listed on the Indonesia Stock Exchange which were carried out for 3 years of observation, namely 2016-2018. The sample was determined by purposive sampling method in order to obtain as many as 60 samples. The analysis technique used is the t statistical test and the classical assumption test which includes the normality test, multicollinearity test, heteroscedasticity test, and autocorrelation test. The results of this study indicate that the leverage variable has a positive effect on cost of debt; the variables of profitability, liquidity, managerial ownership, institutional ownership, and independent commissioners did not affect the cos of debt.


INTRODUCTION
The company has several alternatives in financing, one of which is by using debt. Debt is one way of obtaining funds from external parties, namely creditors. Funds provided by creditors in terms of financing the company incur debt costs for the company. The cost of debt (Cost of Debt) can be interpreted as the rate of return expected by creditors when funding in a information (Hery, 2015). Investors and creditors often use information from financial reports as a benchmark in making investment decisions.
On the other hand, Randa dan Solon (2012) stated that for investors and creditors, information on financial factors from financial reports alone is not sufficient to make investment decisions. Investors and creditors also need information on non-financial factors in determining investment decisions. Companies must strengthen non-financial factors in order to keep growing and survive. One of the non-financial factors is that the company can make improvements in management to increase work effectiveness and efficiency. Companies need performance monitoring from the management of the company, namely by implementing good corporate governance. The implementation of corporate governance is expected to increase supervision of management to encourage effective decision making, prevent opportunistic actions that are not in line with company interests, and reduce information asymmetry between executives and company stakeholders. Thus, the implementation of corporate governance (CG) by companies can affect the level of debt.
Ashbaugh-Skaife, Collins, dan LaFond (2006) research shows that companies with strong CG have higher credit ratings than companies with weak CG. Credit ratings will affect the perceptions of creditors and potential creditors of a company's credibility and ability to meet its overall financial obligations. Thus, it is clear that with a high rating, a company with strong CG will enjoy a lower cost of debt. Chen and Jian (2006) in Ashkhabi (2015) state that a healthy corporate governance structure is one of the important indicators that creditors consider when determining a company's risk premium. Corporate governance mechanisms cover many things, for example the number of managerial ownership, institutional ownership, and independent commissioners. With one of these GCG mechanisms, it is hoped that the monitoring of company managers will be more effective so that it can improve company performance and reduce the cost of debt.

The Effect of Profitability on the Cost of Debt
Return on Asset is a measurement that can be used to assess a company's profitability.
Profitability Ratios determine the decision to use debt for corporate funding. Companies with a high level of profitability generally use debt in relatively small amounts because with high rates of return on investment companies can make capital with retained eranings (Purba, 2011 in Sherly & Fitria, 2019). The use of low debt causes the cost of debt incurred to be low. The measurement results of ROA (Return on Asset) are often used as a means of measuring a company's financial performance to find out how efficient the management of capital is on its assets. The greater the value of ROA of a company, the greater the level of profits derived by the company and also the company's position in terms of the use of assets, so as to reduce the cost of debt. In Sherly & Fitria (2019) study, which examined the effect of profitability on the cost of debt, it was found that profitability had a negative effect on cost of debt. From this explanation, the hypothesis is obtained: H1: Profitability has a negative effect on cost of debt

Effect of Liquidity on the Cost of Debt
Liquidity ratios are used to describe how liquid a company is and the company's ability to settle short-term liabilities using current assets. In other words, this ratio is used to measure the company's ability to pay obligations that are due immediately (Kasmir, 2008: 129). Agustina (2013) explains that companies that have a high level of liquidity indicate that the company tends to have high growth opportunities. The more liquid the company is, the lower the debt costs that must be paid by the company. From this explanation, the hypothesis is obtained: H2: Liquidity has a negative effect on the cost of debt

Effect of Leverage on Cost of Debt
Leverage is a ratio that describes the relationship between the company's debt to capital, this ratio can see how far the company is financed by debt or outsiders with the company's ability as described by capital. Sources of funding within the company can be obtained from internal and external companies. From internal companies can be in the form of retained earnings and external companies in the form of debt or the issuance of new shares.
Companies that use debt are liable for interest expense and loan principal expense. The use of debt (external financing) has a large enough risk of not repaying the debt, so the use of debt needs to pay attention to the company's ability to generate profits. Leverage can be understood as an estimator of the risks inherent in a company, meaning that greater leverage indicates greater investment risk (Prasetyorini, 2013). In Awaloedin dan Nugroho (2019) the debt ratio has a positive effect on the cost of debt. From this explanation, the hypothesis is obtained: H3: Leverage has a positive effect on cost of debt

The Effect of Managerial Ownership on the Cost of Debt
Managerial ownership is the shareholder of the manager. Companies with managerial ownership will certainly align their interests. Because the manager who acts as an agent also owns shares in the company, so the manager will do things that are certainly not detrimental to the company because what will happen to the company will also affect or affect them. With managerial ownership in a company, managers will be more careful in making decisions related to debt policy. Managers will reduce the amount of debt to minimize the risk that might occur which will also have an impact on creditors' decisions in determining the determined rate of return. The smaller the risk the company has, the creditors have a higher level of confidence, which affects the rate of return to be determined. The desire to improve the company's performance makes management try to make it happen. Therefore, the greater the ownership of the manager, the smaller the cost of company debt because the manager will feel the impact and risk of the company. The results of Juniarti dan Sentosa (2009) and Swissia & Purba (2018) show that the proportion of managerial ownership has a negative effect on the cost of debt. From the explanation, the following hypothesis is obtained: H4: Managerial ownership is negative for cost of debt

The Effect of Independent Commissioners on the Cost of Debt
The existence of an independent commissioner element in the company's organizational structure that comes from outside the company serves to balance decision making, especially in the context of protecting minority shareholders and other related parties.
An independent commissioner can function to oversee the running of a company by ensuring that the company has implemented practices of transparency, disclosure, independence, accountability and fairness practices according to the prevailing regulations in a country's economic system. The existence of independent commissioners in a company can affect the integrity of a financial report produced by management. If the company has independent commissioners, the financial statements presented by management tend to have more integrity, has been done, it is found that firm size has no effect on debt costs, debt ratios have an effect on debt costs, and company age has no effect on debt costs.

Definition and Operationalization of Variables Dependent variable
Cost of debt is calculated from the amount of interest expense paid by the company in a period of one year divided by the average number of loans that generate this interest. The formula used to calculate the cost of debt (COD) is:

Independent Variable
Profitability Profitability Ratios are ratios to assess a company's ability to look for profits or profits for a certain period. The ratio used in this study is Return on Assets (ROA) with calculations (Kasmir, 2019):

Liquidity
Liquidity ratio is the ratio used to measure how liquid a company is (Kasmir, 2012: 130). The Solvency Ratio is a ratio used to measure the extent to which a company's assets are financed with debt. The ratio used in this study is Debt to equity ratio (DER) with calculations (Kasmir, 2019):

Managerial Ownership
Managerial ownership is the percentage of shares owned by management that actively

Independent Commissioner
An independent commissioner is a member of a board of commissioners who does not have a relationship that can affect his ability to act independently (Hanifah & Purwanto, 2013).
The independent commissioner variable is measured by proportion. The proportion of independent commissioners is calculated by:

Managerial ownership =
Total of managerial shares total of outstanding share

Institutional ownership =
Total of institutional share total of outstanding share

Multicollinearity Test
There is no multicolliniarity among the independent variables. Then there is no multicolliniarity between the independent variables.

Heteroskedaticity Test
The profitability, liquidity, leverage, managerial ownership, institutional ownership, and independent commissioners variables in the heteroscedasticity test show that there was no heteroscedasticity, it can be seen from the sig value of each variable more than 0.05.

Autocorrelation Test
Then there is no autocorrelation between the independent variables. Based on the data above, a significant value of 0,000 is obtained. Because the significance is less than 0.05 or 5%, thus Ho is rejected and Ha is accepted, it can be concluded that profitability, liquidity, leverage, managerial ownership, institutional ownership and independent commissioners have an effect on the cost of debt. 1. This shows that ROA has no effect on Cost of Debt 2. This shows that CR has no effect on Cost of Debt 3. This shows that DER has a negative effect on Cost of Debt 4. This shows that managerial ownership has no effect on Cost of Debt 5. This shows that institutional ownership has no effect on Cost of Debt 6. This shows that independent commissioner has no effect on Cost of Debt Profitability Ratios determine the decision to use debt for corporate funding. Companies with a high level of profitability generally use debt in relatively small amounts because with high rates of return on investment companies can make capital with retained eranings (Purba, 2011in Sherly & Fitria, 2019. But in this study, profitability does not affect the cost of debt, this is because the sample companies prefer to use their own capital (internal funds) rather than the use of debt. Internal funding chosen by the company causes the company to use low external funds or not even use external funding at all in the form of debt. And if there is a sample company that uses debt to develop its business, the debt does not interfere with existing performance because it can be directly covered by their assets.

The Effect of Liquidity on the Cost of Debt
The test results show that the liquidity proxied by the current ratio has no effect on the cost of debt. This means that the higher or lower the current ratio, the cost of debt does not affect. Liquidity ratios are used to describe how liquid a company is and the company's ability to settle short-term liabilities using current assets. This ratio is used to measure the company's ability to pay obligations that are due immediately (Kasmir, 2008: 129). In this study, liquidity has no effect on the cost of debt because the sample companies are able to pay off their shortterm debt with their current assets. And if there is a sample company whose short-term debt cannot be covered by current assets, this does not increase the cost of debt, because the sample company's equity still tends to be high, so it can be covered by equity.

The Effect of Leverage on the Cost of Debt
The test results show that liquidity has a positive effect on the cost of debt. This means that the higher the debt to equity ratio, the higher the cost of debt, on the other hand, the lower the debt to equity ratio, the lower the cost of debt. This is because the sample companies that use debt have obligations for interest expenses and loan principal expenses. The use of debt (external financing) has a large enough risk of not repaying the debt, so the use of debt needs to pay attention to the company's ability to generate profits. Leverage can be understood as an

The Effect of Managerial Ownership on the Cost of Debt
The test results show managerial ownership has no effect on cost of debt. This means that the higher or lower the managerial ownership does not affect the cost of debt. This is because the existence of managerial ownership in the ownership of company shares should provide an incentive for management to improve its performance. However, the proportion of managerial ownership that tends to be small causes management to feel reluctant to work as much as possible. In addition, this is because management does not have control in determining debt policy because many are controlled by the majority owner

The Effect of Institutional Ownership on the Cost of Debt
The test results show that institutional ownership has no effect on the cost of debt. That is, the higher or lower institutional ownership does not affect the cost of debt. This can be due to institutional monitoring that tends not to influence creditors' decisions in determining the company's cost of debt. The existence of institutional ownership in a company is considered to provide monitoring measures against the management. However, if this is not accompanied by serious actions in applying the principles of good corporate governance, there will be a lot of ownership

The Effect of Independent Commissioners on the Cost of Debt
The test results show that the independent commissioner has no effect on the cost of debt. This means that the higher or lower the independent commissioner, the cost of debt does not affect. This is because the existence of independent commissioners by companies may only be done for regulatory compliance but not intended to enforce good corporate governance (GCG) within the company. So the role of independent commissioners in creating transparency cannot be seen by creditors (Juniarti & Sentosa, 2009). The existence of independent commissioners in a company is considered quite important. However, this is not accompanied by any serious actions in implementing the principles of good corporate governance.

Conclusion
Based on the results of the analysis and discussion described in the previous chapter, the conclusions of this study are as follows: b. Liquidity has no effect on the cost of debt.
c. Leverage has a positive effect on the cost of debt.
d. Managerial ownership has no effect on cost of debt.
e. Institutional ownership does not affect the cost of debt.
f. The Independent Commissioner has no effect on the cost of debt.

Suggestions
In the research that has been done, there are still several limitations. Based on the results of the conclusions, there are suggestions that can be given, including: 1. For further researchers, because the results of research on Profitability, Liquidity, managerial ownership, institutional ownership, and independent commissioners show that the company does not experience the effect of cost of debt on the sample that has been carried out, it is recommended to re-test because it is not in accordance with the theory applies. Further researchers can also increase the number of research samples or compare manufacturing companies with other sub-sectors such as the food and beverage subsector, or even compare one sector with several companies between countries.
2. For companies, it is expected to pay attention to factors that can lead to high cost of debt, so if there is an indication of increasing cost of debt the company can quickly take action to improve the company's financial condition.