The Effect of Firm Size, Investment Opportunity Set, and Capital Structure on Firm Value

Abstract

The purpose of this study was to examine how business size, investment opportunity set, and capital structure all affect the value of the company. Explanatory research was conducted for this study, which used secondary data in the form of financial statement data from companies in the banking sector listed on the Pakistani Stock Exchange for the ten years 2010–2019. Twenty-seven businesses were selected for the samples throughout the previous ten years using the purposive sampling technique. The AMOS application and the path analysis approach were both employed in this investigation. The findings of this study revealed that firm size and opportunity to invest set had a significant impact on firm value, whereas capital structure had no impact on firm value. This research suggests that investments, particularly in the banking sector, should have a solid foundation. Additionally, it is essential to evaluate several factors for listed firms, such as the size of the business and the range of investment opportunities, as it has been demonstrated that these factors can greatly increase a company's worth. Because it had no impact on the firm's value, the capital structure should be determined in the interim.

Does capital structure moderate the impact of the investment opportunity set and institutional ownership on firm value?

“…According to Kallapur and Trombley (1999), the calculation must utilize a proxy to identify the IOS because it is not a latent phenomenon that cannot be observed directly. Afridi et al (2022), Ilmiyono et al, (2021), and Frederica (2019) all conducted prior studies on the IOS and discovered empirical evidence that the investment opportunity set positively affects firm value. According to Smith and Watts (1992) and Skinner (1993), businesses with high levels of corporate value, as measured by IOS, have a propensity to employ less debt in their capital structures.…”

“…Investment Management and Financial Innovations, Volume 20, Issue 2, 2023 http://dx.doi.org/10.21511/imfi.20 (2).2023.07 play an important role in making strategic policies related to the future development of the company, where these policies are used as a basis for determining company policies and operational activities in order to achieve company goals (Frederica, 2019;Afridi et al, 2022).…”

The Antecedent of Profitability Concerning Investment Decisions on Firm Value Through Capital Structure in Large Companies at Indonesia

“…Therefore, based on the narrative above, it can be said that PBV, then the company will have such prospects, or it can be said that PBV will increase the value of the firm. Below is a graph of the average PBV movement in the last six years starting from six years ago from 2015 to 2020 now on the LQ45 Index company to find out the business phenomena that occur: Previous research as empirical evidence has concluded that fluctuations in the company's value can occur not only due to external factors but also internal factors of the company [9]. Company owners or high-level management as internal parties of the company are more aware of the conditions of a company.…”

“…Company owners or high-level management as internal parties of the company are more aware of the conditions of a company. Therefore their role is to make company policies that can increase the company's value [9] [10]. Investment decisions are proven to be very closely related to company value and are no less important factors in the financial management function [11].…”

“…Numerous research feel that investment decisions made as part of the implementation of the financial management function can impact the value of a firm. [9], [13], [14], [15]. However, on the other hand, some argue that investment decisions do not affect the firm values [16], [17], and that other factors such as capital structure, liquidity, profitability, and firm size can affect the company's value as well.…”