Determinants of Capital Structure and the Effect on Firm Value: Evidence from Indonesia

Sukma Febrianti *

Management, Faculty of Business and Economics, University of Tanjungpura, Indonesia.


Management, Faculty of Business and Economics, University of Tanjungpura, Indonesia.

Helma Malini

Management, Faculty of Business and Economics, University of Tanjungpura, Indonesia.


Management, Faculty of Business and Economics, University of Tanjungpura, Indonesia.

*Author to whom correspondence should be addressed.


Aims: To analyze the influence of macroeconomic factors (GDP Growth) and microeconomic factors (Tangibility and Profitability) on company value (Tobin's Q), as well as examine the mediating role of capital structure (Interest-bearing debt).

Study Design: The design of the study is quantitative research with a panel data regression approach and path analysis to examine the relationship between macro and micro economic variables on firm value, as well as the mediating role of capital structure in the relationship..

Place and Duration of Study: Companies included in the Kompas 100 index listed on the Indonesia Stock Exchange for the period 2018-2022.

Methodology: This study uses a population of companies listed in the Kompas 100 index on the Indonesia Stock Exchange for the period 2018-2022 and takes a sample of 70 companies that meet the criteria with purposive sampling method. A quantitative approach is used by analyzing panel data through panel data regression to test the effect of independent variables (GDP Growth, Tangibility, and Profitability) on the dependent variable (Firm Value) and the mediating variable (Capital Structure), as well as path analysis with the Sobel test to test the mediating role of Capital Structure in the relationship between the independent variable and the dependent variable.

Results: The regression analysis showed that GDP had no significant impact on either capital structure or firm value. However, company-specific factors like tangibility and profitability were the main determinants. Tangibility positively influenced capital structure, while profitability had a negative effect. Tangibility negatively affected firm value, and capital structure itself correlated negatively with firm value. Capital structure was only significant as a mediating variable in the relationship between profitability and firm value.

Conclusion: Macroeconomic indicators such as GDP have limited explanatory power on capital structure and firm value, whereas firm-specific factors like asset tangibility and profitability are crucial determinants of optimal capital structure and value maximization. Further studies should utilize alternative macroeconomic proxies with higher sensitivity, like interest rates and inflation, broaden the sample scope to incorporate SMEs alongside large corporations, control for relevant firm-level characteristics, extend the time horizon, and leverage sophisticated analytical techniques such as structural equation modeling.

Keywords: Capital structure, firm value, GDP growth, profitability, tangibility, capital structure

How to Cite

Febrianti, Sukma, Giriati, Helma Malini, and Wendy. 2024. “Determinants of Capital Structure and the Effect on Firm Value: Evidence from Indonesia”. Asian Journal of Economics, Business and Accounting 24 (6):407-21.


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