Page 73 - SUSTAINABILITY ISSUES & COVID-19

5. RESULT AND ANALYSIS

Hypothesis one is accepted only in the Philippines’ sample regression but rejected in the whole ASEAN 5 and other
country’s sample regression. The companies that implementing the vertical integration strategy tend to have a lower
level of leverage. The insignificance association between the vertical integration variable with the leverage can be
explained by the result of Banerjee, Dasgupta, and Kim’s (2008) research. Their study explained, for the non-durable
goods companies, the negative association between the vertical integration strategy with the leverage level tends
to be weaker. This study didn’t differentiate each sample based on its group industry’s characteristics. Combining
all samples from various sectors and types of products enable contradictory effects so that the association between
vertical integration strategies and leverage is not significant. Hypothesis two is accepted only in the Philippines’ sample
regression but rejected in the whole ASEAN 5 and other country’s sample regression. The companies that implementing
the diversification strategy tend to have a higher level of leverage. The insignificance association between the
diversification strategy with the leverage can be explained by the result of Su’s (2010) research. The result showed that
state ownership status in a company weakens the positive association between the diversification strategy with the
leverage. The state-owned companies tend to have strong controls so that debt dependencies are lower. Because this
study didn’t differentiate each sample based on ownership status, enable contradictory effects so that the association
is not significant. Hypothesis one is accepted only in the Philippines and Malaysia’s sample regression but rejected
in the whole ASEAN 5 and other country’s sample regression. The companies implementing the internationalization
strategy tend to have a higher capital structure. The insignificance of these variables can occur due to the prevailing
upstream-downstream theory in which the country of origin and destination of internationalization will affect its
capital structure (Kwok & Reeb, 2000). Because this research does not separate the country of origin or the destination
of internationalization, it is possible to allow contradicting effects between sample groups so that the variables are not
significant.

CEO overconfidence is proven to weaken the negative association of vertical integration strategies on capital structure
only on the Philippine sample regression. The negative sign means that although the company is quite conservative by
choosing a vertical integration strategy, with the CEO overconfidence, tolerance of risk to the leverage increases so the
company does not always uses its internal funds as a source of funding but also use debt. CEO overconfidence has been
proven to strengthen the positive association of diversification strategies on leverage in the Philippine and Indonesian
sample regressions. CEO overconfidence has been shown to strengthen the positive association of internationalization
strategies on leverage in the regression samples in Indonesia, Malaysia, and the Philippines. The positive sign means
that the companies that have a high tolerance for risk by having CEOs overconfidence will increase the risk tolerance. As
the implication for the companies is using debt becomes more agressive. The lack of influence of CEO overconfidence
on the capital structure can be affected by sensitivity to investment cash flow (Malmendier & Tate, 2015) and abundant
cash availability makes companies will greatly limit the use of external funds. In the test results, only the regression
samples in Singapore and Thailand showed no significant association of CEO overconfidence on leverage, it might be
due to the two countries having abundant cash so they prefer to use internal funds. It is evident from the data recorded
in ASEAN statistics that both are the big investors among other ASEAN countries.

The different results in every test conducted in each country might be explained by the study of Czerwonka (2017),
Hwang, Kim & Kim (2020), and Macenczak. et al. (2016) that culture and power could affect the risk preference and
also overconfidence level. Based on Hofstede Insight, the culture’s characteristic of every country in this study are
quite different. Based on the assessment of dimensions related to organizational culture in each country carried out
by Hofstede Insight, countries in the ASEAN region have the strongest hierarchical compared to other countries, either
the countries in Asia or the western region. The strong hierarchy reflects the strong centralization in an organization
and leadership that tends to be autocratic.

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