PROFITABILITY AND THE FIRM'S VALUE

Main Article Content

Jonnius Jonnius
Almatius Setya Marsudi

Abstract

The cause of this research is to investigate and prove the impact of ROA, ROE, NPM, and GPM on firm’s value (Tobin's Q) either partially or simultaneously and decide which profitability ratio is more dominant in explaining Tobin's Q variance. The analysis was carried out on companies listed in the Jakarta Islamic Index (JII) for 2015-2020. The sample selected was issuers consistently registered with JII during the 2015-2020 period, and 11 issuers were selected. The results of the analysis show ROA and NPM partially sizeable good-sized effect on Tobin's Q, whilst ROE and GPM do not have any effect. ROA is positively correlated, and NPM is negatively correlated. However, all independent variables simultaneously have a significant impact on Tobin's Q. The R-square value of is 0.953648 shows that 95.37% of Tobin's Q variance can be explained by changes in ROA, ROE, GPM, and NPM, while other factors outside the model cause the remaining 4.43%. Of the four variables tested, ROA is the more dominant variable affecting Tobin's Q and can be used as the best proxy for corporate profitability.

Article Details

How to Cite
Jonnius, J., & Setya Marsudi, A. (2021). PROFITABILITY AND THE FIRM’S VALUE. Dinasti International Journal of Management Science, 3(1), 23-47. https://doi.org/10.31933/dijms.v3i1.977
Section
Articles

References

Rubani, Mohammed. (2017). A study of Structure and Functions of Capital Markets in India. International Journal of Business Administration and Management. ISSN 2278-3660 Volume 7, Number 1 (2017).
Sundjaja, Inge Barlian. (2003). Financial management. Cross Media Literature: Jakarta.
Tze San Ong., Cia Ling Teo and Boon Heng Teh. (2012). Analysis On Financial Performance And Efficiency Changes Of Malaysian Commercial Banks After Mergers And Acquisitions. International Journal of Business and Management Tomorrow. Vol. 1 No. 2 Nov 2012.
Brigham Eugene F & Michael C. Ehrhardt. (2011). Financial Management. South Western, a part of Cengange Learning.
Gill, Amarjit., Nahum Biger., Rajendra Tibrewala. (2010). Determinants of Dividend Payout Ratios: Evidence from United States. The Open Business Journal, 2010, 3, 8-14.
Sabrin., Buyung Sarita., Dedy Takdir & Sujono. (2016). The Effect of Profitability on Firm Value in Manufacturing firm at Indonesia Stock Exchange. The International Journal Of Engineering And Science (IJES), Volume 5, Issue 10, PP 81-89.
Megginson, William L., Scott B. Smart & Brian M. Lucey. (2008). Introduction to Corporate Finance. South Western Cengange Learning EMEA: London.
Rosikah., Dwi Kartika Prananingrum., Dzulfikri Azis Muthalib., Muh. Irfandy Azis & Miswar Rohansyah. (2018). Effects of Return on Assets, Return On Equity, Earning Per Share on Corporate Value. The International Journal of Engineering and Science (IJES), Volume 7, Issue 3, Ver. I, PP 06-14.
Zuhroh, Idah. (2019). The Effects of Liquidity, Firm Size, and Profitability on the Firm Value with Mediating Leverage. The 2nd International Conference on Islamic Economics, Business, and Philanthropy (ICIEBP) Theme:“Sustainability and Socio Economic Growth”. 2019 volumes.
Dang, Hung Ngoc., Van Thi Thuy Vu., Xuan Thanh Ngo., and Ha Thi Viet Hoang. (2019). Study the Impact of Growth, Firm Size, Capital Structure, and Profitability on Enterprise Value: Evidence of Enterprises in Vietnam. The Journal of Corporate Accounting & Finance. January 2019.
Tommy Supriyadi. (2021). Effect of Return on Assets (ROA), Return on Equity (ROE), and Net Profit Margin (NPM) on The firm's Value in Manufacturing Companies Listed on The Exchange Indonesia Securities Year 2016-2019. International Journal of Economics, Business and Management Research. Vol. 5, No.04; 2021.
Effendi, Vina Nurrahmatia. (2019). The Effect of Capital Structure and firm Profitability on Firm Value (Empirical Study on Manufacturing Companies Listed on the Indonesia Stock Exchange 2014-2016). Journal of Economics and Accounting Research (JPENSI). Volume 4 No. 3, October 2019.
Alghifari, Erik Syawal., Sigit Triharjono., and Yuyu Siti Juhaeni. (2013). Effect of Return on Assets (ROA) Against Tobin's Q: Studies in Food and Beverage firm in Indonesia Stock Exchange Years 2007-2011. International Journal of Science and Research (IJSR). Volume 2 Issue 1, January 2013. Pp: 722-725.
Amidu, Mohammed. (2007). How Does Dividend Policy Affect Performance of The Firm on Ghana Stock Exchange? Investment Management and Financial Innovations, Volume 4, Issue 2, 2007
Hakim, Luqman & Sugianto. (2018). Determinant Profitability and Implications on the Value of the firm: Empirical Study on Banking Industry in IDX. International Journal of Economics and Finance. Issues, 2018, 8(1), 205-216.
Fintreswari, Dhea Gitami & Fidya Sutiono. (2017). The Influence of Good Corporate Governance, Financial Performance on firm values in the Food and Beverage Industry. Online Journal of Accountants, Vol. 2, No. 2. Dec 2017.
Gujarati, DN (2010). Econometrics Fundamentals. Edition 5. Translation. Jakarta: Four Salemba.
Fajaria, Ardina Zahrah & Isnalita. (2018). The Effect of Profitability, Liquidity, Leverage and Firm Growth of Firm Value with its Dividend Policy as a Moderating Variable. International Journal of Managerial Studies and Research (IJMSR). Volume 6, Issue 10, October 2018, PP 55-69.
Manurung, Adler Haymans. (2012). Corporate Finance Theory. PT Adler Manurung Press.
Thamrin, Kemas Muhammad Husni., Syamsurijal., Sulastri., and Isnurhadi. (2018). Dynamic Model of Firm Value: Evidence from Indonesian Manufacturing Companies. Sriwijaya International Journal of Dynamic Economics and Business (SIJDEB), 2(2), 2018, 151-164.
Adenugba Adesoji Adetunji., IGE, Abayomi Akinyemi & Kesinro, Olalekan Rasheed et.al. (2016). Financial Leverage and Firm's Value: a Study of Selected Firms in Nigeria. European Journal of Research and Reflection in Management Science. Vol. 4 No. 1, 2016.
Lonkani, Ravi. (2018). Firm Value - Theory and Empirical Evidence. IntechOpen.http://dx.doi.org/
William, André Prasetya. (2015). Price Book Value & Tobin's Q: Which One is Better To Measure Corporate Governance? European Journal of Business and Management. Vol.7, No.27, 2015.
Australian Shareholders'Association (Standing Up for Shareholders). (2010). The Top 15 Financial Ratios. Lincoln Indicators Pty Ltd 2010.
Christiawan, Yulius Jogi and Joshua Tarigan. (2007). Managerial Ownership: Debt Policy, firm Performance and Value. Journal of Accounting and Finance, Vol. 9 No.1. matter. 1-8.
Sudana, I. Made. (2011). Corporate Financial Management: Theory and Practice. Jakarta: Erlangga.
Brigham, Eugene F. & Joel F. Houston. (2010), Fundamentals of Financial Management. (translator Ali Akbar Yulianto). South Jakarta: Salemba Empat.
Sukamulja, S. (2004). Good Corporate Governance in the Financial Sector: Impact of Corporate Governance on Financial Performance. National Accounting Symposium VII.
Fu, Liang., Rajeev Singhal., Mohinder Parkash. (2016). Tobin's q Ratio and Firm Performance. International Research Journal of Applied Finance. Vol. VII Issue – April 4, 2016.
Lukman, Syamsuddin. (2000). Corporate Financial Management. Application Concepts in Planning, Monitoring, and Decision Making. Jakarta: PT Raja Grafindo.
Ahmed, Saghir & Murtaza, Hasan. (2015). Critical Analysis of the Factors Affecting the Dividend Payout: Evidence from Pakistan. International Journal of Economics, Finance and Management Sciences2015; 3(3): 204-212.
Kuncoro. (2002). Banking Management, Theory and Application. Jakarta: PT. Gramedia Group Index.
cashmere. (2015). Financial Statement Analysis. Jakarta : PT Raja Grafindo Persada.
Gillingham, John CPA. (2015). Financial Ratios & Analysis - Accounting Play.www.AccountingPlay.com.
Trang, Nguyen Thi Xuan. (2012). Determinants of Dividend Policy: The case of Vietnam. International Journal of Business, Economics and Law, Vol. 1 2012.
Mehta, Anupam. (2012). An Empirical Analysis of Determinants of Dividend Policy - Evidence from the UAE Companies. Global Review of Accounting and Finance Vol. 3. No. 1. March 2012. 18 – 31.
Hey, Shengquan. Qinglu Jin. Guochang Zhang. (2011). Relative Firm Profitability and Stock Return Sensitivity to Industry-Level News. Accounting Review. Jul 2011, Vol. 86 Issue 4, p1321-1347. 27p. 8 Charts. DOI: 10.2308/accr-10042.
Al-Hasan, Md. Abdullah., Md. Asaduzzaman., Rashed al-Karim. (2013). The Effect of Dividend Policy on Share Price: An Evaluative Study. IOSR Journal of Economics and Finance (IOSR-JEF). Volume 1, Issue 4 (Sep. – Oct. 2013), PP 06-11.
Asiri, Batool K. (2015). How Investors Perceive Financial Ratios at Different Growth Opportunities and Financial Leverages. Journal of Business Studies Quarterly 2015, Volume 6, Number 3.
Putri, Debi Eka and Eka Purnama Sari. (2020). Impact of CR, DER and NPM on Tobin's Cosmetics and Household Goods Sub-Sector Companies listed on the IDX.Journal of Islamic Economics & Economics, Vol 3 No 2, June 2020.
Gujarati, Damodar. (2003). Basic Econometrics (Translation: Sumarno Zain). Erlangga: Jakarta.
Baltagi, Share. (2005). Econometric Analysis of Panel Data, Third Edition. John Wiley & Sons.