Abstract
This study aims to provide empirical evidence of the influence of capital structure and profitability on firm value. The selection of independent variables capital structure and profitability to prove the proposition Modigliani and Miller (1958) which states that the value of the company is not influenced by capital structure, but rather influenced by profitability. The results of this study are expected to provide insight and understanding of capital market behavior in Indonesia, particularly those relating to decision making by investors. The contribution of research results is to the field of accounting especially the subject of financial accounting and the subject of investment and portfolio management is the field of science that gets the most contribution from this research. The results of this study can also be used as learning material for the course concerned. The research method used is descriptive quantitative, using multiple regression analysis, using secondary data from LQ 45 companies listed on the Indonesia Stock Exchange. hypothesis testing does not support the Modigliani and Miller (1958) hypotheses, which maintain market efficiency and symmetrical assumptions of information and state that capital structure will not affect firm value Keywords: capital structure, profitability, company value, LQ 45 DOI : 10.7176/EJBM/12-3-20 Publication date: January 31 st 2020
Highlights
Background of StudyCapital structure is part of the financial structure that reflects the ratio between all external capital with total capital (Riyanto, 1999)
This study seeks to prove the proposition of Modigliani and Miller (1958) by examining the effect of capital structure and profitability on firm value
Adjusted R Square value of 0.094 means that the independent variables can explain the dependent variable by 9.4%, while the remaining 90.6% is explained by other variables
Summary
Background of StudyCapital structure is part of the financial structure that reflects the ratio (absolute or relative) between all external capital (both short-term and long-term) with total capital (Riyanto, 1999). Companies that are expected to grow high in the future tend to use shares to finance their operational activities. For this reason companies with low growth opportunities usually use long-term debt as a source of their financing. Research that seeks to obtain empirical evidence about the relationship between capital structure and firm performance (firm value) remains divided. Several studies found this relationship to be negative (Mykhailo, 2013 and Akeem et al, 2014 etc.). Several other studies have found a positive relationship between capital structure and firm performance (firm value) such as Kaplan (1989), Smith (1990), Ogbulu & Emeni (2012) and Akinyomi & Olagunju, (2014)
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