The Mediating Role of Capital Structure in the Relationship between Profitability and Firm Value: Evidence from the Indonesian Manufacturing Sector

Ricky Riandawa; Elok Heniwati; M. Fahmi; Syarif M. Helmi; Nina Febriana  Dosinta

doi:10.59890/ijfbm.v3i6.125

Authors

Ricky Riandawa Universitas Tanjungpura
Elok Heniwati Universitas Tanjungpura
M. Fahmi Universitas Tanjungpura
Syarif M. Helmi Universitas Tanjungpura
Nina Febriana Dosinta Universitas Tanjungpura

DOI:

https://doi.org/10.59890/ijfbm.v3i6.125

Keywords:

Profitability, Growth Assets, Firm Size, Firm Value, Capital Structure

Abstract

This study investigates the effect of profitability, asset growth, and firm size on firm value, with capital structure as a mediating variable in Indonesian manufacturing companies. The research aims to determine whether internal financial characteristics influence firm value directly or indirectly through capital structure decisions. Using a quantitative, causal-comparative approach, data were collected from 30 basic and chemical manufacturing firms listed on the Indonesia Stock Exchange during 2021–2024. Multiple linear regression and Sobel tests were applied to analyze causal relationships among variables. The results reveal that profitability positively and significantly affects capital structure, whereas asset growth and firm size do not show significant effects. However, profitability, asset growth, and firm size do not significantly influence firm value either directly or through capital structure. The Sobel test further indicates that capital structure does not mediate the relationship between profitability and firm value. These findings suggest that firm value in the Indonesian manufacturing sector is more influenced by factors outside the tested model. The study supports the pecking order theory, highlighting that profitable firms tend to rely on internal funding rather than external debt to sustain firm value.

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