The Effect of Capital Structure and Institutional Ownership on Firm Value with Profitability as a Moderating Variable: Evidence from the Indonesia Financial Sector

Abstract

Purpose – This study aims to analyze the relationship between capital structure and institutional ownership on firm value with profitability as a moderating variable.

Design/methodology/approach – This study uses secondary data. The data collected are from companies engaged in the financial sector listed on the Indonesian Stock Exchange (IDX) with 70 research samples during 2022 – 2024. The author tested the hypothesis using a panel data regression model with some application namely EViews9. The research design is non-probability sampling.

Findings – This study shows that capital structure has a significant effect on firm value (p = 0.0064 < 0.05), institutional ownership (p = 0.2758 > 0.05) and profitability (p = 0.32125 > 0.05) have no effect. Profitability was found to weaken the relationship between capital structure and firm value; profitability weakens the relationship between institutional ownership and firm value. These findings imply that managers in the financial sector should prioritize capital structure management to enhance firm value, as profitability and institutional ownership did not show significant impact during this period. Investors are advised to be more selective by focusing on debt ratios as a primary indicator for firm valuation in the Indonesia capital market.

Research limitations/implications – The limitation of this study that all variables were measured using samples, making it difficult to obtain data. Another limitation was found in the meta-analysis section, where the required data (journals, books, etc.) are difficult to find. Another limitation was the difficulty in determining the criteria for samples to be used in this study. It is difficult to find annual reports for the specified years, namely 2022 – 2024. It is difficult to carry out the sample selection procedure in the population.

JEL : G30, G32, M21, C23