Capital structure is the combination of the debt and equity capital that composite a firm’s financing its assets. Financing is referred to as a process of generating cash which can be used for acquisition of assets, current operations or any expected growth. Firms can use either debt or equity capital to finance their assets. Therefore, capital structure can be written as the sum of net worth plus preferred stock plus long term debt . Besides these sources of finance, enterprise may issues hybrid securities such as income bonds. These hybrid securities possess the feature of both equity and debt securities. The capital structure decision is an important decisions as it influences the investors return on their investment, it is therefore obligatory on the management of company to make appropriate capital structure so to maintain the interest of its investors.
Effect of Capital Structure on Firm Value
The results which show that a company’s capital structure does not significantly affect it’s value. Funding decision within the company are related to the company’s decision to use the funds. A company’s high and low capitalization cannot affect it’s value as long as the profits that are the results of it’s funding decision are high. Based on the theory of MM without tax, it states that capital structure does not affect corporate value. His MM theory of tax exemption has several assumptions, one of which he suspect investors have the same information as management about the company’s future. This theory explains the lack of a proper relationship between capital structure and company value. It is the level of profit as well as investment decisions that will affect the value of the Hanafi company (2018). This result follows the results of research conducted by Irawan & Nurhadi (2016).
The multiple linear regression analysis showed that the independent variables, DER and ROA, had a significant effect on firm value when analyzed simultaneously. The regression equation indicated that an increase in the DER nor the ROA variable would lead to an increase in the firm value. However, when analyzed individually, neither the DER nor the ROA variable had a significant effect on firm value. The coefficient of determination (R2) showed that the contribution of the DER and ROA variable to firm value was 52.1%. These findings suggest that it is essential to consider both capital structure and profitability when evaluating the firm value. These results can be used by investors and financial analysis to make informed decisions when investing in Inducement Tunggal Prakarsa, Inc.
The Effect of Managerial Ownership on Firm Value
Managerial Ownership is the composition of the number of managerial shares in proportion to where management has the same authority as other shareholders in managing the company. This managerial ownership aims to reduce agency conflict because managers with right to company shares will affect managerial shares will managers performance to improve company performance (Widyasari, Mukzam, & Prasetya, 2015).Agency theory states that if the number of manager’s shares is high, management will optimize the use of resources to achieve the company’s interests. However, if the share ownership is lower, managers will try to maximize their performance for their benefit ( Nurwahidah, Human, & Outta, 2019). Empirical evidence ( Kusumawati & Setiawan, 2019), (Nurwahidah et al., 2019), (Widianingsih, 2018) , (Susilawati & Rakhman, 2018) proves that managerial ownership can affect firm value. Manager have more contributions through shares ownership, so managers will optimize their business so that shares value rise and maximize profits of increase firm value.
RESEARCH METHOD
requirements and provide valid information for further analysis.
Dependent Variable
Firm Value
Investors perception of how business might improve their chance of success are frequently linked to stock price. High stock price can also results in a high corporate value or company price if sold to interested parties or stakeholders (Murwaningsari & Ardi, 2018).
Tobin’Q= Total Market Value+Total Book Value of Liabilities
Total Book Value of Assets
Independent variable
Profitability
How well the business handle these assets to produce profits ma be determined by comparing the value of assets and net income. ( Atidhira & Yustina, 2017).
ROA=Earning After Tax
Total Assets
Managerial Ownership
Percentage of management shares owned by those with voting rights in the firm ( commissioner and directors) ( Nurkhin et al., 2017).
KM=Number of shares owned by management
Outstanding shares
Capital Structure
Proportion in fulfilling company spending needs with long term funding sources originating from internal funds and external funds ( Savitri & Irwansyah, 2021).
DER=Total Liability
Total Equity
Based on the description of the conceptual framework above, then: profitability, company size, and capital structure affect the value of the company. There are many other variable that can affect a company’s value aside from profitability, company size and capital structure. Other variable that can affect a company include:
⦁ Earning per share (Nur kholis, Eka Dewi, Hestin, 2018)
⦁ Managerial share will effect the performance of firm (Widyasari, Mukazan, & Prasetya 2015)
⦁ Assets structure (Meiriska Febrianti, 2012)
Conclusion
Corporate value is often related to good or bad prospects of a company. The survey proved that profitability is positive signal perceived by investors. Investors are responding positively by buying shares in companies that can add value to the company. Capital structure cannot increase corporate value. Managerial ownership also effect the corporate value. If the managerial shares is high, management will use the company resources effectively. When the variable were analyzed together, the study found that DER & ROA had a significant effect on firm value indicating that they work together to impact the firm value.
Suggestions
Normality Test
Normality test are used to determine if a data set is well – moderated by a normal distribution and to compute how likely it is for a random variable understanding the data set to be distributed. According to Ajija Shochrul R ; sari, Dyah W; Sentianto, Grace H ; Primanti (2011) States that testing using panel several advantages. One of these advantages is that it is Symmetric and bell- shaped is get around the problem of non normal dat, statistics recommend using sample mean rather than individual unit.
Auto correlation test
The value of auto correlation range from-1 to1. A value between -1 and 0 represent negative auto correlation . A value between 0 and 1 represent positive auto correlation. Auto correlation gives information about the trends of a set of historical data so that it can be useful in the technical analysis for that