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

In: Proceedings of the 19th International Symposium on Management (INSYMA 2022)

Author

Listed:
  • Nisrul Irawati

    (Universitas Sumatera Utara)

  • Lisa Marlina

    (Universitas Sumatera Utara)

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.

Suggested Citation

  • Nisrul Irawati & Lisa Marlina, 2023. "Control Mechanism Analysis in Mediating Market Valuation on Firm Performance in Indonesia," Advances in Economics, Business and Management Research, in: Werner Ria Murhadi & Dudi Anandya & Noviaty Kresna Darmasetiawan & Juliani Dyah Trisnawati & Putu An (ed.), Proceedings of the 19th International Symposium on Management (INSYMA 2022), pages 134-140, Springer.
    • Handle: RePEc:spr:advbcp:978-94-6463-008-4_18
    DOI: 10.2991/978-94-6463-008-4_18
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