Control Mechanism Analysis in Mediating Market Valuation on Firm Performance in Indonesia

Nisrul Irawati () and Lisa Marlina
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Nisrul Irawati: Universitas Sumatera Utara
Lisa Marlina: Universitas Sumatera Utara

A chapter in Proceedings of the 19th International Symposium on Management (INSYMA 2022), 2023, pp 134-140 from Springer

Abstract: Abstract The market valuation offers the opportunity to examine the firm performance, especially as the firm goes public. However, management often puts their interests above the interests of investors; therefore, management movement needs to be limited by a control mechanism that will reduce agency conflict. This paper develops an approach based on Tobin’s Q using the firm’s market value. The financial performance is proxied by Return On Asset (ROA). Based on the monitoring hypothesis that debt can be the control mechanism, the research results show that Tobin’s Q has a significant positive effect on ROA, but debt has the opposite effect on ROA. Tobin’s Q has a negative but not significant effect on the control mechanism. Finally, the control mechanism debt is shown to be unable to mediate between market valuation and the firm performance of the sample firm included in the SRI-KEHATI Stock Index over 2015–2019.

Keywords: Market valuation; Control mechanism; Firm performance (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:spr:advbcp:978-94-6463-008-4_18

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DOI: 10.2991/978-94-6463-008-4_18

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