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

In: Macroeconomic Risk and Growth in the Southeast Asian Countries: Insight from SEA

Author

Listed:
  • Harmono Harmono
  • Sugeng Haryanto
  • Grahita Chandrarin
  • Prihat Assih

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.

Suggested Citation

  • Harmono Harmono & Sugeng Haryanto & Grahita Chandrarin & Prihat Assih, 2023. "Financial Performance and Ownership Structure: Influence on Firm Value Through Leverage," International Symposia in Economic Theory and Econometrics, in: Macroeconomic Risk and Growth in the Southeast Asian Countries: Insight from SEA, volume 33, pages 63-85, Emerald Group Publishing Limited.
    • Handle: RePEc:eme:isetez:s1571-03862023000033b005
    DOI: 10.1108/S1571-03862023000033B005
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    More about this item

    Keywords

    Firm performance; ownership structure; leverage; growth; firm value; optimum capital structure signals; G3; G32; G31;
    All these keywords.

    JEL classification:

    • G3 - Financial Economics - - Corporate Finance and Governance
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies

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