The Effect of Capital Structure and Firm Size on Firm Value Through Profitability as Intervening Variable

Abstract

The aim of this study was to investigate the effect of capital structure and firm size on firm value through profitability as an intervening variable. This study was conducted among manufacturing companies in various industrial sectors in Indonesia Stock Exchange (IDX) during the period 2013-2017. The dependent variable was the value of the firm measured by PBV. The independent variables were the capital structure measured by DER and firm value measured by ln (total assets). Profitability as intervening variable was measured by ROA. This study used secondary data extracted from the financial statements of 17 public companies. Analysis was conducted using multiple regression of panel data, path analysis and sobel test. The results showed that firm size and capital structure had significant effect on profitability, while firm size, capital structure and profitability had significant effect on firm value. The results also showed that profitability was able to mediate the effect of firm size and capital structure on firm value.

influence of capital structure, its size, growth of the value of the company with its profitability as variable intervening the company LQ45 are listed in Indonesia stock exchange

“…The study results align with the signal theory, which states that companies always give good performance signals to outsiders, especially investors. These results are in line with the results of research conducted by Chabachib et al (2020), Antoro et al (2020), Natsir & Yusbardini (2020), Tumanggor (2019), Burhanuddin & Taufik (2019), Sahbany et al (2019).…”

“…These results align with research conducted by Putri & Rahyuda (2020), Natsir & Yusbardini (2020), Rahman et al (2019), Siddik et al (2017), Sinaga (2016), Yapa Abeywardhana (2015. Their studies suggest that profitability is negatively affected by capital structure (Widaryanti et al, 2021).…”

“…Based on previous studies, different results were found or a research gap. Natsir & Yusbardini (2020), research state that capital structure positively affects firm value, while Antoro et al (2020), found negative results. Natsir & Yusbardini (2020), found a positive effect of firm size on firm value, while Antoro stated that the results of his research did not have a significant effect on firm size in increasing firm value.…”

“…Natsir & Yusbardini (2020), research state that capital structure positively affects firm value, while Antoro et al (2020), found negative results. Natsir & Yusbardini (2020), found a positive effect of firm size on firm value, while Antoro stated that the results of his research did not have a significant effect on firm size in increasing firm value. Another example of the difference in results is Natsir & Yusbardini (2020), research concluding that profitability positively affects firm value, while Sulastri et al (2018), stated that profitability does not affect firm value.…”

“…A low stock price indicates a low company value, which means low investor interest in investing in the company. On the other hand, it reflects the high stock price of investors' confidence in the company because it is considered to have a high value (Natsir & Yusbardini, 2020). The problem of capital structure is a significant problem for every company because good and bad capital structures will directly affect its financial position (Antoro et al, 2020).…”