THE EFFECT OF CAPITAL STRUCTURE, LIQUIDITY, AND PROFITABILITY ON FIRM VALUE: EVIDENCE FROM CONSUMER NON-CYCLICALS COMPANIES LISTED ON THE INDONESIA STOCK EXCHANGE
Keywords:
Firm Value, Capital Structure, Liquidity, Profitability, IDX, Consumer Non-CyclicalsAbstract
This study examines the effect of capital structure (Debt-to-Equity Ratio), liquidity (Current Ratio), and profitability (Return on Assets) on firm value (Price-to-Book Value) in consumer non-cyclicals companies listed on the Indonesia Stock Exchange (IDX). Using the latest publicly available financial statements, we conducted an Ordinary Least Squares (OLS) regression. Results show that profitability has a significant positive effect on firm value, capital structure has a positive but marginal effect, and liquidity has a negative but insignificant effect. The findings support the Trade-Off Theory, Agency Theory, and Resource-Based View, highlighting profitability as the most influential factor in determining firm value. Using a cross-sectional sample of seven leading companies in the sector, we employ Price-to-Book Value (PBV) as the proxy for firm value, Debt-to-Equity Ratio (DER) for capital structure, Current Ratio (CR) for liquidity, and Return on Assets (ROA) for profitability. The results, based on Ordinary Least Squares regression, indicate that profitability has the strongest positive relationship with firm value, capital structure exhibits a positive relationship, and liquidity shows a negative association. However, due to the small sample size, the relationships are not statistically significant. The findings offer preliminary evidence and implications for managerial policy and investment analysis in Indonesia’s consumer goods sector.
Downloads
References
1. Ambarwati, S., et al. (2015). Liquidity and firm value in Indonesian manufacturing sector. Journal of Finance.
2. Barney, J. (1991). Firm resources and sustained competitive advantage. Journal of Management, 17(1), 99–120.
3. Brigham, E. F., & Ehrhardt, M. C. (2017). Financial Management: Theory & Practice. Cengage Learning.
Fama, E. F., & French, K. R. (1998). Taxes, financing decisions, and firm value. Journal of Finance, 53(3), 819–843.
4. Hermuningsih, S. (2013). Profitability, growth opportunity, capital structure and firm value. Bulletin of Monetary Economics.
Jensen, M. C. (1986). Agency costs of free cash flow, corporate finance, and takeovers. American Economic Review, 76(2), 323–329.
5. Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3(4), 305–360.
Modigliani, F., & Miller, M. H. (1963). Corporate income taxes and the cost of capital: A correction. American Economic Review, 53(3), 433–443.
6. Myers, S. C. (1984). The capital structure puzzle. Journal of Finance, 39(3), 574–592.
Pertiwi, R., & Agustin, H. (2020). Determinants of firm value in consumer goods industry. International Journal of Economics.
7. Ross, S. A., Westerfield, R. W., & Jaffe, J. (2019). Corporate Finance. McGraw-Hill Education.
8. Titman, S., & Wessels, R. (1988). The determinants of capital structure choice. Journal of Finance, 43(1), 1–19.
