e-ISSN: 3026-3751

International Journal of Business, Economics & Financial Studies, 1 (2), November 2023, pp.52-57. p-ISSN: 3025-8995

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International Journal of Business,

Economics & Financial Studies
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Original Article

The Effect of Capital Structure, Financial Performance, Firm Growth

and Size on Firm Value: Empirical Study on Manufacturing Listed
Companies on the Indonesia Stock Exchange
Rapat Piter Sony Hutauruk a, Rika Surianto Zalukhu a and Daniel Collyn a,*
a Department of Management, Sekolah Tinggi Ilmu Ekonomi Bina Karya Tebing Tinggi, 20613 Sumatera Utara, Indonesia; [email protected]
(R.P.S.H.); [email protected] (R.S.Z.)
* Correspondence: [email protected] (D.C.)

Article History Abstract

Received 18 July 2023
Revised 28 October 2023 Today, companies in the industry and the current economic conditions have created tight competition
Accepted 2 November 2023 between manufacturing companies. Competition in the manufacturing industry makes every company
Available Online 30 November 2023 improve its performance so that its goals can still be achieved. A high company value is the desire of
every company owner because a high company value indicates the prosperity of its shareholders is
Keywords: also high. This study analyses the effect of capital structure, financial performance, firm growth, and
Capital structure size on firm value. This type of research was descriptive quantitative. The study was conducted on
Financial performance 181 manufacturing companies listed on the Indonesia Stock Exchange (IDX) in 2019. The research
Firm growth sample was 41 companies. The sampling technique used was purposive. The type of data used is
Firm size secondary data. Data were analyzed using multiple linear regression analysis methods. The results
Firm value show that financial performance partially has a positive and significant effect on firm value.
Meanwhile, capital structure, firm growth, and firm size partially have a positive and insignificant
effect on firm value.
Copyright: © 2023 by the authors. Submitted for possible open-access publication under the terms and conditions of the Creative Commons
Attribution (CC BY) license (https://creativecommons.org/licenses/by/4.0/).

1. Introduction Stock prices fluctuate from time to time. Various

The number of companies in the industry and the factors, both internal and external to the company,
current economic conditions have created tight influence price fluctuations. The existence of price
competition between manufacturing companies (Molina fluctuations also impacts the company's value, which in
et al., 2023). Competition in the manufacturing industry turn affects the shareholders' welfare (Laia et al.,
makes every company improve its performance so that 2023). The company's financial performance influences
its goals can still be achieved. A high company value is the increase in firm value. Yulianti & Enas (2020)
the desire of every company owner because a high suggest that financial performance positively affects
company value indicates the prosperity of its firm value. That is, the good or bad value of the
shareholders is also high. Firm value is influenced by company depends on the financial performance of the
Earning Per Share (EPS) (Hutabarat et al., 2023). A high company itself. The company's financial performance
EPS will encourage potential investors to invest because shows the company's ability to provide benefits from
a high EPS indicates a high investment return in the assets, equity, and debt. Company performance is the
future. An increase in demand for shares will increase company's work performance. One measure of company
the price of these shares. The wealth of shareholders performance is Return on Equity (ROE).
and companies is represented by the market price of
shares, which reflects investment decisions, financing Every activity the company carries out will require
(financing), and asset management. It is in line with the internal funds (own capital) and funds originating from
theory that states that the main goal of a company is to sources outside the company. It would be ideal if the
maximize shareholder wealth (Aryawati et al., 2023). company used internal funds to make investments. Still
investment requires large funds, so the company must
seek it through external funding. The use of funds from

DOI : 10.62157/ijbefs.v1i2.22 P a g e | 52
 International Journal of Business, Economics & Financial Studies, Vol. 1, No. 2, November 2023, pp.52-57

outside the company (external) in financial decisions. This study will examine the effect of capital
management is called the capital structure, which structure, financial performance, firm growth, and firm
appears on the liability and equity side of the company's size on firm value. This test will construct the
balance sheet (Syahyunan, 2015), (Putra & Jubaedah, relationship between capital structure, financial
2016) concluded that capital structure has a positive performance, firm growth, firm size, and firm value.
influence on firm value.
2. Literature Review
In addition to capital structure and financial 2.1. Firm Value
performance, firm value is also influenced by firm According to Keown & John (2011), firm value is the
growth and firm size. This means that large companies market value of outstanding debt securities and
with good growth have the potential to have good company equity. Meanwhile, according to Sadalia
corporate value as well. This is because large (2010), firm value is the value or amount of money that
companies usually find sources of funds from outside will be received if the company is sold. Firm value can
the company in loans or debt relatively easily. describe investors' perceptions of the company, which is
(Pakpahan, 2015) states that company growth has a often associated with stock prices. High stock prices
positive effect on firm value. The company's growth increase the company's value to maximize its wealth or
describes how it manages its funds for investment and value. Firm value is the market value of outstanding
operating activities. Companies that continue to grow debt securities and company equity. Firm value can be
will experience an increase in size in terms of assets measured using price-to-book value (PBV).
and equity. The larger the company's size, the greater
its ability to generate profits because adequate assets 2.2. Capital Structure
support it. Maryam et al. (2020) found that firm size According to Syahyunan (2015), every investment
positively and significantly affected firm value. activity carried out by the company will require funding.
Therefore, the company must seek funds from outside
Data on capital structure (DER), financial performance sources if the internal funds (own capital) are
(ROE), and company growth (total asset growth) of insufficient. Capital Structure is the composition of the
several manufacturing companies listed on the company's capital seen from its source, especially
Indonesia Stock Exchange do not depict a positive showing the portion of the company's capital originating
correlation with firm value (PBV). from debt sources (creditors) and, simultaneously, the
Table 1. Capital Structure (DER), Financial Performance (ROE), portion of capital originating from own capital (owners’
Company Growth (Total Asset Growth), Company Size and equity). Capital structure is measured using three
Company Value BUDI, SMCB and KDSI indicators, namely leverage, equity debt, and
collateralizable assets. Leverage reflects the use of
Total Asset sources of funds originating from long-term debt
No. Code Year DER ROE Firm Value
Growth
(foreign capital), which creates a fixed burden for the
2016 1,51 0,033 -10,231 1
company, such as interest expense. The value of this
2017 1,46 0,038 0,260 1
1 BUDI indicator is determined using the long-term debt-to-total
2018 1,76 0,041 15,428 1
2019 1,33 0.049 -11,589 1
assets ratio (Sugeng, 2012).
2016 1,45 0,035 14,095 1
2017 1,72 0,105 -0,691 1 2.3. Financial Performance
2 SMCB The company's financial performance directly influences
2018 1,90 0,129 -4,887 1
2019 1,80 0,071 4,822 1 changes in stock prices, which means that investors
2016 1,72 0,112 -2958 1 respond positively to information about growth so that it
2017 1,73 0,142 16,284 1 will increase stock prices (Fathihani & Saputra, 2022).
3 KDSI
2018 1,50 0,138 4,752 1 Good company performance will impact dividends that
2019 1,06 0,105 -9,901 1 shareholders will receive because dividends are always
Source: Indonesia Stock Exchange (2021) based on the current year's net income, which
measures the company's financial performance.
Table 1 shows that during the 2016-2019 period, the
firm value was constant (fixed), while the capital Financial performance can be seen from the company's
structure (DER), financial performance (ROE), and firm financial statements. Financial performance is a critical
growth (total asset growth) fluctuated. This is not in line assessment process of the company's finances. Good
with the results of several previous studies. Therefore, it financial performance will help management achieve
is important to investigate this phenomenon. Firm value company goals (Paliling et al., 2023). The higher the
is an important indicator for investors. Although company's financial performance, the better the
dividends can be used as a benchmark for decision- company's value in the eyes of investors. Financial
making by investors because they reflect the quality of performance does not always show positive results. It is
earnings (Zalukhu, 2018), the company's value can still not uncommon for a company to experience financial
influence investors' perceptions in making investment distress (financial difficulties) (Lee et al., 2022).

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According to Muliadi & Fahmi, (2016) there are 4 amounts, so investors are interested in investing in the
categories of financial distress, namely: company. With the availability of these funds, it will
make it easier for companies to carry out investment
Category A or very high and very dangerous. This opportunities. Firm size can also be used as a proxy for
category allows the company to be declared bankrupt. the level of stock uncertainty, large-scale companies
Category B or high and dangerous. In this category, tend to be known by the public so that information
companies must think of various solutions to save their about the prospects of large-scale companies is
assets. Companies must be very wise in determining relatively easier for investors to obtain than small-scale
which assets to sell and which assets to hold on to. companies. The level of uncertainty that will be faced by
Category C or moderate. In this category the company is potential investors regarding the future of the company
considered to be able to survive by seeking additional will be minimized with the increasing amount of
funds, both from internal and external companies. information obtained.
Category D or low. In this category the company is
considered only experiencing financial fluctuations that Basically, the size of the company is divided into three,
are common. namely large companies (large firms), medium
companies (medium firm), and small companies (small
2.4. Firm Growth firms). Determination of this size is based on the total
The company's growth describes the benchmark for the assets of the company. Firm size shows the company's
company's success. This success is also an investment ability to develop what it has to continue to be
benchmark for future growth. The growth of the optimized. A large Firm size indicates that the company
company can be shown from the growth of assets continues to develop so that investors will respond
owned by the company. Assets show the assets used for positively and the value of the company will increase
the company's operational activities. The larger the (Nelyumna, 2018).
assets, it is expected that the greater the operational
results generated by the company. An increase in 3. Materials and Methods
assets followed by an increase in operating results will
This research is quantitative descriptive. The study was
further increase the confidence of outsiders in the
conducted on 181 manufacturing companies listed on
company. By increasing the trust of outsiders in the
the Indonesia Stock Exchange (IDX) in 2019. The
company, the company's efforts to increase debt
research sample amounted to 41 companies. The
become easier, resulting in a larger proportion of debt
sampling technique used purposive sampling method.
than its own capital. This is based on creditors'
The process of determining the sample based on the
confidence that the funds invested in the company are
criteria determined by the researcher is presented in
guaranteed by the amount of assets owned by the
Table 2 below:
company.
Table 2. Sampling criteria
In addition, the company's growth indicators can be
seen from the increase in sales from year to year. A
No Description Frequency
company in an industry that has a high rate of sales
growth, must provide sufficient capital to cover the Manufacturing companies listed on the IDX
1 181
company's expenses. Fast growing companies tend to during 2019
use more debt than slow growing companies. The company does not issue audited financial
2 (33)
statements for the period 2019
Companies with high sales and profit growth rates tend
to use debt as a larger source of external funds when 3 Using foreign currency (32)
compared to companies with low sales growth rates 4 Reporting a loss for the period 2019 (25)
(Susilawati & Purnomo, 2023). The company's growth Incomplete financial data for measurement of
5 (50)
can also be an indicator of the company's profitability all research variables
and success. Companies that have high growth have a Sample 41
profitable opportunity to fund their investment internally
(Arfan & Antasari, 2008). Companies that have positive This study examines firm value as the dependent
growth can certainly generate positive profitability as variable, while the independent variables include capital
well. structure, financial performance, growth and firm size.
Measurement of company value using Price to Book
2.5. Firm Size Value (PBV), capital structure measurement using Debt
Firm size is a measure of the size of the assets owned to Equity Ratio (DER), financial performance
by the company so that large companies generally have measurement using Return on Equity (ROE), company
large total assets (Susilawati & Purnomo, 2023). Large growth measurement using total asset growth, and
companies can more easily access the capital market company size measured by total assets. This study uses
than small companies. The larger the size of the secondary data. Data obtained from the Indonesia
company, the easier it is to get external capital in larger Stock Exchange page, https://www.idx.co.id/.

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Methods of data analysis using multiple linear Table 5. Result of Heteroscedasticity Test
regression analysis methods. The research regression
equation can be presented as follows: Variable Sig.
Capital structure 0.553
Y = a + b1X1 + b2X2 + b3X3 + b4X4 + e Financial performance 0.901
Note: Firm growth 0.320
Y = Firm Value Firm size 0.107
X1 = Capital Structure
X2 = Financial Performance Heteroscedasticity testing in this study used the Glejser
X3 = Company Growth test. The research model can be declared free from
X4 = company size heteroscedasticity problems if the significance
a = Constant probability value of all independent variables is greater
b1 – b4 = regression coefficient than 0.05. Based on the results of the Glejser test
e = Standard error summarized in Table 5, it is known that the significance
probability value of all independent variables is above
4. Result and Discussion 0.05. Thus, it can be concluded that the research model
4.1. Classical Assumption Test is free from heteroscedasticity problems.
Classical assumption test in this study includes 4.2. Hypothesis Test
normality test, multicollinearity test and
heteroscedasticity test. Normality test using a. Coefficient of Determination Test.
Kolmogorov-Smirnov Test. The data is declared normally The coefficient of determination test aims to see how
distributed if the Asymp. Sig. (2-tailed) value > 0.05. much the independent variable contributes to the
dependent variable. The greater the coefficient of
Table 3. Result of Normality using One-Sample Kolmogorov- determination, the better the ability of the independent
Smirnov Test variable to explain the dependent variable. The
coefficient of determination is indicated by the R square
Unstandardized
Residual (R2) value.
N 41
Normal Mean 0.000 Table 6. Result of Coefficient of Determination
Parametersa,b Std. Deviation 522568660.508 R Adj. R Std. Error of the
Most Extreme Absolute 0.083 Model R D-W
Square Square Estimate
Differences Positive 0.083
1 0.503 0.253 0.170
a 550835733.67 1.504
Negative -0.069
a. Predictors: (Constant), Capital Structure, Firm Size,
Test Statistic 0.083
Financial Performance, Firm Growth
Asymp. Sig. (2-tailed) 0.200c,d
b. Dependent Variable: Firm Value
Table 3 shows the Asymp. Sig. (2-tailed) values is Table 6 shows the R square value of 0.253. This means
0.200. Asymp. Sig. (2-tailed) value is greater than 0.05. that the variables of capital structure, financial
Therefore, it can be concluded that the data used in the performance, firm growth and firm size can explain the
study were normally distributed. variation of the firm value variable by 25.3%, the
Table 4. Result of Multicollinearity Test remaining 74.7% is explained by other variables outside
this research model.
Variable VIF
4.3. Partial Significance Test (t Test)
Capital structure 1,055
The t-test aims to partially test the independent
Financial performance 1,090
variable's effect on the dependent variable.
Firm growth 1,032
Firm size 1,107 Table 7. Result of Hypothesis Testing

Multicollinearity testing was carried out by considering Unstandardized Standardized

Coefficients Coefficients
the Variance Inflation Factor (VIF) value. The VIF value t Sig.
Std.
must be less than 10 to declare the research model B Beta
Error
free from multicollinearity problems. The results of the
(Constant) 0.936 0.886 1.201 0.238
multicollinearity test, summarized in Table 4, show that
Financial
the VIF value of all independent variables is less than 0.470 0.140 0.496 3.354 0.002
Performance
10. It can be concluded that the research model is free Firm Growth 0.746 0.476 0.054 0.358 0.723
from multicollinearity problems. Firm Size 0.006 0.108 0.009 0.060 0.953
Capital
0.024 0.274 0.013 0.088 0.931
Structure

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 International Journal of Business, Economics & Financial Studies, Vol. 1, No. 2, November 2023, pp.52-57

Table 7 shows the regression coefficient of the capital data curation, R.S.Z. and D.C.; writing—original draft preparation,
structure variable of 0.024. The positive regression R.P.S.H.; writing—review and editing, R.P.S.H., R.S.Z. and D.C.;
visualization, R.P.S.H.; supervision, R.S.Z. and D.C.; project
coefficient indicates a positive relationship between
administration, R.P.S.H.; funding acquisition, R.P.S.H. All authors
capital structure and firm value. The analysis results have read and agreed to the published version of the manuscript.
also show the probability of the significance of the
capital structure variable is 0.931. The significance Funding: This research received no external funding.
probability value is greater than 0.05. Thus, it can be Institutional Review Board Statement: Not applicable.
concluded that the capital structure has no significant
positive effect on firm value. Inform Consent Statement: Not applicable.

Data Availability Statement: Not applicable.

According to the analysis results, the regression
coefficient value of the financial performance is 0.470. Acknowledgments: The authors would like to thank Sekolah Tinggi
The regression coefficient is positive. That is, financial Ilmu Ekonomi Bina Karya Tebing Tinggi, Indonesia, for supporting
performance is positively related to firm value. this research and publication. We also thank the reviewers for
Furthermore, the significance probability value of the their constructive comments and suggestions.
financial performance variable is 0.002. The Conflicts of Interest: The authors declare no conflict of interest.
significance probability value is smaller than the alpha
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