Abstract
This study examines the impact of firm size on the effect of capital structure choice on the firm value in one of the emerging markets, Indonesia. The study of capital structure choice and firm val...
Highlights
The main goal of public companies is to increase firm value to maintain companies’ sustainability
We argue that the inconclusiveness is due to differences in firm size
Based on all different previous findings, we suggest that the impact of profitability, capital structure, asset structure, and liquidity on the market value of equity depends on the size of a firm
Summary
The main goal of public companies is to increase firm value to maintain companies’ sustainability. This study provides three contributions to the development of capital structure theory, especially to support the efforts to overcome the inconclusive results of the relationship between capital structure and firm value in emerging markets. Jaisinghani and Kanjilal (2017) examined the non-linear relationship between firm size, capital structure, and firm performance in India They use firm size as a threshold variable which is not included in the model. This study intends to provide empirical evidence regarding the impact of firm size on the relationship between capital structure and firm value by employing a linear model. We predict the effect of capital structure choice, profitability, asset structure, and liquidity on the companies’ value depends on the size of the company (analogized to the study of Ngatno et al, 2021;; Jaisinghani & Kanjilal, 2017). To the best of our knowledge, the study which empirically tests the role of firm size on the relation ship between capital structure and firm value in Indonesia is still infrequent
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