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Archives of Business Research – Vol. 10, No. 5

Publication Date: May 25, 2022

DOI:10.14738/abr.105.12345. Murni, S., Sabijono, H., Trang, I., & Mangantar, M. (2022). Capital Structure and Firm Value Manufacturing at the Indonesian Stock

Exchange. Archives of Business Research, 10(05). 153-169.

Services for Science and Education – United Kingdom

Capital Structure and Firm Value Manufacturing at the

Indonesian Stock Exchange

Sri Murni

Sam Ratulangi University, Faculty of Economics and Business

Harijanto Sabijono

Sam Ratulangi University, Faculty of Economics and Business

Irvan Trang

Sam Ratulangi University, Faculty of Economics and Business

Maryam Mangantar

Sam Ratulangi University, Faculty of Economics and Business

ABSTRACT

This study aims to determine and analyze the factors that influence the capital

structure (asset structure, firm size, profitability) and its effect on firm value. The

analysis was conducted on 51 manufacturing companies listed on the Indonesia

Stock Exchange (IDX) using financial statement data from 2014 to 2019. The sample

was taken by purposive sampling of 51 companies for 6 years of observation, using

path analysis. The results show that the asset structure has a significant and

positive effect on capital structure, firm size has a negative and significant effect on

capital structure, and ROE has no significant effect on capital structure, also asset

structure has an insignificant and negative effect on firm value, firm size and ROE

have insignificant effect on firm value, and capital structure has no significant effect

on firm value.

Keywords: Asset Structure, Firm Size, Profitability, Capital Structure, Firm Value

INTRODUCTION

In meeting funding needs, companies must look for efficient funding alternatives that have an

optimal capital structure that can minimize the overall cost of using capital, so that it will

maximize the value of the company. (Hanafi, 2011). One of the important indicators for

investors in assessing the company's prospects in the future is to see how far the company's

profitability is growing.

Capital structure theory aims to provide a rationale for knowing the optimal capital structure

which is the key to improving company performance and productivity. The capital structure is

said to be optimal if with a certain level of risk it can provide maximum company value. The

size of the capital structure ratio shows the size of the amount of long-term loans rather than

own capital invested in fixed assets that are used to earn profits. The greater the capital

structure ratio means the greater the number of long-term loans, so the greater the portion of

the profit that becomes a fixed expense, and the more cash flow used to pay loan installments,

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Archives of Business Research (ABR) Vol. 10, Issue 5, May-2022

Services for Science and Education – United Kingdom

as a result, the less the net profit received by the company. This opinion is not in accordance

with the opinion of Modigliani-Miller who says that by using debt, the company can increase its

value (Husnan and Pujiastuti, 2015) in other words, if the purpose of company spending is to

increase the value of the company, the company needs to use debt.

This is due to the nature of the tax deductibility of interest payments, meaning that interest

payments are tax deductions. In an effort to realize an optimal capital structure, financial

managers must consider the things that influence it. Pantow et al, (2015) stated that DER had a

positive effect on firm value. Prasetyorini (2013) states that capital structure has a negative and

significant effect on firm value, Riyanto (2010), states that companies with large fixed assets

can use more debt because fixed assets can be used as good collateral for company loans.

Trisnawati (2016) shows that asset structure has a significant effect on capital structure, while

Indraswary et al. (2016) stated that asset structure has a significant negative effect on capital

structure. Husnan (2010) states that the size of a company affects the capital structure.

The size of the company can affect the capital structure because the larger a company will tend

to use greater debt. Tangiduk et al (2017) showed that company size had a significant effect on

capital structure, while Prasetiono (2015) stated that company size had no significant effect on

capital structure.

Profitability is very important for companies in order to maintain their business continuity for

the long term, this is because profitability shows whether the company has prospects in the

future or not. The level of profitability of a company is one of the factors considered in the

capital structure policy. Brigham and Gapenski in Agus, (2001) said that often companies with

high returns tend to use debt. But companies with low rates of return tend to use large debt to

finance company activities. Watung et al, (2016) stated that profitability has an effect on capital

structure, Purwasi et al, (2014) found that profitability has a negative effect on capital

structure.

The purpose of this study is to determine whether the Asset Structure, Firm Size, and

Profitability of Capital Structure, and their effect on Firm Value.

LITERATURE REVIEW

Firm Value

Firm value is the investor's perception of the company's level of success which is often

associated with stock prices. High stock prices make the value of the company also high, and

increase market confidence not only in the company's current performance but also in the

company's prospects in the future. Maximizing company value is very important for a company,

because maximizing company value means maximizing the company's main goal (Harjito and

Martono, 2012). Increasing the value of the company is an achievement that is in accordance

with the wishes of the owners, because with the increase in the value of the company, the

welfare of the owners will also increase. According to Sartono (2015), company value is the

selling value of a company as an operating business.

Capital Structure

Capital structure explains whether there is an effect of changes in capital structure on firm value

(Manuraung, 2012). In other words, if the company replaces some of its own capital with debt