The Effect of Corporate Governance on Profitability, Capital Structure and Corporate Value

Rolens E H Riwu Manu ,Taher Alhabsji ,Sri Rahayu ,Nila Firdausi Nuzula

doi:10.7176/rjfa/10-8-20

Abstract

This study is motivated by theoretical inconsistencies that underlie agency relations, within the corporate governance framework to increase profitability, optimal capital structure, and corporate value. The results of previous researchers' research are conflicting about the effect between variables. The originality of this study lies in providing empirical evidence of the effect of corporate governance, profitability, capital structure, on corporate value. This research is considered important to be carried out to study corporate governance within the framework of agency theory capable of directing management to make managerial decisions that minimize agency problems and improve the welfare of shareholders.This study focuses on empirical testing of the theory through testing the effect between the variables of Corporate Governance, Profitability, Capital Structure, and Corporate Value. This research was conducted in Indonesia with observation objects covering all Basic Industry Manufacture companies listed on the Indonesia Stock Exchange, the observation period from 2012 to 2017. The population was 84 companies and a sample of 25 companies. The sampling method is purposive sampling. The data analysis technique uses statistical procedures to test hypotheses with the Generalized Structured Component Analysis (GSCA) software. The findings of this study are corporate governance has a positive and significant effect on profitability, capital structure and corporate value. Profitability has a positive effect on the capital structure and corporate value. Capital structure has a positive and significant effect on corporate value. This study concludes that good corporate governance will maintain an optimal capital structure that is able to increase profitability and Corporate value. Corporate management can use these variables to predict the Corporate's future. Keywords : Corporate Governance, Profitability, Capital Structure, Corporate Value DOI : 10.7176/RJFA/10-8-20 Publication date : April 30 th 2019

Highlights

The Corporate was established to achieve the main objective of maximizing the welfare of the owner, through increasing the value of the Corporate (Keown et al, 2000: 2)
Agency problems in companies affect the price of securities markets, because investors will assess the Corporate's performance through data contained in the Corporate financial report available on the stock exchange, the results of the assessment become a reference in making decisions whether the investment will be taken is right and gives benefits
The data described is in the form of a minimum value, the maximum value, the average of each indicator forming latent variables, as listed in table 3, below: Table 3

Summary

Introduction

The Corporate was established to achieve the main objective of maximizing the welfare of the owner, through increasing the value of the Corporate (Keown et al, 2000: 2). The originality of this study lies in providing empirical evidence of the effect of corporate governance variables on capital structure, profitability, and Corporate value. The causality relationship between these variables is generally an effect of the structure of corporate governance, as measured by indicators of board size, board composition, internal audit committee, and external audit committee on capital structure. Referring to the research of Adi et al (2013), dan Data et al (2017), Tobin's q is calculated by the following formula: Market Value of Equty + Total Long Term Debt. Linearity test using the SPSS version 22 program, the test results are as follows:

Description of Research Variables and Indicators

Inner Model Testing Results

Conclusion