Background: The financial evaluation of listed Sharia commercial banks often reveals structural vulnerabilities due to the dual-nature of fund management and regulatory capital constraints. This paper contextualizes the capital structure configuration of Islamic banks within a broader macroeconomic and risk-adjusted framework, examining how fluctuations in external liabilities and mandatory capital buffers affect long-term corporate profitability and equity productivity.
Purpose: This study aims to analyze and evaluate the empirical impact of capital structure—measured via the Debt to Equity Ratio (DER) and Capital Adequacy Ratio (CAR)—on the financial performance efficiency—proxyed by Return on Equity (ROE)—of Sharia commercial banks listed on the Indonesia Stock Exchange (IDX) during the 2019–2021 period.
Methods: A quantitative correlational research approach incorporating a longitudinal design was employed. Utilizing a purposive sampling technique based on specific compliance and data availability parameters, a final analytical sample of 9 observations was extracted from three listed Islamic banks: PNBS, BTPS, and BRIS. Audited annual financial statements retrieved from the IDX database were processed via SPSS 26.0, deploying descriptive statistics, classical assumption normality checks, multiple linear regression, partial hypotheses ($t$-test), simultaneous modeling ($F$-test), and secondary non-parametric robustness validations (Chi-Square, Spearman’s Rho, and Kendall’s Tau-b).
Results: The multiple linear regression model shows that capital structure metrics simultaneously exert a significant systemic impact on ROE ($F = 7.237, p = 0.025$), demonstrating strong explanatory power ($R^2 = 70.7\%$). Partially, the Debt to Equity Ratio (DER) has a negative and statistically significant effect on ROE ($p = 0.032 < 0.05$), proving that aggressive external leverage dilutes net equity returns due to high deposit yield distributions. Conversely, the Capital Adequacy Ratio (CAR) has an insignificant effect on ROE ($p = 0.399 > 0.05$), revealing that while banks secure a "Highly Sound" Rank 1 status under Bank Indonesia benchmarks (CAR $> 11\%$), keeping capital excessive creates opportunity costs and leaves assets idle. Non-parametric rank checks via Spearman’s Rho ($\rho = -0.800, p = 0.010$) and Kendall’s Tau-b ($\tau_b = -0.611, p = 0.022$) robustly confirm this leverage-profitability dilution.
Implication: This study implies that listed Sharia commercial banks should transition away from superficial asset and deposit size expansion. Furthermore, it highlights the critical necessity for corporate management to implement a more balanced, risk-adjusted asset-liability framework to reduce non-performing financing overheads, optimize idle investment portfolios, and maximize actual equity productivity without compromising regulatory safety baselines.
Originality: This study introduces a dual-dimensional validation framework that cross-examines parametric linear regressions with secondary non-parametric rank order evaluations within the unique non-interest, profit-and-loss sharing structures of public Islamic commercial banks. Unlike previous literature that assumes positive linear leverage advantages, this research exposes a structural disconnect where rising external liabilities systematically erode shareholder returns, offering an empirical tool for risk management in emerging financial markets