Imelda Fadilah, Muhadjir Anwar

The Influence of Investment and Company Growth on Increasing Firm Value Through Profitability

Introduction

The influence of investment and company growth on increasing firm value through profitability. Discover how investment & growth boost firm value, mediated by profitability. Study on IDX infrastructure firms (2021-23) offers strategic insights for managers and investors.

Abstract

The purpose of this research is to analyze the effect of investment and firm growth on the improvement of firm value, with profitability serving as a mediating factor. This study employs a quantitative research design using secondary data obtained from the Indonesia Stock Exchange (IDX). The population includes infrastructure sector companies listed on the IDX from 2021 to 2023, and purposive sampling was applied to select 29 companies, yielding a total of 87 firm-year observations. Path analysis with SPSS software was used to test the hypotheses and examine both direct and indirect relationships among the variables. The findings reveal that investment has a significant positive impact on firm value, indicating that firms with higher levels of investment tend to enhance their market valuation. Similarly, firm growth contributes positively to firm value, suggesting that sustainable expansion fosters greater investor confidence. Moreover, profitability is proven to mediate the relationship between investment and firm value, showing that the benefits of investment are maximized when they lead to improved profitability. Profitability also significantly mediates the relationship between firm growth and firm value, underscoring its role as a key driver in translating growth strategies into shareholder value. These results highlight the importance of profitability as a strategic element in strengthening firm value. Practically, the study suggests that managers should prioritize profitable investments and sustainable growth strategies to maximize firm value, while investors may consider profitability as a central indicator when evaluating firm performance.

Review

This study, "The Influence of Investment and Company Growth on Increasing Firm Value Through Profitability," presents a clear and focused investigation into critical drivers of firm value within the Indonesian infrastructure sector. The research aims to analyze the direct effects of investment and firm growth on firm value, and crucially, the mediating role of profitability in these relationships. The quantitative approach, utilizing secondary data from the Indonesia Stock Exchange (IDX) for 29 infrastructure companies between 2021 and 2023, is well-defined. The use of path analysis with SPSS is an appropriate methodological choice for examining the proposed direct and indirect relationships, lending itself to a robust exploration of these financial dynamics. The findings reveal several significant insights. The study effectively demonstrates that both investment and firm growth exert a positive and significant direct impact on firm value, aligning with established financial theories. A notable strength lies in the confirmation of profitability as a significant mediator. It is shown that profitability enhances the positive impact of both investment and firm growth on firm value, underscoring its pivotal role in translating strategic inputs into shareholder wealth. The practical implications are clearly articulated, offering valuable guidance for managers to prioritize profitable investments and sustainable growth, and for investors to consider profitability as a central performance indicator. While the results are compelling, a brief mention of the specific proxies used for investment, firm growth, firm value, and profitability (e.g., specific financial ratios like ROA, EPS, market-to-book ratio, etc.) would further strengthen the clarity of the methodology. Overall, this research makes a valuable contribution to the understanding of firm value creation, particularly within the context of emerging markets like Indonesia. The clear articulation of the mediating role of profitability provides actionable insights for corporate strategy and investment decision-making. Future research could expand upon this foundation by extending the timeframe to capture longer-term trends, comparing findings across different industry sectors, or exploring alternative or additional mediating/moderating variables to provide a more nuanced understanding of these complex relationships. Nevertheless, this study successfully highlights the strategic imperative of profitability in maximizing firm value, offering a solid basis for both academic discussion and practical application.

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