IJAFIBS, 11 (3) (2023) pp.

391-399
Published by: TRIGIN Publisher

International Journal of Applied Finance and Business Studies

Journal homepage: www.ijafibs.pelnus.ac.id

The influence of debt equity ratio and times interest earned

ratio through return on assets on banking companies’ share
price
1 2 3 4 5
Sandika Utama , Bintoro Bagus Purmono , Helma Malini , Mustarudin , Wendy
1,2,3,4,5
Management, Universitas Tanjungpura, Indonesia

ARTICLE INFO ABSTRACT

Article history: The financial performance of a company significantly influences its

valuation, reflected in share prices and serving as a comprehensive
Received Nov 21, 2023 measure of overall health and profitability. This research delves into
Revised Nov 22, 2023 the intricate interplay of microeconomic and macroeconomic
Accepted Dec 01, 2023 environments on a company's performance, focusing on the Debt
Equity Ratio (DER) and Times Interest Earned (TIE) as key
Keywords: determinants of stock prices in banking institutions. The mediating role
of Return On Assets (ROA) is considered in this analysis. Employing
Banking; the multiple regression statistical method, the study aims to reveal the
Financial Performance; relationships between independent and dependent variables while
Return; accommodating intervening variables. The objective is to present
Share Price; empirical data supporting formulated hypotheses, providing valuable
Solvency. insights into the financial dynamics of banking institutions.
This is an open access article under the CC BY-NC license.

Corresponding Author:
Sandika Utama,
Department of Management,
Universitas Tanjungpura,
Pontianak, 78124.
Email: [email protected]

1. INTRODUCTION
In the intricate tapestry of financial dynamics, microeconomic and macroeconomic forces
interweave, giving rise to a complex landscape characterized by company performance, financial
statement intricacies, dividend distribution modalities, fluctuations in foreign exchange rates,
interest rate volatilities, and the regulatory imperatives emanating from governmental
directives(Estininghadi et al., 2019). (Kurniawati. O et al., 2021) elucidate the analytical process
entailed in dissecting financial reports, emphasizing the amalgamation of quantitative and non-
quantitative data to distill nuanced insights crucial for cultivating a holistic understanding of the
financial panorama.
Solvency, as the fulcrum of financial management, encapsulates an entity's capacity to
fulfill immediate financial obligations while concurrently ensuring sustained long-term growth.
Within this intricate framework, the Debt Equity Ratio (DER) and Times Interest Earned (TIE)
emerge as sentinel metrics, offering nuanced perspectives on financial health. These ratios
transcend mere numerical representations; they are pivotal indices influencing investor decisions
and casting profound implications on stock valuations.
This research contributes to the theoretical landscape by elucidating the intricate
relationships between DER (Debt to Equity Ratio), TIE (Times Interest Earned), ROA (Return on
Assets), and their collective influence on the Share Price of banks. The findings extend existing
financial theories by providing empirical evidence of the nuanced interplay between financial

Journal homepage: www.ijafibs.pelnus.ac.id

IJAFIBS ISSN 2338-3631 (Print), 2809-9982 (Online)  419

leverage, interest coverage, and profitability in shaping market valuations. Furthermore, the
identification of ROA as an intervening variable adds a layer of complexity to existing theoretical
frameworks, necessitating a reevaluation of models that traditionally consider these factors in
isolation. The practical implications of this research are manifold, particularly for investors engaged
in rigorous financial analysis prior to making investment decisions. The insights garnered from this
study offer investors a more comprehensive understanding of the factors influencing bank Share
Prices. Specifically, the discernment of DER, TIE, and ROA as significant determinants
underscores the importance of assessing a bank's financial structure, interest coverage
capabilities, and overall profitability when gauging its investment potential. Consequently,
practitioners in the financial industry can leverage these findings to refine their investment
strategies, enhancing their ability to make informed decisions based on a thorough evaluation of a
bank's financial health.
Shares are a sign of equity participation from a person or business entity in a limited
liability company. Share return is the result of gains (Capital Gain) or losses (Capital Loss) obtained
from buying financial assets or investing in shares(Andriani, 2020). Share price refers to the market
price of shares traded on an exchange. The determination of share valuation is influenced by
various elements, encompassing intrinsic attributes of the company, prevailing industry attitude,
market perception, and the interaction between supply and demand dynamics within the market.
The values of shares are frequently impacted by fundamental aspects of a firm, like its revenue, net
profit, revenue growth, and operating efficiency. (Malini, 2021a) asserts that the intrinsic value
should give details of company’s current conditions while also forecasting expected returns by
future investors. Investors can analyze the company's efficiency in making decisions to buy shares,
which will have an impact on rising share prices(Candra et al., 2021).
Banking is every single thing related to banks, encompassing business activities,
institutions, as well as the methods and processes involved in conducting their business
operations. Bank is simply financial institution whose primary business activities call for gathering
funds from public and subsequently distributing those funds back to the public on demand while
also providing other financial services (Utama S.A, 2020). The risks faced by the banking sector
are events that can either trigger potential opportunities that have been planned for or unexpected
ones, causing various negative impacts related to a bank's income and capital (Fathanah Radiyyah
et al., 2022). While most of the research strongly concluded the growth of the financial industry and
its factors, it is necessary to do further study for industry’s growth and potential. Responding to
previous research, there is a high raise in demand for development for future prospects in the
industry (Malini, 2021b).
The solvency ratio or leverage ratio, according to (Levina S et al., 2019)is the ratio used to
measure portion of a company’s assets funded by debt. Meanwhile, according to (Mahulae D,
2018), Solvency pertains to the capacity of a corporation to fulfill its financial commitments through
the process of converting its assets into cash. The solvency ratio provides an indication of the
proportion of a company's assets that are financed through debt. (Kurniawati. O et al., 2021). The
creditworthiness of a corporation has the potential to impact investment decisions and alternative
finance choices. Investors commonly seek out organizations that exhibit favorable creditworthiness,
as it serves as an indicator of financial stability and the company's capacity to fulfill its debt
obligations. Furthermore, it should be noted that a company's capacity to secure loans at reduced
interest rates might also be influenced by its elevated credit rating, according to (Catherine et al.,
2020),
(Putri et al., 2021) The impact of transparency in sustainability reports on financial
performance is found to be significant primarily in the social component, whereas it does not exhibit
a significant influence on financial performance in the economic and environmental aspects.
(Kartini, 2023) The transparency of sustainability reports in the economic and environmental
aspects has a significant beneficial impact on a company's financial success. Nevertheless, the
level of transparency exhibited in sustainability reports pertaining to the social component has a
little nevertheless positive impact on a company's financial success. The Debt to Equity Ratio
provides insights into the capital structure of a firm by indicating the proportion of funds obtained
from external sources (i.e., borrowing) relative to those contributed by the company's owners.

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Nevertheless, it would be advantageous for corporations to possess a larger debt-to-equity ratio

(Rusdiyanto et al., 2020). Debt to equity ratio varies depending on the business, characteristics and
cash flow management. Companies with stable cash flow tend to have a higher ratio than less
stable cash ratio (Rusdiyanto et al., 2020).
Debt ratios are fundamental in financial analysis and investment decision-making. Debt
Ratios provide overviews of the company's financial risk and the use of debt for financing. Investors
and creditors often use DER to measure a company's financial stability and solvency. DER can
influence a company's financial decisions. Companies with high DERs may have difficulty obtaining
new loans or may be able to obtain loans at higher interest rates. Additionally, companies with low
DER are more likely to obtain loans at lower interest rates and have better financial flexibility. DER
can also be used to compare capital structures between companies in the same industry.
Comparing DER between companies can provide insight into the effective use of debt in company
finances and introduce different financial policies. In practice, if the company's leverage ratio is
high, the company's financial risk is greater. However, companies also have the opportunity to gain
greater profits if the company can process this debt for investment in assets (Pratama et al., 2021).
(Ratnasari P et al., 2019), higher leverage ratio will raise the risk and raise return rate
demanded by investors. Stracca (2004) Stock price frequently drifts because of investors’ intention
to avoid risk. “High Risk High Return” statement is an empirical statement came from Markowitz
(1959) may cause people to wonder whether higher risk will eventually lead to higher return(Malini,
2021a). According to research done by (Rachmat Sofian et al., 2020), Debt Equity Ratio does not
significantly affect Return On Assets (H1. Debt Equity Ratio does not have significant effect on
Bank’s ROA). According to research done by (Dewi & Suwarno, 2022), Debt Equity Ratio
significantly affect Share Price (H2. Debt Equity Ratio significantly affects Bank’s Share Price).
According to (Yunita et al., 2019),TIE is a metric used to measure the degree of confidence
in fulfilling the interest payments linked to long-term debt. TIE is a financial indicator utilized to
assess a company's capacity to fulfill its interest payments by quantifying the number of times it
can do so. The assessment of the company's capabilities is conducted by quantifying its EBITDA
(Farah et al., 2021). According to (Erlian et al., 2019), The Times Interest Earned TIE ratio is
determined by dividing the Earnings Before Interest, Taxes, Depreciation, and Amortization
(EBITDA) by the interest expenses accrued by the company. A larger interest coverage ratio (TIE
ratio) signifies a company's enhanced capacity to fulfill its interest payment commitments and a
greater probability of obtaining future loans, hence optimizing its profitability. The TIE ratio holds
significant importance in the realm of financial analysis and the evaluation of firm risk. The
aforementioned ratio serves as a metric for evaluating the long-term viability of a company's
interest payments, offering a comprehensive assessment of the company's financial capacity to
fulfill its interest obligations.
The TIE ratio has the capacity to influence the financial decision-making of a firm. Investors
and creditors utilize the TIE ratio as a means to assess the financial risk inherent in a firm and
ascertain the sustainability of its interest payments over the long term. Organizations that possess
a high-interest coverage ratio (TIE ratio) are more likely to secure loans at more favorable interest
rates. Conversely, organizations with a low TIE ratio may encounter difficulties in obtaining fresh
loans or may be subject to higher interest rates. The TIE ratio can also serve as a means to
evaluate and compare the financial performance of different companies operating within the same
industry. The utilization of financial leverage has the potential to yield favorable outcomes in terms
of enhancing profitability during periods of favorable economic conditions. Meanwhile (Avistasari et
al, 2020), the company's ability to pay off all of its debts can be seen through the TIER ratio. An
increase in company profits indicates a good TIER. The effect of cash ratio, interest earned over
time and ROE on ROE in banking companies listed on IDX30 for the 2013-2017 period (Angellia et
al., 2018). According to research done by (Erlian et al., 2019b), Times Interest Earned Ratio
significantly affect Return on Assets (H3. Times Interest Earned Ratio has a significant effect on
Bank’s ROA), according to research done by (Siswanti T, 2023) Times Interest Earned Ratio does
not have significant effect on Share Price (H4. Times Interest Earned Ratio does not have
significant effect Bank’s Share Price).

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ROA indicates the return on the assets of a company. Furthermore, ROA provides a
measurement of management effectiveness in managing its investments(Wijaya, 2019). According
to (Nurain Al Fatin, 2020), "Return On Total Assets. The comparison between net profit and assets
combined measures the level of return on all investment combined, or ROI". The high-profit level
and the achievement of the company's target is the reason company perform as to make many
investors persuaded to invest in the company. Higher company profits will affect to higher return
rates, which would be received as encouragement for investors, thus raising the share price of the
company(Fitriyah & Fauzan, 2020). According to research done by(Dewi & Suwarno, 2022),Return On
Assets significantly affect Share Price (H5. ROA signifanctly affect Bank’s Share Price)

2. RESEARCH METHOD
This study utilized a quantitative research methodology to examine the influence of two
independent variables, specifically the DER (X1) and TIE (X2), on the dependent variable, Share
Prices (Y), in the setting of banking organizations. The research employed a quantitative
methodology, which entailed gathering data from publicly recorded financial statements on the
Indonesian Stock Exchange (IDX) using a purposive sampling method. The dataset utilized in this
study predominantly consists of quantitative data, encompassing numerical measurements such as
closing prices of shares and beta values. The data utilized in this study was obtained from data
gathering organizations or obtained indirectly from the respective enterprises. The research
population comprises all the shares listed on the IDX (Indonesia Stock Exchange), while the
sample selection technique involved a careful selection of shares that meet specific criteria set by
the researcher. The selection criteria employed in this study encompass banking institutions that
are categorized as firms, which are required to produce annual financial statements. Additionally,
these institutions must possess closing price data for the years 2020, 2021, and 2022.
In the field of panel data analysis, there exist three prominent models that hold significant
significance: the Fixed Effect Model, Random Effect Model, and Common Effect Model. The
process of choosing a model is a fundamental and pivotal step inside the analytical framework.
Researchers often utilize diagnostic tests to improve their decision-making process. The Chow test
is an illustrative instance of a statistical test employed to identify the presence of a probable
structural break within the dataset. Comprehending this concept is crucial in order to evaluate
whether the relationships under investigation have undergone any notable alterations over a
specific duration. The detection of structural discontinuities allows for evaluating the
appropriateness of a specific model for the entire dataset or, alternatively, identifying alternative
models that may be better suited for different time periods. However, the Housman test is a useful
tool for evaluating the reliability of the Random Effect Model. The present investigation aims to
examine the hypothesis positing the absence of any association between the regressors and the
individual-specific effects. If it is determined that this assumption is not accurate, it implies that the
Random Effect Model may not be the best appropriate option and that an alternate model should
be taken into account.
Furthermore, the Lagrange Multiplier (LM) test is frequently employed to assess the
comparative effectiveness of the Fixed Effect Model when compared to the Random Effect Model.
The purpose of this assessment is to determine the necessity of incorporating unobserved
individual-specific effects into the model. If the Lagrange Multiplier (LM) test suggests the existence
of individual-specific effects, it is advisable to utilize the Fixed Effect Model instead of the Random
Effect Model. The selection of an appropriate model for conducting panel data analysis is partially
impacted by the collective findings of these investigations. It is imperative to acknowledge that
although these tests may not provide a definitive outcome in isolation, they have significant
importance in the process of model selection, guaranteeing that the chosen model adequately
corresponds to the underlying structure of the data.

2.1 Data analysis technique

a. Determination Coefficient Test (Adjusted R Square)

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The adjusted R-square test is employed to assess the overall explanatory power of a
regression model involving multiple independent variables (Xn) in predicting the variance in the
dependent variable (Y). Unlike the regular R-square, the adjusted R-square takes into account the
number of predictors in the model, providing a more nuanced evaluation of the model's goodness-
of-fit.
b. Hyphotesis testing
The partial t-test is utilized to analyze the specific influence of the independent variable
(Xn) on the dependent variable (Y). The determination of statistical significance is based on the
assessment of the significance level, typically set at a threshold of 5% or 0.05.
The F-test, also known as the simultaneous test, is employed to evaluate the collective
impact of multiple independent variables (Xn) on a dependent variable (Y). The assessment of
statistical significance involves the examination of the significance level, which is commonly
established at a threshold of 5% or 0.05. This analysis is conducted to ascertain whether the
observed outcomes possess statistical significance.

3. RESULTS AND DISCUSSIONS

Descriptive statistics are utilized in research to analyze and present data in its original, unaltered
form, without the aim of drawing universally applicable or general conclusions. This approach
allows for a detailed portrayal and understanding of the collected data. Here are the results oof the
descriptive statistics tests:
Table 1. Descriptive Statistical Test Results
DER (X1) TIE (X2) ROA (Z) Share Price (Y)
Mean 4.984 0.641 0.002 1880.300
Maximum 16.080 7.201 0.084 16000.00
Minimum 0.080 -7.095 -0.180 50.00000
Std. Deviation 2.977 1.557 0.028 2538.369
Observation 135 135 135 135
Source: Results of processing using Eviews 12

The provided data presents a descriptive analysis of four financial metrics, specifically the
DER, TIE, ROA, and Share Price. The Debt-to-Equity Ratio exhibits an average value of 4.984,
with a maximum value of 16.080 and a minimum value of 0.080. The data points demonstrate an
average deviation of 2.977 units from the mean. The Times Interest Earned indicator
demonstrates an average value of 0.641, a maximum value of 7.201, and a minimum value of -
7.095, indicating the potential presence of financial distress. Furthermore, the metric exhibits a
standard deviation of 1.557. The mean ROA is 0.002, with a range from -0.180 to 0.084. This
range indicates the potential for experiencing asset losses. The computed standard deviation for
the ROA is 0.028. The mean share price is documented as 1880.300, exhibiting a high value of
16,000 and a minimum value of 50. The observed data points demonstrate significant dispersion
from the average value, as seen by a standard deviation of 2538.369. The dataset comprises 135
observations for each of the aforementioned metrics. It is imperative to emphasize that while these
data provide valuable insights, doing a comprehensive assessment of financial performance
requires the use of industry-specific benchmarks and a more extensive contextual analysis.
Additional investigation is necessary to explore potential financial concerns arising from the
presence of negative values in the metrics of TIE and ROA.

3.1 Determination of Panel Data Regression Model

Table 2. Determination of DER, and TIE models for ROA

Regression Model Test Cross Section
Chow 0.0000
Hausman 0.5987
Lagrange Multiplier 0.0001
Source: Results of processing using Eviews 12

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The use of the Chow test yielded a probability value of 0.0000, which suggests statistical
significance at a significance level below the usually accepted threshold of 0.05. According to
recognized research practices, the fixed effect model is considered the best option when the p-
value is less than 0.05. The selection of the fixed effect model precedes the determination of the
optimal model between the random effect model and the common effect model. The evaluation
utilizes the Hausman test, and the acquired results suggest a p-value of 0.5987, which above the
specified significance limit of 0.05. Considering that the observed p-value above the predetermined
significance level of 0.05, it is deemed more suitable to employ the random effect model. Following
that, the Lagrange Multiplier test was performed in order to ascertain the suitability of the random
effect model as the most optimal choice. The test findings received reveal a probability value of
0.0001, which once again falls below the preset significance level of 0.05. Based on the statistical
data obtained from the Lagrange Multiplier test, it can be inferred that the random effect model is
the most appropriate model for our investigation.

Table 3. Determination of DER, TIE, and ROA models for Share Price
Regression Model Test Cross Section
Chow d0.0000
Hausman 0.5155
Lagrange Multiplier 0.0000
Source: Results of processing using Eviews 12

Based on the outcomes of the Chow test, the p-value is 0.0000, indicating statistical
significance at a conventional alpha level of 0.05. In accordance with established research
practices, the fixed effect model is frequently employed in cases where the p-value falls below the
threshold of 0.05. Therefore, it is necessary to select the fixed effect model. The final phase entails
determining the most suitable classification for the model, namely whether it should be categorized
as a random effect or a common effect. In order to resolve this concern, it is imperative to do an
additional statistical investigation, specifically the Hausman test. The results of the Hausman test
revealed a p-value of 0.5155, surpassing the specified significance threshold of 0.05. Given the
prevailing situation, the random effect model is considered to be the more preferable option, as its
probability value surpasses the threshold of 0.05. During the selection step, the Lagrange Multiplier
test was performed, which led to the preference for the random effect model. The test results
revealed a probability value of 0.0000, which once again demonstrates statistical significance as it
is below the preset threshold of 0.05. Based on the statistical data derived from the Lagrange
Multiplier test, it can be inferred that the random effect model continues to be the most appropriate
selection for our investigation.

3.2 Regression Results of the Effect of DER, TIE on ROA

Table 4. Data Regression Panel Random Effect Model

Variable Coefficient Std. Error t-Statistic Prob.
C -0.009017 0.003763 -2.396324 0.0180
X1 0.000322 0.000615 0.522780 0.6020
X2 0.014933 0.001025 14.58380 0.0000
2
R 0.620448
2
Adjusted R 0.614697
F-statistic 107.8891
Prob F-statistic 0.000000
Source: Results of processing using Eviews 12

The panel data regression analysis has been conducted based on the obtained results.
The equation for the Random Effect Model is as follows:
Z = -0.00901738364129 + 0.00032153819679*X1 + 0.014932779307*X2 + ε

3.3 The regression equation can be explicated in the subsequent manner:

The variable ROA (Z) is assigned a value of -0.009 when the variables DER and TIE are
judged to be zero or undefined, as evidenced by the constants (a) having a value of -0.009. After

Sandika Utama,The influence of debt equity ratio and times interest earned ratio through return on
assets on banking companies’ share price
424  ISSN 2338-3631 (Print), 2809-9982 (Online)

taking into account all other independent variables, it becomes evident that the variable DER (X1)
demonstrates a positive coefficient of 0.0003. This suggests that, under the condition that all other
factors remain constant, a marginal increment of one unit in the debt-to-equity ratio (DER) will lead
to a proportional augmentation of 0.0003 in the ROA. When holding all other independent variables
at constant values, the variable TIE (X2) exhibits a positive coefficient of 0.014. This discovery
suggests that a slight increment of one unit in TIE has a positive correlation with a 0.014 unit rise in
ROA.
The value of Adjusted R-Square, as indicated in Table 4, is 0.614697. The results suggest
that variables X1 and X2 have the ability to account for approximately 61.4% of the overall
variability seen in Variable Z. It is plausible that the unaccounted 38.6% of the variability is
influenced by other factors that were not taken into consideration throughout the inquiry. The
results of this analysis indicate that the DER and TIE factors account for 61.4% of the variability
observed in the ROA variables, leaving the remaining 38.6% to be influenced by additional
variables.
Based on the data presented in Table 4, it can be deduced that the probability density
function (pr. DER) value of 0.6020, exceeding the significance level of 0.05, suggests that the
variable denoting the debt equity ratio (DER) lacks a statistically significant impact on the bank's
ROA. The findings of this study provide empirical evidence in favor of accepting the null hypothesis
(H1), which suggests that the debt equity ratio has a limited impact on the bank's return on assets.
The coefficient estimate of 0.0003 for the DER variable suggests a statistically significant positive
association between the Debt-to-Equity Ratio (DER) and the ROA. The subsequent procedure
involves the determination of the assigned numerical value for the variable denoted as "prob." The
coefficient value of 0.0149 suggests a statistically significant positive relationship between the
Times Interest Earned TIE ratio and the bank's return on assets. The statistical analysis indicates
that the p-value associated with the TIE variable is below the preset significance threshold of 0.05.
The findings of this research demonstrate a significant association between the TIE and the Bank's
ROA. This discovery provides evidence in favor of hypothesis H3, which posits that the TIE
variable significantly affects the Bank's ROA and is judged valid. Based on the data presented in
Table 4, the computed probability value (p-value) for the F statistic is 0.000000. The obtained result
indicates statistical significance at a significance level of 0.05. The findings of this study indicate
that the variables TIE and DER have a statistically significant concurrent influence on the return on
assets of banking institutions.

Regression Results of the Effect of DER, TIE, ROA on Share Price

Table 5. Data Regression Panel Random Effect Model

Variable Coefficient Std. Error t-Statistic Prob.
C 1816.149 546.3520 3.324137 0.0012
X1 -68.95938 84.80440 -0.813158 0.4176
X2 691.7380 186.5769 3.707522 0.0003
Z -16588.52 9679.370 -1.713802 0.0889
2
R 0.124793
2
Adjusted R 0.104750
F-statistic 6.226308
Prob F-statistic 0.000550
Source: Results of processing using Eviews 12

Based on the results of panel data regression has been done. Random Effect model will
get following equation:
Y = 1816.14917945 - 68.959379485*X1 + 691.738026257*X2 - 16588.5220363*Z +

3.4 The regression equation may be understood in the following manner:

The value of the constant term (a) in the equation is 1816.14. This finding indicates that in
the absence or disregard of the variables DER, TIE, and ROA, the estimated value of the Share
Price (Z) variable is 1816.14. The variable DER (X1) has a negative coefficient of -68.95, indicating

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that, while keeping all other independent variables constant, an increase of one unit in DER will
lead to a reduction of -68.95 in Share Price. The variable TIE (X2) demonstrates a statistically
significant positive coefficient of 691.73. This indicates that, when controlling for the effects of other
independent variables, a one-unit increase in TIE is associated with an expected increase in Share
Price of 691.73. The variable ROA (Z) demonstrates a positive coefficient of 16588.52, indicating
that a one-unit increase in ROA, while keeping other independent variables constant, is linked to a
concurrent rise in Share Price by 16588.52.
Based on the results displayed in Table 5, it can be inferred that the Adjusted R-Square
value of 0.074 indicates that the collective influence of variables X1, X2, and Z explains
approximately 10.4% (0.104750) of the observed variability in the Y variable. The research does
not account for the remaining 89.6% of the variation, which is attributed to other causes. This
suggests that the explanatory variables of DER, TIE, and ROA explain 10.4% of the variance in the
profit growth variable, while the remaining 89.6% can be attributable to other factors.
Based on the results displayed in Table 5, the probability value of 0.4176 indicates that the
variable DER does not possess a statistically significant influence on the Share Price (H2).
Consequently, it can be inferred that the Debt Equity Ratio does not exert a substantial impact on
the Bank's Share Price, leading to the rejection of this hypothesis. The coefficient value assigned to
the DER variable is -68.959, suggesting a detrimental effect on the Bank's Share Price. In the
following section, we will examine the significance of the probability variable. The statistical
analysis demonstrates that the obtained p-value of 0.0003 is below the predetermined significance
level of 0.05. This suggests that there is sufficient evidence to conclude that the Times Interest
Earned TIE variable exerts a statistically significant influence on the Bank's Share Price. The
present discovery provides evidence for the alternative hypothesis (H4) positing that the Times
Interest Earned Ratio does not exert a statistically significant impact on the Bank's Share Price,
hence leading to its rejection. Moreover, the coefficient of 691.738 indicates a favorable impact of
TIE on the Bank's Share Price. Furthermore, the variable ROA is associated with a probability
value; however, no additional information is supplied regarding the specifics of this value. The
comparison between the values 0.0889 and 0.05 implies that the coefficient value of -16588.52
demonstrates that the variable ROA does not exert a significant negative influence on the Bank's
Share Price. The present discovery refutes hypothesis H5, which posits that the Return on Assets
exhibits a substantial impact on the Share Price of the Bank. Based on the facts shown in Table 5,
it can be inferred that the calculated probability value of 0.000550 is below the predetermined
significance level of 0.05. The aforementioned discovery indicates that the variables DER.TIE and
ROA exert a statistically significant influence on the Share Price of banks.

3.5 Discussion
The calculated probability value of 0.6020 for the DER exceeds the generally
acknowledged significance level of 0.05. The findings suggest that there is no statistically
significant relationship between the DER variable and the ROA of the bank. The findings indicated
above are consistent with previous empirical studies conducted by Rachmat Sofian et al. (2020),
which reached a similar conclusion that the Debt Equity Ratio does not have a substantial effect on
Return On Assets. The rationale for adopting Rachmat Sofian's research lies in the analysis of the
Debt Equity Ratio. The makeup of these resources encompasses both loan and equity
components, with a significant share being derived from client deposits and diverse funding
sources. In such cases, the degree of statistical significance pertaining to the influence of the Debt
Equity Ratio on the Return on Assets may not be deemed significant. This phenomenon can be
attributed to the incorporation of funds from several sources in the ratio, potentially leading to the
dilution or masking of its influence on ROA due to the concurrent presence of other financial
variables. The absence of statistical significance in the correlation between the Debt to Equity Ratio
and ROA can be attributed to the many sources of the financial components that comprise the
ratio, hence reducing its isolated influence. This highlights the need of considering the complex
interaction of several financial factors when assessing their impact on a bank's Return On Assets.
The probability value associated with the DER, namely 0.4176, above the standard
significance level of 0.05. The results indicate that there is no statistically significant relationship

Sandika Utama,The influence of debt equity ratio and times interest earned ratio through return on
assets on banking companies’ share price
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between the variable DER and the Share Price. The current findings appear to contradict the
results of a study conducted by Dewi and Suwarno (2022), which proposed that the Debt Equity
Ratio does have a significant impact on Share Price.The discrepancy noticed between these
findings and the earlier study done by Dewi and Suwarno can be attributed to the unique
circumstances that are associated with banks acting as intermediaries. Banks often exhibit
distinctive characteristics as compared to other industries. A noteworthy distinguishing feature is
the substantial allocation of their financial resources categorized as debt, primarily consisting of
consumer deposits. The potential consequences of implementing this unique financial arrangement
include the possibility of unorthodox distributions of debt and equity ratios inside banking
organizations.
The idiosyncrasies in the financial practices of banks can potentially result in divergent
interpretations among investors. Banks may encounter a heightened debt load on their financial
records as a result of the existence of escalated quantities of documented debt, primarily consisting
of consumer deposits. However, this does not necessarily lead to a negative assessment from
investors. Many investors have knowledge of the attribute displayed by banks and may not hesitate
to invest in them, despite the seemingly high levels of debt.The importance of considering industry-
specific dynamics and the complexities of financial indicators when analyzing the impact of
variables like the Debt Equity Ratio on Share Price is underscored by the disparity between the
findings of this study and the research conducted by Dewi and Suwarno. The apparent
insignificance of the DER variable in the banking sector may be ascribed to the distinctive attributes
of their financing framework, which might exhibit substantial variations in comparison to other
industries.
The calculated probability value for the TIE, denoted as 0.0000, falls below the generally
acknowledged significance threshold of 0.05. The aforementioned finding suggests that the TIE
variable exerts a statistically significant influence on the ROA. The results reported in this study
align with the research conducted by Erlian et al. (2019b), which also indicated a significant
relationship between the TIE and a bank's ROA. The justification for endorsing Erlian's study is
based on the structure of the ROA, which encompasses the bank's profitability and asset base. The
significance of the TIE ratio resides in its capacity to offer valuable insights into the operational
profitability of a bank. Therefore, a higher Times Interest Earned TIE ratio indicates a more
favorable level of returns generated relative to interest payments. One could suggest that a rise in
the Total Interest Expense of a corporation could potentially yield a favorable effect on its ROA.
When a financial institution is capable of generating greater returns in relation to its interest
obligations, this ability to produce profits may have a positive impact on the overall ROA. The
results indicated above emphasize the significance of the TIE variable as a key factor in
determining a bank's financial performance and support its inclusion in predictive models utilized
for assessing the ROA in the banking sector.
The observed probability value for the TIE, denoted as 0.0003, is found to be lower than
the conventional significance level of 0.05. The results of the analysis indicate that the TIE variable
has a statistically significant impact on the Share Price of the bank. However, the conclusions of
this study appear to be in contrast with the results of a prior research conducted by Siswanti
(2023), which suggested that the TIE did not have a significant influence on Share Price. The
divergence between the present findings and the research carried out by Siswanti T can be
attributed to other factors. The TIE variable, frequently employed to evaluate a bank's ability to
generate profits from debt, may not be the sole determinant impacting Share Price. Investors
commonly employ a comprehensive approach when assessing the stock of a bank, which involves
considering several financial indicators and external factors. Furthermore, it is imperative to
recognize that the assessment of the TIE ratio among various banks might display significant
discrepancies due to various factors, including the bank's capital structure, operational efficiency,
and debt composition. The divergence in interest coverage ratios TIE among banks can lead to
disparate reactions and interpretations from investors, hence presenting challenges in creating a
generally applicable correlation between TIE and share price. The findings of this study emphasize
the idea that while TIE can have a significant impact on Share Price, it is not the sole factor that
shapes investors' decision-making processes. The link between TIE and Share Price is influenced

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by a complex interplay of several financial indicators, external factors, and investor sentiments.
These factors contribute to the observed variations in research findings.
The observed probability value for ROA, which is measured at 0.0889, exceeds the usual
significance threshold of 0.05. The results suggest that there is no statistically significant
relationship between the variable reflecting ROA and the bank's Share Price. However, the
aforementioned data appear to contradict the research conducted by Dewi and Suwarno (2022),
whose investigation identified a significant correlation between ROA and Share Price. The disparity
observed between the present findings and the research done by Dewi and Suwarno can be
attributed to the complex interaction of multiple factors that influence Share Price. It may be
deduced that an improved ROA would exert a positive influence on the Share Price of a bank.
Nevertheless, investors often consider a plethora of aspects while assessing an investment
opportunity. Investors partake in the practice of analysis and may consider additional elements that
go beyond the scope of ROA. The ROA can be influenced by various factors, including the
divestiture of assets. This particular undertaking possesses the capacity to briefly augment the ROI
while concurrently diminishing the total value of assets, so leading to an elevated ROA. The
atypical circumstances may lead investors to interpret the ROA in a unique way, perhaps diverging
from its association with a positive trend in stock prices. In summary, while it is reasonable to
anticipate a positive relationship between ROA and Share Price, investors consider other factors
and do thorough assessments. The presence of these diverse variables possesses the capacity to
contribute to the disparities noticed between research findings and empirical results, hence
highlighting the intricate and nuanced nature of financial markets and investor behavior.

4. CONCLUSION
The outcomes of this investigation, grounded in a scrupulous analysis of select banking institutions
within specific temporal parameters, engender profound insights into the intricate interplay among
Debt Equity Ratio (DER), Times Interest Earned (TIE), Return on Assets (ROA), and Share Prices.
Antecedent research findings form the bedrock for comprehending the nuanced relationships within
these financial metrics. The identified positive, albeit statistically negligible, influence of DER on the
ROA of banks underscores the nuanced equilibrium inherent in the financial operations of these
institutions. The ascertained negative impact on share prices, while lacking statistical significance,
intimates at the intricate interrelation between leverage and market perceptions. Given the
propensity of banks to operate with a substantial debt component, these findings accentuate the
imperative for a granular examination of the DER's ramifications on both operational efficacy and
market valuation.In contradistinction, Times Interest Earned (TIE) emerges as a robust contributor
to favorable and statistically significant impacts on both ROA and share prices. This observation
coheres with the intrinsic nature of the TIE ratio, providing nuanced insights into a bank's
operational profitability vis-à-vis interest obligations. The repercussions of TIE extend beyond mere
financial metrics, delving into market sentiments and investor perceptions, as borne out by its
discernible influence on share prices. The discerned negative impact of ROA on Share Price,
notwithstanding its lack of statistical significance, prompts contemplation on the intricate
determinants influencing market valuation. ROA, as an intervening variable, intricately weaves itself
into the narrative of share prices, suggesting the intricate interplay of profitability and market
dynamics. Exploring the interrelationship between DER and TIE reveals a collective influence on
ROA, emphasizing the imperative of a holistic understanding of these financial metrics. The
convergence of DER, TIE, and ROA collectively shapes the share prices of banks, substantiating
the interconnected nature of these financial indicators. This research essentially deepening our
understanding of the interconnected nature of financial indicators in the banking industry, aiming to
provide valuable insights for investors and regulators, ultimately advancing our understanding of
the intricate relationship between financial metrics and performance dynamics. Overall, the
research essentially contributes to a more comprehensive understanding of the intricate
relationships shaping financial performance and market valuation in the banking industry.
The study, contextualized within the banking industry, urges caution against
overgeneralization to diverse sectors. The delimited temporal scope from 2020 to 2022
underscores the necessity for future investigations that encompass more protracted periods. The

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assets on banking companies’ share price
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exclusivity of DER and TIE as independent variables underscores the need for future studies to
explore hitherto neglected variables, thereby enriching our comprehension of the underlying
dynamics. The research advocates for an in-depth analysis of banking institutions, acknowledging
their distinctive attributes and pivotal role as intermediaries between investors and debtors. The
researcher propounds expansive future studies, urging researchers to extend their temporal
scopes, diversify sectors, and incorporate international banks beyond the confines of Indonesia.
This inclusive approach promises a more comprehensive outlook and nuanced findings. Situated
within the realm of distinctive banking characteristics, this study aspires to furnish valuable insights
for investors and regulators, signifying the perpetual pursuit of augmenting our understanding of
the intricate relationship between financial metrics and performance dynamics.

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