LEVERAGE DYNAMICS: THE ROLE OF PROFITABILITY AND FIRM SIZE IN SHAPING FIRM VALUE
Article Sidebar
Read Counter : 52
Download : 31
Main Article Content
Abstract
This study examines the influence of leverage on firm value with profitability and firm size acting as influencing variables in non-cyclical sector companies listed on the Indonesia’s Capital Market between 2020 - 2023. This study uses 188 observation data from 47 companies selected through the purposive sampling. Tobin’s Q is utilized to calculate firm value, while leverage is evaluated using the ratio of debt to total assets. The Return on Assets (ROA) ratio measures profitability, whereas the natural logarithm of total assets is employed to assess firm size. Multivariate linear regression analysis in the first model without moderation shows that leverage and profitability have a considerable favorable impact on firm value. In contrast, firm size has a considerable adverse impact. In the second model, profitability was tested as a influencing variable in the link between leverage and firm value, but no significant moderating effect was found. The same thing is also found in the third model, where firm size as a moderating variable does not have a meaningful impact on the leverage-firm value connection. The study’s result demonstrates that although leverage, profitability, and company size impact firm value directly, profitability and firm size as moderating variables are not strong enough to affect the dynamics between leverage and firm value. Therefore, it is recommended that company management focus more on optimizing financial structure and operational efficiency without relying too much on company size growth to increase firm value.
Article Details
This work is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License.
This journal provides immediate open access to its content on the principle that making research freely available to the public supports a greater global exchange of knowledge.
IJAEB by Graduate Program of Universitas Tarumanagara is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License.. Permissions beyond the scope of this license may be available at https://journal.untar.ac.id/index.php/ijaeb
References
Boenyamin, A. W., & Santioso, L. (2023). THE EFFECT OF PROFITABILITY, CAPITAL STRUCTURE, FIRM SIZE, AND ASSET GROWTH ON FIRM VALUE. International Journal of Application on Economics and Business, 1(3), 1097–1107. https://doi.org/10.24912/IJAEB.V1I3.1097-1107
Burhanuddin, N., Guasmin, N., & Rajindra, N. (2023). The Effect of Capital Structure and Profitability on Firm Value with Inflation Rate as Moderating Variable in Food and Beverage Companies on the Indonesia Stock Exchange. ATESTASI Jurnal Ilmiah Akuntansi, 6(1), 298–310. https://doi.org/10.57178/atestasi.v6i1.669
Damayanti, R., & Sucipto, A. (2022). THE EFFECT OF PROFITABILITY, LIQUIDITY, AND LEVERAGE ON FIRM VALUE WITH DIVIDEND POLICY AS INTERVENING VARIABLE (Case Study on Finance Sector In Indonesian Stock Exchange 2016-2020 Period). International Journal of Economics, Business and Accounting Research (IJEBAR), 6(2), 1214–1223. https://jurnal.stie-aas.ac.id/index.php/IJEBAR/article/view/5363
Gartenberg, C., Prat, A., & Serafeim, G. (2019). Corporate purpose and financial performance. Organization Science, 30(1), 1-18. https://doi.org/10.1287/orsc.2018.1230
Handriani, E. (2020). The Role of Ownership in Increasing Firm Value of Manufacturing Industry in Indonesia. Jurnal Organisasi Dan Manajemen, 16(1), 83–98. https://doi.org/10.33830/JOM.V16I1.824.2020
Hidayat, W. (2022). The effect of leverage and liquidity on the value of the firm with age as a moderating variable on companies in indonesia. Jurnal Ekonomi Modernisasi, 18(2), 264-275. https://doi.org/10.21067/jem.v18i2.7236
Hirdinis, M. (2019). Capital structure and firm size on firm value moderated by profitability. International Journal of Economics and Business Administration, 7(1), 174–191. https://doi.org/10.35808/IJEBA/204
Jansen, K., Michiels, A., Voordeckers, W., & Steijvers, T. (2022). Financing decisions in private family firms: a family firm pecking order. Small Business Economics, 61(2), 495–515. https://doi.org/10.1007/s11187-022-00711-9
Jefferson, H., Simatupang, H. J., Purwanti, L., & Mardiati, E. (2019). Determinants of capital structures based on the Pecking Order Theory and Trade-off Theory. Jurnal Keuangan Dan Perbankan, 23(1), 84–96. https://doi.org/10.26905/JKDP.V23I1.2579
Ketut, L., Chandra Warsiki, K., & Dewi, S. P. (2023). THE DETERMINANTS OF FIRM VALUE. International Journal of Application on Economics and Business, 1(3), 1133–1145. https://doi.org/10.24912/IJAEB.V1I3.1133-1145
Kijkasiwat, P., & Phuensane, P. (2020). Innovation and Firm Performance: The Moderating and Mediating Roles of Firm Size and Small and Medium Enterprise Finance. Journal of Risk and Financial Management 2020, Vol. 13, Page 97, 13(5), 97. https://doi.org/10.3390/JRFM13050097
Marimuthu, F., & Singh, S. C. (2021). Do South African state-owned entities follow the pecking order theory of capital structure? Public and Municipal Finance, 10(1), 25–33. https://doi.org/10.21511/PMF.10(1).2021.03
Marimuthu, F., & Stephanie, C. S. (2021, May 24). Do South African state-owned entities follow the pecking order theory of capital structure? DUT Open Scholar. https://openscholar.dut.ac.za/jspui/handle/10321/3555
Natsir, K., & Yusbardini, Y. (2020). The Effect of Capital Structure and Firm Size on Firm Value Through Profitability as Intervening Variable. 218–224. https://doi.org/10.2991/AEBMR.K.200626.040
Nuswandari, C., Sunarto, S., Jannah, A., & Ikromudin, I. (2019). Corporate Social Responsibility Moderated the Effect of Liquidity and Profitability on the Firm Value. 87–90. https://doi.org/10.2991/ICOBAME-18.2019.19
Puri, S. (2023). Interactions of Leverage and Firm Performance: The Moderating Effects of Agency Costs. Rere Āwhio – Journal of Applied Research and Practice, 3, 86–94. https://doi.org/10.34074/RERE.00310
Putri, N. and Rahmiyati, N. (2022). Analysis of the influence of financial performance on value of the firm with profitability as the intervening variable of consumer non cyclicals - processed foods sub sector. Jem17 Jurnal Ekonomi Manajemen, 7(2), 197-212. https://doi.org/10.30996/jem17.v7i2.7540
Ramdhonah, Z., Solikin, I., & Sari, M. (2019). PENGARUH STRUKTUR MODAL, UKURAN PERUSAHAAN, PERTUMBUHAN PERUSAHAAN, DAN PROFITABILITAS TERHADAP NILAI PERUSAHAAN (Studi Empiris pada Perusahaan Sektor Pertambangan yang Terdaftar di Bursa Efek Indonesia Tahun 2011-2017). Jurnal Riset Akuntansi Dan Keuangan, 7(1), 67–82. https://doi.org/10.17509/JRAK.V7I1.15117
Siswanto, F. M., Promalessy, R., & Fitri, F. (2021). EFFECT OF LEVERAGE AND FIRM SIZE ON COMPANY VALUE WITH EXCHANGE RATE AND HEDGING DECISION AS MODERATION VARIABLE (CASE STUDY ON NON-FINANCIAL COMPANIES LISTED ON INDONESIA STOCK EXCHANGE PERIOD 2017-2018). INTERNATIONAL JOURNAL OF ECONOMICS, BUSINESS AND APPLICATIONS, 6(2), 1. https://doi.org/10.31258/IJEBA.6.2.1-18
Syakirra, A., & Chia, Y. E. (2023). BOARD SIZE AND FIRM VALUE IN THE CONTEXT OF MALAYSIA: A CONCEPTUAL FRAMEWORK. Labuan Bulletin of International Business and Finance (LBIBF), 21(1), 50–60. https://doi.org/10.51200/LBIBF.V21I1.4185
Tuerah, K. M., Rumokoy, L. J., & Tielung, M. V. J. (2024). THE IMPACT OF GENDER DIVERSITY, PROFITABILITY, LEVERAGE AND FIRM SIZE ON FIRM VALUE IN COSMETICS AND HOUSEHOLD NEEDS COMPANIES LISTED ON INDONESIA STOCK EXCHANGE. ejournal.unsrat.ac.id. https://doi.org/10.35794/emba.v12i03.58105
Tuerah, K. M., Rumokoy, L. J., & Tielung, M. V. J. (2024). THE IMPACT OF GENDER DIVERSITY, PROFITABILITY, LEVERAGE AND FIRM SIZE ON FIRM VALUE IN COSMETICS AND HOUSEHOLD NEEDS COMPANIES LISTED ON INDONESIA STOCK EXCHANGE. Jurnal EMBA : Jurnal Riset Ekonomi, Manajemen, Bisnis Dan Akuntansi, 12(03), 1104–1115. https://doi.org/10.35794/EMBA.V12I03.58105
Uddin, M., Khan, M., Hosen, M., & Chowdhury, M. (2022). Leverage structure dynamics and firm value. International Journal of Asian Business and Information Management, 13(1), 1-18. https://doi.org/10.4018/ijabim.305115
Viriany, T. D. (2020). PENGARUH PROFITABILITAS, LIKUIDITAS, LEVERAGE, UKURAN PERUSAHAAN DAN KEBIJAKAN DIVIDEN TERHADAP NILAI PERUSAHAAN. Jurnal Paradigma Akuntansi, 2(3), 982–990. https://doi.org/10.24912/JPA.V2I3.9523
Yuliyanti, L., Waspada, I., Sari, M., & Nugraha, N. (2022). The Effect of Liquidity, Leverage, and Profitability on Firm Value with Firm Size as Moderating Variable. Advances in Economics, Business and Management Research/Advances in Economics, Business and Management Research. https://doi.org/10.2991/aebmr.k.220701.019