The Influence of Profitability and Liquidity on Firm Value (Case Study on a Non-financial Company Indexed ESG Quality 45 IDX-Kehati on the Indonesia Stock Exchange 2017-2020)

Abstract

Aims: This study aims to determine the influence of Profitability and Liquidity on Firm Value, as previous research results were inconclusive, inconsistent, and sometimes contradictory.
 Study Design: This research is quantitative correlational research using multiple linear regression.
 Methodology: This study uses 35 non-financial companies indexed ESG Quality 45 IDX-Kehati listed on the Indonesia Stock Exchange for 2017-2020. The cross-sectional data are analyzed by SPSS version 25.
 Results: This study provides empirical evidence that profitability (ROA) positively and significantly impacts firm value (PBV). As the coefficient value of ROA is +0.115, it means that every a hundred percent increase in Profitability (ROA) will increase the stock price or Firm Value (PBV) by 11.5%. Unexpectedly, the Liquidity (CR) does not affect firm value.
 Conclusions: Return on assets as a proxy for profitability ratios has a positive and significant effect on increasing stock market prices to the book value ratio as a proxy for firm value. In contrast, the liquidity ratio does not affect the increase in stock prices. These findings indicate that investors and capital market analysts are more concerned with profitability than liquidity. Therefore, managers and directors must generate maximum net profit by increasing the productivity of all company assets. The limitation of this study is that the sample is small and only uses two predictor variables, so the coefficient of determination (R2) is 28%. For further research, adding other predictor variables and control variables is recommended.

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