Capital Structure and Firm Value: The Mediating Role of Profitability in Technology Firms Listed on the Indonesia Stock Exchange

Zalfa Arisa; Suhardi; Jufrisani  Akbar

doi:10.63922/ijebir.v5i03.3257

Zalfa Arisa Faculty of Economics and Business, University of Pertiba, Indonesia
Suhardi Faculty of Economics and Business, University of Pertiba, Indonesia https://orcid.org/0000-0002-3552-7043
Jufrisani Akbar Faculty of Economics and Business, University of Pertiba, Indonesia https://orcid.org/0000-0002-3552-7043

DOI: https://doi.org/10.63922/ijebir.v5i03.3257

Keywords: Capital Structure, Profitability, Firm Value, Technology Firms

Abstract

This study examines the effect of capital structure on firm value with profitability as a mediating variable in technology companies listed on the Indonesia Stock Exchange during the period 2020–2024. Capital structure is proxied by the Debt-to-Equity Ratio (DER), profitability is measured using Return on Equity (ROE), and firm value is represented by Price to Book Value (PBV). This research employs a quantitative approach using panel data from 20 firms over five years, analyzed through the Fixed Effect Model (FEM). The results indicate that capital structure has a positive and significant effect on firm value, suggesting that leverage can enhance firm valuation within an optimal range. However, profitability is found to have a negative and significant effect on firm value, indicating that higher returns on equity may be perceived as a signal of increased financial risk in the technology sector. Furthermore, profitability partially mediates the relationship between capital structure and firm value, although the indirect effect weakens the positive direct impact. This study contributes to the financial literature by highlighting the context-dependent role of profitability and extending the applicability of Trade-Off Theory and Signalling Theory in emerging markets, particularly within innovation-driven industries. The findings also provide practical insights for managers and investors in making more informed financial decisions.

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