Fauzia Naningsi Ibrahim, Hais Dama, Idham Masri Ishak

THE EFFECT OF CAPITAL STRUCTURE ON FIRM VALUE WITH PROFITABILITY AS A MODERATING VARIABLE (Case Study of Consumer Non-Cyclical Sector Companies Listed on the Indonesia Stock Exchange for the 2021–2024 Period)

Introduction

The effect of capital structure on firm value with profitability as a moderating variable (case study of consumer non-cyclical sector companies listed on the indonesia stock exchange for the 2021–2024 period). Explore how capital structure impacts firm value, moderated by profitability, in Indonesian consumer non-cyclical companies (2021-2024). Gain insights to boost market valuation.

Abstract

This study aims to analyze the effect of capital structure on firm value with profitability as a moderating variable in consumer non-cyclical sector companies listed on the Indonesia Stock Exchange during 2021–2024. Capital structure was measured using Debt to Asset Ratio (DAR) and Debt to Equity Ratio (DER), firm value was proxied by Price to Book Value (PBV), while profitability was measured using Return on Assets (ROA). This research applied a quantitative approach using secondary data obtained from annual financial reports. The sample consisted of 154 observations selected through purposive sampling. Data analysis was conducted using multiple linear regression and Moderated Regression Analysis (MRA) with SPSS software. The results show that DAR has a positive and significant effect on firm value, while DER has a negative but insignificant effect on firm value. Simultaneously, DAR and DER significantly affect firm value. Furthermore, profitability (ROA) is proven to strengthen the relationship between DAR and firm value as well as between DER and firm value. These findings indicate that an optimal capital structure supported by strong profitability can increase firm value. Therefore, companies should maintain a balanced financing composition and improve profitability to enhance market valuation.

Review

The study investigates a highly relevant topic in corporate finance, examining the relationship between capital structure and firm value, with profitability acting as a moderating variable. Focusing on consumer non-cyclical sector companies listed on the Indonesia Stock Exchange during the recent 2021–2024 period, the research addresses a critical area for both academics and practitioners. The clear objective to analyze these interrelationships is well-defined, employing standard proxies for its key variables: Debt to Asset Ratio (DAR) and Debt to Equity Ratio (DER) for capital structure, Price to Book Value (PBV) for firm value, and Return on Assets (ROA) for profitability. Methodologically, the study adopts a quantitative approach, leveraging secondary data obtained from annual financial reports. The use of purposive sampling to select 154 observations, coupled with multiple linear regression and Moderated Regression Analysis (MRA) via SPSS, suggests a robust analytical framework for testing the proposed hypotheses. The findings present interesting nuances: DAR is found to have a positive and significant effect on firm value, while DER's effect is negative but not statistically significant. Importantly, capital structure variables (DAR and DER) are shown to significantly affect firm value simultaneously. A particularly valuable insight is the confirmed moderating role of profitability (ROA), which strengthens the relationship between both DAR and firm value, and DER and firm value, indicating its critical influence on how capital structure decisions translate into market valuation. Overall, this study makes a meaningful contribution by providing current empirical evidence from a specific and relevant sector within the Indonesian market. The demonstration that an optimal capital structure, critically supported by strong profitability, significantly enhances firm value offers valuable strategic guidance. The practical implications for companies, emphasizing the need for a balanced financing composition and continuous improvement in profitability to enhance market valuation, are well-articulated. While the chosen proxies are standard, future research might explore alternative measures or investigate dynamic aspects of these relationships over longer periods to capture evolving market conditions. Nevertheless, the research provides a solid foundation for understanding the intricate interplay between financing decisions and corporate performance.

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