. The Effect of Capital Structure, Cash Holding, and Firm Size on Firm Value with Corporate Governance as a Moderating Variable (Empirical Study on Mining Companies in 2015 - 2019)

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Yohanes Agung Nugroho; Dwi Asih Surjandari. The Effect of Capital Structure, Cash Holding, and Firm Size on Firm Value with Corporate Governance as a Moderating Variable (Empirical Study on Mining Companies in 2015 - 2019)

Page : 103 Size on Firm Value with Corporate Governance as a

Moderating Variable (Empirical Study on Mining Companies in 2015 - 2019)

Yohanes Agung Nugroho^1*; Dwi Asih Surjandari²

Department Accountancy.Universitas Mercu Buana Jakarta [email protected]^1*, [email protected]²

*Corresponding author

Received: March 1, 2022 Accepted: June 7, 20222 Published: June 30, 2022

To cite this article: Nugroho, YA; Surjandari, D.A., (2022). The Effect of Capital Structure, Cash Holding, and Firm Size on Firm Value with Corporate Governance as a Moderating Variable (Empirical Study on Mining Companies in 2015 - 2019). The Accounting Journal of BINANIAGA. 7 (1), 103 - 112 doi:

10.33062/ajb.v7i1.501

ABSTRACT.This present study aimed to examine the effect of capital structure, cash holding, and firm size on firm value with corporate governance as the moderator, empirical study on mining companies in 2015-2019. The population in this study were mining companies. The period used was 2015-2019. The sample obtained by purposive sampling method was of 45 data, and was done by using the eViews 8.0 statistical test.

The statistical test results revealed that capital structure did not have significant effect on firm value, cash holding had a significant effect on firm value, firm size did not have significant effect on firm value, capital structure moderated by corporate governance did not have significant effect on firm value and cash holding moderated by Corporate governance had a significant effect on firm value.

Keywords:Capital Structure,Cash Holding,Firm Size, Corporate Governance INTRODUCTION

One of the main objectives of the company is to increase the firm value. The high value of the company will reflect prosperity for the shareholders. The increase in firm value is generally indicated by an increase in stock prices in the market, attracting the attention of potential investors, so that the company obtains sufficient funds to compete. To maximize the firm value, shareholders hand over the management of the company to professionals in their fields (management). Firm value is the main concern of stakeholders, including investors and management, because maximizing firm value is extremely essential for business continuity because this will become a perception for investors of the company's success rate which is often associated with stock prices.

Figure of Average Condition of Mining Companies PBV in 2015- 2019

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because maximizing firm value is extremely essential for business continuity because this will become a perception for investors of the company's success rate which is often associated with stock prices.

One of the industries dominating companies listed on the Indonesia Stock Exchange (IDX) is the mining industry. Competition in the mining industry makes each company improve its performance so that its goals can be achieved. The main objective of companies that have gone public is to increase the prosperity of their owners or shareholders through increasing firm value. Firm value is the investor's perception on the company. Firm value is reflected in a stable stock price, which in the long run an increase occurs; the higher the stock price of a company, the higher the value of a company.

Table 1.1 shows the closing price for each mining sub-sector listed on the IDX.

An increase and decrease in share prices can be seen more clearly by looking at the percentage of the closing share price of each sub-sector listed on the IDX from 2013 to 2017 in table 1.2.

Table 1.2 shows an increase and decrease in stock closing prices from 2013 to 2017. From the 5-year percentage, the mining sector experiencing the highest increase in stock closing price was the rock sub-sector with an average closing stock of 15 %.

Meanwhile, the mining sub-sector experiencing a decrease in the stock closing price was the oil and gas sub-sector with an average stock closing price of -10%. The other metal and mineral sub-sector with an average stock closing price of -5%, and the mining sub-sector experiencing the largest decrease was the coal sub-sector with an average stock closing price of -19%.

Table 1.1

The Stock Closing Price in the Mining Sector

SUB-SECTOR Year

2012 2013 2014 2015 2016 2017

Coal 94.117 71.428 50.562 28.011 51.586 54.292

Oil and gas 5.636 5.359 8.019 3.177 3.767 2.014

Other Metal and Mineral 11.550 9.075 8.260 7.464 8.676 9.762

Stone 141 139 252 180 141 162

Source: www.sahamok.com

Table 1.2

Percentage of Stock Closing Price in the Mining Sector

SUB-SECTOR Year

2013 2014 2015 2016 2017 Percentage

Coal -24% -29% -45% -4% 5% -19%

Oil and gas -5% 50% -60% 13% -

47%

-10%

Other Metal and Mineral -21% -9% -10% 2% 13% -5%

Stone -1% 81% -29% 9% 15% 15%

Source: www.sahamok.com (the processed data, 2017)

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LITERATURE REVIEW Agency Theory

Agency theory states that a company is the nexus of contract, namely a meeting place for contracts between various parties that have the potential to make conflicts of interest.

Scott (2015) stated that companies have many contracts, for example work contracts between companies and their managers and loan contracts between companies and creditors.

Firm Value

Firm value is the price a prospective buyer willing to pay if the company is sold (Dewi and Wirajaya, 2013). The use of Tobin's Q chosen to measure firm value is because this ratio is a valuable concept for showing market estimates.

In addition, the calculation of this ratio provides rational information, because it includes all company assets.

Capital Structure

According to Saleem et al, (2013) the company's capital structure is a certain combination of debt and equity that companies use to fund long term debt assets. The key partition in the capital structure is between debt and equity. The measurement of capital structure used in this study is the debt to equity ratio (DER), which shows the ratio between debt and equity.

Cash Holding

Cash holding is the ownership of cash or cash equivalents in the hands of the company.

Cash holding as measured by cash and cash equivalents is divided by net assets, where net assets are total assets minus cash and cash equivalents (Sheikh and Khan, 2015).

Firm Size

According to Sawir (2012), firm size is the size of the company which can be measured by using total assets. In this study, the firm size variable is measured by using the logarithmic value of total assets.

Good Corporate Governance

Corporate Governance (CG) is a system or set of regulations that regulates the relation between various interested parties in order to achieve organizational goals to increase corporate value (Kristanti and Priyadi, 2016).

Previous Studies

Javeed, Yaqub, and Aslam (2017) Revisiting Capital Structure and Firm Value:

Moderating Role of Corporate Governance: Evidence from Pakistan. The results showed that board independence and ownership concentration were able to positively moderate the relation between leverage and firm value, while managerial ownership moderated the relation between leverage and firm value. Budiman (2015) Corporate Governance, Capital Structure and Shareholder Value of Indonesian Stock Exchange Firms, research results revealing that Board composition, board ownership, institutional ownership and profitability have a significant effect on shareholder value with debt ratio as a the mediating variable. Okiro, Aduda, and Omoro (2015) The Effect of Corporate Governance and Capital Structure on Performance of Listed Firms at the East African Community Securities Exchange, research results showing that there is a significant positive relation between corporate governance and firm value.

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Furthermore, there is a significant positive effect of capital structure (leverage) on the relation between corporate governance and firm value. Kodongo, Mokoteli and Maina (2014) Capital Structure, Profitability And Firm Value: Panel Evidence of Listed Firms In Kenya, the results of research showing that asset tangibility consistently has a negative relation with profitability. Moreover, sales growth and firm size prove to be important factors that drive firm value (Tobin's Q). Sukriyawati (2016) The Influence of Capital Structure and Company Growth on Firm Value with Good Corporate Governance as a Moderating Variable, the results of the research revealing that capital structure variable has a significant effect on firm value, and moderation of Good Corporate Governance is proven unable to strengthen the effect of capital structure and company growth on the firm value.

Research Framework

H1: Capital structure has a positive effect on firm value H2: Cash holding has a positive effect on firm value H3: Firm size has a positive effect on firm value

H4: Institutional ownership has a positive effect on firm value

H5: Corporate governance with the institutional ownership proxy strengthens the negative relation between capital structure and firm value

H6: Corporate governance with the institutional ownership proxy strengthens the positive relation between cash holding and firm value.

RESEARCH METHOD

This is a causal quantitative research with the subject is mining companies listed on the Indonesia Stock Exchange (IDX) during the period from 2015 to 2019, and

Moderating Variable

Good Corporate Governance Practice

 Institutional Ownership Controlling Variable

Firm Size

Capital Structure

Cash Holding

Dependent variable

Firm Value (Tobin’s Q)

Figure of Conceptual Framework

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Page : 107 Corporate Governance as the moderator. The data were collected from the IDX

website and analyzed by using E-views 8.0.

RESULTS AND DISCUSSION

The object of the present research is mining companies listed on the Indonesia Stock Exchange (IDX) publishing financial reports for 2015 to 2019. The number of companies consistently included in the population was 29 companies during the observation of 9 with a sample of 9 x 5 = 45 data observed.

Descriptive Statistics

From the descriptive statistical output in table 4.2 above, it can be seen that the number of observations of 45 means that the amount of data processed in this study is 45.The results of the descriptive statistics above show that DER has an average value of 0.866, a standard deviation value of 1.173 with a minimum value of 0, 0425 PT Central Omega Resources Tbk in 2015 and a maximum value of 2.872 by PT Timah Tbk in 2019.

DER CH SIZE KEPIN TOBINSQ

Mean 0.866856 0.137742 15.05552 0.645449 2219059.

Median 0.785900 0.099400 15.39560 0.650000 1065147.

Maximum 2.872100 0.477600 17.28730 0.934400 40326883 Minimum 0.042500 0.005400 10.95370 0.279700 290.0000 Std. Dev. 1.173243 0.108333 1.653979 0.134699 5927130.

Observations 45 45 45 45 45

Dependent Variable: FIRMVAL

Method: Panel EGLS (Cross-section random effects) Date: 11/29/20 Time: 16:45

Sample: 2015 2019 Periods included: 5 Cross-sections included: 9

Total panel (balanced) observations: 45

Swamy and Arora estimator of component variances Variable Coefficient Std. Error t-Statistic Prob.

C 17868815 18874078 0.946738 0.3498 DER 7123453. 5114962. 1.392670 0.1718 CH -1.95E+08 69227894 -2.823712 0.0075 SIZE -1053972. 982774.7 -1.072445 0.2903 KEPIN -821854.1 19104627 -0.043019 0.9659 DER*KEPIN -14134674 9538681. -1.481827 0.1466 CH*KEPIN 3.38E+08 1.08E+08 3.139355 0.0033

Effects Specification

S.D. Rho Cross-section random 4288611. 0.4909 Idiosyncratic random 4367038. 0.5091

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CH has an average value of 0.137, a standard deviation value of 0.108 with a minimum value of 0.005 PT Central Omega Resources Tbk in 2018 and a maximum value of 0.477 by PT Mitra Investindo Tbk in 2015. Size has an average value of 15.055, a standard deviation value of 1.653 with a minimum value of 10,953 by PT Mitra Investindo Tbk in 2019 and a maximum value of 17,287 by PT Aneka Tambang Tbk in 2018. Kepin has an average value of 0.645, a standard deviation value of 0.134 with a minimum value of 0.279 by PT Radiant Utama Interinsco Tbk in 2016 and a maximum value of 0.934 by PT Aneka Gas and Industri Tbk in 2015 and FV has an average value of 221, a standard deviation value of 592 with a minimum value of 290 by PT Aneka Gas and Industri Tbk in 2015 and a maximum value of 403 by PT Central Omega Resources Tbk in 2018.

Test Hypothesis

Determination Coefficient Test

Based on the test results of the random effect model method, the value of Adjusted R2 (R-squared) is 0.387243. Thus, it can be seen that the Independent Board variable can explain the Firm Value of 38.72%, while the remaining 61.28% is affected by other variables outside the variables tested. For the R Squared value, the value of 47.08%

shows that the effect of the independent variable on Firm Value is moderate, this is because R Squared has a correlation value of <0.50.

Model Feasibility Test

Based on the test results of the random effect model method, the calculated F value is 5.634433 with a probability of 0.000292 or <0.05. Therefore, the analysis results show that the independent variables jointly affect firm value, sothat the panel data regression model is feasible.

Partial t Test

Based on the test results of the random effect model method, there are two variables that affect Firm Value, namely the cash holding variable with a probability of 0.0075 <0.05 in a negative direction and cash holding which is moderated by GCG with a probability of 0.0033 where <0.05 and a positive direction, whereas the variables of capital structure, firm size, institutional ownership, and capital structure are moderated by GCG, where each probability is > 0.05 so that it does not have effect on Firm Value. Summary of

Weighted Statistics

Root MSE 3873423. R-squared 0.470801 Mean

dependent var 919669.6

Adjusted R-

squared 0.387243

S.D. dependent

var 5384745. S.E. of regression 4215114.

Sum squared

resid 6.75E+14 F-statistic 5.634433 Durbin-Watson

stat 1.736237 Prob(F-statistic) 0.000292 Unweighted Statistics

R-squared 0.343455

Mean dependent

var 2219059.

Sum squared

resid 1.01E+15

Durbin-Watson

stat 1.155061

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Page : 109 Discussion

The Effect of Capital Structure on Firm Value

Based on the table above, DER does not have any significant effect on firm value with a probability value of 0.1718 or greater than 0.05. Financial management through the activities of the company concerned has efforts to obtain funds and use these funds as efficiently as possible. Capital is a component of a company's long-term funds which includes all the components on the right side of the company's balance sheet except current debt.

The Effect of Cash Holding on Firm Value

Based on the table above, CH has a significant effect on firm value with a probability value of 0.0075 or less than 0.05. Cash Holding is measured by comparing or dividing cash and cash equivalents in total assets (Azmat, 2014). Determining cash holdings at the optimal point is tremendously necessary because cash is the element of working capital most needed by the company to fulfill the company's operational activities. Determining cash holding is an important decision that financial managers must make. According to Atniati (2013), cash holding can be used for several things, including: distributing dividends to shareholders, repurchasing company shares, investing, or saving it for future interests.

The Effect of Firm Size on Firm Value

Based on the table above, size does not have a significant effect on firm value with a probability value of 0.2903 or greater than 0.05. Lumbantobing (2017) stated that firm size is considered capable of affecting firm value because the greater the size of the company, Rudangga & Sudiarta (2016) stated that firm size has a positive effect on firm value. This is because the increasing size of the company also increases the firm value.

The Effect of Corporate Governance on Firm Value

Based on the table above, GCG as measured by Institutional Ownership does not have any significant effect on firm value with a probability value of 0.9659 or greater than 0.05.

In the perspective of agency theory, agents who are risk adverse and tend to be prioritize themselves will allocate resources (invest) from investments that do not increase firm value to investment alternatives that are more profitable. Hence, when a company gives a signal to investors, there is an element of circumspection from the investors.

The Effect of Capital Structure on Firm Value with GCG as the Moderating Variable Based on the table above, the capital structure moderated by the GCG variable does not significantly affect the firm value with a probability value of 0.1466 or greater than 0.05.

The implementation of Good Corporate Governance is expected to increase supervision of management to encourage effective decision making, preventing actions which are not in

Hypothesis Description Firm Value

H1 The effect of capital structure on firm value Rejected

H2 The effect of cash holding on firm value Accepted

H3 The effect of firm size on firm value Rejected

H4 The effect of institutional ownership on firm value Rejected H5 The effect of capital structure on firm value with GCG as the

moderating variable

Rejected H6 The effect of cash holding on firm value with GCG as the

moderating variable

Accepted

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line with company interests, and reducing information asymmetry between the executives and stakeholders.

The Effect of Cash Holding on Firm Value with GCG as the Moderating Variable Based on the table above, Cash Holding moderated by the GCG variable has a significant effect on firm value with a probability value of 0.0033 or less than 0.05. Chen (2008) in Isshaq (2009) proposed that by building an effective corporate governance mechanism, it can lead to the expansion of the degrees of freedom for companies in making decisions that lead to improvements or advancement of firm value. Thus, the implementation of good corporate governance in the company will increase firm value. Cash holding in a company is how much cash owned by the company.

CONCLUSION AND SUGGESTION

The objective of this study was to determine significantly the effect of capital structure, cash holding, and firm size on firm value with good corporate governance as the moderating variable. Based on the data that have been analyzed, the following conclusions are provided:

1. Capital structure does not have a significant effect on firm value.

2. Cash holding has a significant effect on firm value.

3. Firm size does nit have a significant effect on firm value.

4. Capital structure moderated by GCG does not have a significant effect on firm value.

5. Cash holding, moderated by GCG, has a significant effect on firm value.

This study has a total sample size of 45 which is not sufficient for the overall representative sample in general so that it does not reflect more accurate data.

Therefore, it is expected that further research can use other variables or add variables and increase the number of samples in order to maximize the results of firm value.

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