Financial Performance and Ownership Structure: Influence on Firm Value Through Leverage

Harmono Harmono, Sugeng Haryanto, Grahita Chandrarin and Prihat Assih

A chapter in Macroeconomic Risk and Growth in the Southeast Asian Countries: Insight from SEA, 2023, vol. 33B, pp 63-85 from Emerald Group Publishing Limited

Abstract: This chapter focuses on testing optimal capital structure theory: The role of intervening variable debt to equity ratio (DER) on the influence of the financial performance, Ownership Structure of Independent Board of Commissioners (IBCO), Audit Committee (ACO), and Institutional Ownership on Firm Value. The research design was explanatory research using path analysis. Using purposive sampling, 61 manufacturing companies, observation period from 2014 to 2018 with 286 N samples. The research novelty empirically can prove the role of intervening variable DER on the effect of return on assets (ROA) on firm value and shows the market response to the ROA is fully reflected by DER, indicating the existence of an optimal capital structure. The role of DER on the effect of ROE and IBCO on firm value is a partial mediation with the inverse direction. This phenomenon shows that the mechanism of forming a balance between the responses of investors and creditors relates to debt financing.

Keywords: Firm performance; ownership structure; leverage; growth; firm value; optimum capital structure signals; G3; G32; G31 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eme:isetez:s1571-03862023000033b005

DOI: 10.1108/S1571-03862023000033B005

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