International Journal of Seocology

(Science, Education, Economics, Psychology and Technology)

The Effect of Profitability, Capital Structure, Company Size, and Dividend

Policy on Company Value on the Indonesia Stock Exchange

Titik Purwanti

Universitas Widya Dharma Klaten, Indonesia

Corresponding email: [email protected]

Abstract:
Every company, especially companies that have gone public have value. The value
that is owned by the company is a perception that comes from investors to the level of
achievement of the success of a company in managing various resources that are
controlled and owned which is reflected in the stock price of the company in the
market. This study aims to determine the effect of profitability, capital structure,
company size, and dividend policy on firm value. The companies in this study are
manufacturing companies listed on the Indonesian stock exchange during the period of
2015 to 2018. The population of this research is all manufacturing companies listed on
the Indonesian stock exchange in 2015-2018. The research sample of 11 companies.
The technique used in the sampling of this study used a purposive sampling technique.
In this study secondary data was obtained from the Indonesian Capital Market
Directory. Data analysis techniques using descriptive statistics and testing using the
classic assumption test. Testing the research hypothesis using multiple linear
regression test, simultaneous test (F test), partial test (t test), and coefficient of
determination test (R2 test). The results showed that simultaneous profitability, capital
structure, company size, and dividend policy significantly influence the value of
manufacturing companies. Partially, profitability has a positive and significant effect on
firm value, capital structure has a positive and significant effect on firm value, company
size has a negative and significant effect on firm value, and dividend policy has positive
and not significant effect on firm value.

Keywords:
profitability, capital structure, company size, dividend policy, firm value

JEL: A10, H00, H10, H19

INTRODUCTION
The company in order to gain the trust of investors requires hard work, especially in
building good value for the company. Every company, especially companies that have gone
public have value. The value owned by the company is a perception that comes
from investors to the level of achievement of the success of a company in carrying
out various management of the resources it controls and has reflected in the stock prices of
these companies in the market. Every company that has a great desire to develop is always
required to increase its value in order to maintain long-term survival in the midst of the
advancement of IT globalization in the industrial era 4.0 towards industry 5.0 and to maintain
its investors, namely the investors who helped build the company, especially in terms of
capital included . The value of the company is the perception of investors on the level of
success of a company in managing the company's resources which is reflected in its share
price. But in general, companies are not only required to achieve maximum profits, but are
also expected to be able to prosper shareholders and increase the value of
the company. One of the main objectives of the company is to increase the value of the

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company (Sudana, 2011). Company value is the investor's perception of the company's
success rate related to stock prices (Sujoko & Soebiantoro, 2007). Maximizing the value of
the company is the same as maximizing the present value of cash flows or revenue streams
that are expected and received by investors in the future (Sudana, 2011). There are several
factors that can affect a company's value, including: company growth, capital structure and
profitability. The company's growth is a change (can decrease or can also increase) in total
assets of the company which last year asset growth illustrates the profitability will come and
the growth that comes (Taswan, 2003).
Capital structure is the proportion of funding with company debt. Thus, debt is an
element of the capital structure that is the key to improving profitability and company
performance. The third factor that can affect the value of a company is
profitability. Profitability is defined as the company's ability to generate profits and measure
the level of operational efficiency and efficiency in using its assets (Chen, 2004). Capital
structure is a balance of the amount of short-term debt that is permanent, long-term debt,
preferred shares and ordinary shares (Sartono, 2011). The capital structure is
the company's long-term permanent funding mix as indicated by debt, preferred stock and
common stock equity (Wachowicz, 2007). The importance of capital structure for each
company because it has a direct effect on the financial position of the company so that
financial managers must know the factors that influence the capital structure in order to
maximize the prosperity of the company's shareholders or investors (Yuliani, 2012).
Decisions concerning investment will determine the source and form of funds for
financing. The amount of debt and own capital, and how the types of debt and capital will be
used, bearing in mind the financing structure will determine the cost of capital that will be the
basis for determining the desired required return. Investors have the main objective to
improve welfare by expecting returns in the form of dividends and capital gains , while
companies expect continuous growth to maintain their survival while at the same time
providing welfare to their shareholders, so that dividend policy is important to meet
shareholders' expectations of dividends by not impeding the growth of the company on the
other hand.
The size of the company is one factor that is also able to influence the value of the
company. Companies that have a large size tend to be able to face economic competition
because they have better management or control, making them less vulnerable to economic
fluctuations (Fau, 2015). The size of a company can be measured by the total assets
owned. The greater the total assets of a company, the greater the size of a company.

THEORITICAL REVIEW
Profitability
Company profitability is one way to assess precisely the extent of the returns to be
obtained from investment activities. Profitability according to Saidi (2004) is the company's
ability to make a profit. Profitability according to Harahap (2007), Tho'in (2020) is the ability
to generate profits during a certain period by using assets or capital, both overall capital and
own capital. Profitability is the ability of a company to generate profit for a certain
period. Profitability is also an indicator of the performance of a management in managing the
wealth of a company in the form of profits generated (Tho’in & Prastiwi, 2019); (Riyanto,
2011); (Nuryanto, et., al, 2014).

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Capital Structure
Capital structure is the proportion of funding with company debt. Companies with a
large level of business developers will require a large source of funding, so additional funds
are needed from external parties in an effort to increase funding requirements in the
business development process. Companies with a good level of business development in
the long run will provide large profits to investors. This will have an impact on increasing the
value of the company. According to Halim (2007), what is meant by capital structure is the
balance of the amount of short-term debt that is fixed, long-term debt, preferred shares, and
ordinary shares. Keown et al (2010) said that the capital structure is the ratio or balance of
long-term funding of the company aimed at the comparison of long-term debt to sources of
capital. According to Husnan and Pudjiastuti (2006) the best capital structure is a capital
structure that can maximize the value of the company or the price of shares, so that
companies that have a good capital structure will be able to increase the value of the
company.
Capital structure measured by debt to equity ratio (DER) is a comparison of the total
debt held by the company with the company's total equity. The unit of measurement of DER
is in percentage. Total debt is total liabilities (both short-term and long-term debt). While the
total stakeholder's equity is the total equity capital owned by the company. The higher the
DER, it will show the composition of total debt is greater than the total own capital, so that
the greater the company's burden on creditors (Robert, 1997).
Company Size
The size of the company is a reflection of the total assets owned by the company. The
greater the size of the company, it means that the assets owned by the company are also
getting bigger and the funds needed by the company to maintain its operational activities are
increasing. The greater the size of the company will affect management decisions in
deciding what funding will be used by the company so that funding decisions can optimize
the value of the company. The size of the company is considered able to influence the value
of the company. The size of the company can be seen from the total assets owned by one
company. The large size of the company reflects that the company is experiencing good
growth and growth thereby increasing the value of a company. Increasing company value
can be indicated by the total assets of the company that has increased and is greater than
the amount of company debt.
Dividend Policy
Dividends are the distribution of a portion of a company's profits to shareholders. The
amount of this dividend can affect stock prices. If the dividend paid is high, then the share
price tends to be high so the value of the company is also high, conversely, if the dividend
paid is small, then the company's share price is also low. The ability to pay dividends is
closely related to the company's ability to make a profit. If the company gets a large profit,
then the ability to pay dividends is also large. Sartono (2011) states that dividend policy is a
decision whether the profits obtained by the company will be distributed to shareholders, or
will be retained in order to fund investment in the future. Sugiono (2009) explains that
dividends are company revenue distributed to shareholders. Dividends are the distribution of
profits provided by the issuing company of the profits generated by the company. Dividend
Payout Ratio (DPR) or Dividend Payment Ratio is a ratio that shows the percentage of each
profit obtained that is distributed to shareholders in cash.

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The value of the company

Company value is the price that prospective buyers are willing to pay if the company is
sold. The higher the value of the company, the greater the prosperity that will be received by
the owner of the company (Husnan & Eny, 2006). Company value is an investor's
perception of the level of success of the company in managing resources that is reflected in
the company's stock price. The higher the stock price the higher the value of the company,
conversely the lower the stock price, the company value is also low or the company's
performance is not good. In making financial decisions, financial managers need to
determine the objectives to be achieved. The right financial decision can maximize the value
of the company so that it can increase the prosperity of the company owner. Soliha &
Taswan (2002) states that the higher the stock price means the higher the value of the
company. High company value is the desire of the owners of the company, because with a
high value shows the prosperity of shareholders is also high. To achieve this, the company
expects financial managers to do the best for the company by maximizing the value of the
company so that the prosperity (welfare) of owners or shareholders can be achieved (Suad,
2005)

RESEARCH METHOD
The approach used in this research is a quantitative approach. The population in this
study are all manufacturing companies listed on the Indonesian stock exchange according to
the study period, namely 2015-2018. The sample in this study was 11 companies in which
the sampling technique used purposive sampling technique. Research data is secondary
data obtained from the Indonesian Capital Market Directory. The data analysis technique
used is descriptive statistical analysis and classic assumption test by testing the hypothesis
using multiple linear regression test, F test, t test, and R2 test.

RESULTS AND DISCUSSION

Multiple Linear Regression Test
Table 1. Multiple Linear Test Results
a
Coefficients
Standardized
Unstandardized Coefficients
Model Coefficients t Sig.
B Std. Error Beta
1 (Constant) 22, 492 10, 767 2, 089 0, 043
Return on Equity 0, 147 0, 038 0, 280 3, 832 0, 000
Debt to Equity Ratio 21, 108 2, 213 0, 738 9, 539 0, 000
Size -2, 097 0, 646 - 0, 195 -3, 244 0, 002
Dividend Payout Ratio 0, 025 0, 036 0, 040 0, 662 0, 512
a. Dependent Variable: Price to Book Value
From the regression equation in the explanation of table 1 it can be explained that the
constant coefficient value of 22.49 2 has meaning if all independent variables are assumed
to be equal to zero (0), then Y is 22.492.
This means that if ROE (X1), DER (X2), Size (X3), and DPR (X4) are zero, then the
company's value will increase by 22.49 2. The greater the value of the regression coefficient

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of the independent variables financial and non-financial research shows the greater
influence of the independent variables of the study on the dependent
variable. ROE coefficient (X1) of 0, 1 46 has the meaning that the variable ROE (X1) has a
positive relationship to the value of the company which means that if ROE increases by 1
unit, the value of the company will increase by 0.147 assuming that the independent
variable others are constant. Thus, the higher the ROE, the higher the value of the
company. The DER coefficient (X2) of 21,108 has the meaning that the DER variable (X2)
has a positive relationship to the value of the company which means that if the DER
increases by 1 unit, the value of the company will increase by 21.108 assuming that the
other independent variables constant. Thus, the higher the DER, the higher the value of the
company. The Size (X3) coefficient of -2.097 has the meaning that the Size (X3) variable has
a negative relationship with the value of the company, which means that if Size increases by
1 unit, the value of the company will decrease by 2.097 assuming that the independent
variable the others are constant. Thus, the higher the Size, the lower the value of the
company. The coefficient of Parliament (X4) 0.02 5 has the meaning that the House of
Representatives (X4) have a positive relationship to the value of the company which means
that if Parliament is increased by 1 unit, the value of the company will rise by
0.02 5 assuming that the other independent variables constant. Thus, the higher the DPR,
the higher the value of the company.
F test
Table 2. Test Results F
b
ANOVA
Model Sum of Squares df Mean Square F Sig.
a
1 Regression 12924, 561 4 3231, 140 73, 369 0, 000
Residual 1717, 560 39 44, 040
Total 14642, 122 43
a. Predictors: (Constant), ROE, Dept to Equity Ratio, Size, DPR
b. Dependent Variable: Price to Book Value

Based on the explanation in the above table, it is known that the significance value for the
effect of X1, X2, X3, X4 simultaneously on Y is 0,000 <0.05 and the calculated F value is
73.396 > F table 2.61, so it can be concluded that H1 is accepted, which means
simultaneously profitability (ROE), capital structure (DER), company size and dividend policy
(DPR) have a significant effect on firm value.
T test
Table 3. t Test Results
a
Coefficients
Unstandardized Standardized
Model Coefficients Coefficients t Sig.
B Std. Error Beta
1 (Constant) 22, 491 10, 767 2, 089 0, 043
Return on Equity 0, 146 0, 038 0, 280 3, 832 0, 000
Debt to Equity Ratio 21, 107 2, 213 0, 738 9, 539 0, 000
Size -2, 096 0, 646 - 0, 195 -3, 244 0, 002
Dividend Payout Ratio 0, 024 0, 036 0, 040 0, 662 0, 512
a. Dependent Variable: Price to Book Value

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Based on Table 3 above, that: The significance value of the variable ROE (X 1) of 0,000
<0.05 and tcount 3,832> ttable 2,02269, so it can be concluded that partially there is a
significant influence of profitability (ROE) on the value of the company in manufacturing
companies listed on the Indonesia Stock Exchange in 2015-2018, at a significance level of
5%. The significance value of the DER variable (X2) is 0,000 <0.05 and tcount 9.539> ttable
2.02269, so it can be concluded that partially there is a significant influence of capital
structure (DER) on the value of the company in manufacturing companies listed on the
Indonesia Stock Exchange in 2015-2018, at a significance level of 5%. The significance
value of the variable Size (X3) was 0.02 <0.05 and t -3.244 <ttable 2.02269, so it can be
concluded that partially a negative and significant effect of firm size on firm value in
manufacturing companies registered at Indonesia Stock Exchange in 2015-2018, at a
significance level of 5%. The significance value of the variable DPR (X 4) of 0.512> 0.05 and
tcount 0.662 <ttable 2.02269, so it can be concluded that partially a positive and insignificant
effect of dividend policy (DPR) to the value of companies in manufacturing companies listed
on the Indonesia Stock Exchange in 2015-2018, at a significance level of 5%.
Test R2
2
Table 4. R Test Results
b
Summary Model
Model R R Square Adjusted R Square Std. Error of the Estimate
a
1 0, 940 0, 884 0, 872 6 , 63627
a. Predictors: (Constant), ROE, Debt to Equity Ratio, Size, DPR
b. Dependent Variable: Price to Book Value

Based on the results of the coefficient of determination test it is known that the coefficient of
determination (R- square is 0,884 which means the profitability variable (ROE), capital
structure (DER), company size (SIZE), and dividend policy (DPR) have a close
relationship with the variable PBV of 88.4 %. While the Adjusted R- square value of
0,872. This value can be interpreted that the variable profitability (ROE) , the capital
structure (DER) , firm size (SIZE), and the dividend policy (DPR) is able to influence /
explain PBV simultaneously or jointly by 87,20% is equal to 12,80% is influenced by other
factors not explained in this study.

CONCLUSION
The results showed that simultaneous profitability, capital structure, company size, and
dividend policy significantly influence the value of manufacturing companies. Partially,
profitability has a positive and significant effect on firm value, capital structure has a positive
and significant effect on firm value, company size has a negative and significant effect on
firm value, and dividend policy has positive and not significant effect on firm value.

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