Capital structure, profitability, hedging policy, firm size, and firm value: Mediation and moderation analysis

Abstract

This study aims to ascertain how the capital structure affects firm value via profitability moderated by hedging practices and firm size. Verification analysis is used in this study, with data analysis techniques through conditional process analysis. Companies from miscellaneous industrial sectors that were listed on the Indonesia Stock Exchange between 2016 and 2020 make up the research population. The study showed that: capital structure affects profitability; capital structure and profitability affect firm value; profitability does not mediate the effect of capital structure on firm value, which is moderated by hedging policies and firm size; hedging policies and firm size do not moderate the indirect effect of profitability on firm value. This conclusion is crucial for decision-makers who aim to optimize the structure to raise the business value.

Firm Value and Profitability of Saudi Arabian Companies Listed on Tadawul: Moderating Role of Capital Structure

“…This is because the level of risk attached to the capital structure shall cancel the positive effect of profitability on FV. Moreover, a firm's profitability cannot mitigate the effect of CS on FV (Alghifari [13]). The results of moderating the effect of profitability on firm value with the capital structure are in accordance with the previous research works of Chen and Chen [19] and Alghifari [13].…”

“…Mubyarto [10] and Akhmadi et al [11] studied FV, profitability, and CS in the companies listed on the ISE and found no significant positive association between CS and FV; however, they suggested that profitability can mediate and moderate the relationship between the two. Similarly, a study by Hirdinis [12], Alghifari et al [13] reported a contrasting result where profitability has no mediation effect on CS and FV, while Natsir and Yusbardini [14] reported that profitability could mediate the effect of CS and firm size on FV. Aimomani et al [15] examined the effect of financial leverage on FV by moderating profitability and firm size.…”

“…Many theories have been proposed, and empirical research was conducted to show the relationshipbetween a FV and its CS; substantial literature is available on capital structure determinants, but the outcomes are inconclusive and contradictory. Some studies report a moderation effect of profitability between CS and FV (Almahadin and Oroud [9]; Mubyarto [10]; Akhmadi et al [11]), while some studies, such as (Hirdinis [12]; Alghifari et al [13]) report a no moderation effect of profitability. Similarly, some studies, such as Chen and Chen [19] reported the moderation effects of CS, while the other studies, such as (Budhiharjo [16]; Hasanudin et al [17]; Chabachib et al [18]) found no moderation effect of CS.…”

The Impact of Capital Structure, Profitability, and Dividend Payment on Firm Value: Evidence from Indonesian Banking

“…Previous studies undertaken by Ardini et al (2022), Rahayu et al (2020), and Alghifari et al (2022 have demonstrated a favorable relationship between the capital structure and firm value. This differs from the impact exerted by Doorasamy (2021), Sumani et al (2022, and Hung Ngoc Dang et al (2019).…”

“…According to Alghifari et al (2022), Myers (1977 proposed the trade-off theory. According to this theory, it is posited that the determination of an optimal capital structure is feasible.…”