Balancing Debt and Profitability: How Financial Drivers Shape Firm Value in the Indonesian Consumer Goods Sector

Abstract

Purpose – This study aims to obtain empirical evidence regarding the effect of Firm Size, Capital Structure, and Profitability on Firm Value.

Design/methodology/approach – This study employs a quantitative research design. The sample consists of 41 companies from the non-cyclical consumer goods sector listed on the Indonesia Stock Exchange during the 2022-2024 period, selected using purposive sampling. Panel data regression analysis, performed using Eviews 9 software, was used to test the hypotheses. Based on the results of the Chow Test, Hausman Test, and Lagrange Multiplier Test, The Random Effects Model was determined to be the most appropriate model.

Findings – The research results indicate that Firm Size has a positif and insignificant effect on Firm Value. Capital Structure has a negative and significant effect on Firm Value. Profitability has a positive and significant effect on Firm Value.

Research limitations/implications – The research findings offer implications for management regarding to optimization of capital structure and the enhancement of profitability to boost firm value, while also serving as a consideration for investors when assessing the company’s financial condition. The first limitation of this study concerns the data used specifically, secondary data obtained from company-published annual reports. However, the data obtained were incomplete because many companies did not upload their reports consistently on an annual basis. Furthermore, the components of the formulas were incomplete or ambiguous, and certain figures were missing from the financial statements. Another limitation relates to the sample size, which was reduced from 166 to 41, the reduction was due to incomplete financial statement data and the fact that many companies has incurred losses. Finally, the study was conducted over a specific timeframe (2022-2024), precluding long-term analysis.

JEL : G30, G32, L25, M21