Risk Disclosure and Debt Policy as Value Determinants of Small and Mid-Cap Firms

Nyoman Triaryati, Ubud Salim, Risna Wijayanti and Andarwati

Economic Studies journal, 2025, issue 1, 45-62

Abstract: The firm has to figure out how to fulfil shareholder prosperity in an asymmetric information situation. Debt as a signal is expected to do so, but there is no consensus yet, and most of the studies only focused on large-cap firms, leaving small and medium-cap firms with a higher information gap. This study's aim is to gain a more comprehensive understanding of the firm value determinant under the situation. Risk disclosure is expected to be an effective way to increase firm value, as the predicted role of debt is to increase firm value despite the risk it creates. Using partial least square to 179 small mid-cap firms in the Indonesian Stock Exchange, this study proposes risk disclosure to mediate the relationship between debt and firm value. Risk disclosure mediates the effect of debt on firm value. Debt will effectively increase firm value as it is supported by risk disclosure because it raises the investor's expectations. This result suggested that small mid-cap firms provide adequate risk disclosure so that debt utilization could effectively increase the firm value.

JEL-codes: G31 G32 (search for similar items in EconPapers)
Date: 2025
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