Ulfa Arofah, Muhammad Saiful Hakim, Muhammad Alfarizi

Capital efficiency and organizational performance: A dynamic panel analysis of Weighted Average Cost of Capital (WACC) and ROA in Indonesia’s healthcare sector

Introduction

Capital efficiency and organizational performance: a dynamic panel analysis of weighted average cost of capital (wacc) and roa in indonesia’s healthcare sector. Analyzes capital efficiency and organizational performance in Indonesia's healthcare sector. This study explores WACC and ROA, highlighting the impact of debt and liquidity management on profitability.

Abstract

The healthcare sector in Indonesia faces challenges in managing capital efficiency and organizational performance due to high operational costs and the need for continuous investment in health technology and infrastructure. As a key driver of economic growth, especially post-COVID-19, optimal capital management is crucial for sustaining operations and creating stakeholder value. This study examines the relationship between the Weighted Average Cost of Capital (WACC) and Return on Assets (ROA) in Indonesia’s healthcare sector using a quantitative dynamic panel analysis approach. Financial data from healthcare companies listed on the Indonesia Stock Exchange were analyzed using the Generalized Method of Moments (GMM). The findings indicate that WACC negatively affects ROA, but the relationship is not statistically significant. Leverage, measured through the Debt to Asset Ratio and Debt to Equity Ratio, strengthens this relationship positively. Meanwhile, cash holdings and firm size have a negative moderating effect, whereas Net Working Capital (NWC) reinforces the relationship positively. These results highlight the importance of effective debt and liquidity management in optimizing profitability in the healthcare sector. The study contributes theoretically to capital efficiency discussions and offers practical insights for industry stakeholders, including decision-makers and investors. The research is novel in its focus on Indonesia’s healthcare sector, making it highly relevant for financial and strategic planning in the industry.

Review

This paper addresses a highly pertinent topic concerning capital efficiency and organizational performance within Indonesia's healthcare sector, a critical industry facing unique challenges related to high operational costs and continuous investment needs. The authors investigate the relationship between Weighted Average Cost of Capital (WACC) and Return on Assets (ROA), a fundamental inquiry for ensuring sustainable operations and stakeholder value, particularly in the post-COVID-19 era. The study's focus on this specific sector in Indonesia provides a valuable regional and industry-specific context to a universally important financial management problem, setting a strong foundation for its relevance. Employing a quantitative dynamic panel analysis with the Generalized Method of Moments (GMM) on financial data from listed Indonesian healthcare companies, the research presents a rigorous methodological approach. The core finding reveals a negative, albeit statistically insignificant, relationship between WACC and ROA. More intriguingly, the study uncovers complex moderating effects: leverage (Debt to Asset Ratio and Debt to Equity Ratio) positively strengthens this relationship, while cash holdings and firm size exhibit a negative moderating influence. Conversely, Net Working Capital (NWC) positively reinforces the WACC-ROA dynamic, underscoring the nuanced interplay of various financial factors in profitability. The research makes significant contributions by providing novel insights into capital efficiency specifically within Indonesia’s healthcare sector, an area previously underexplored. Theoretically, it enriches discussions on capital management and its impact on performance, while practically, it offers crucial guidance for industry stakeholders, including decision-makers and investors, in their financial and strategic planning. The emphasis on effective debt and liquidity management stemming from these findings provides actionable intelligence, making this a highly relevant and valuable contribution to both academic literature and professional practice.

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