The Effect of Financial Performance on Firm Value with Financial Distress as an Intervening Variable
Muhtar Sapiri a,1, Fyrdha Faradyba Hamzah b,2, Aditya Halim Perdana Kusuma Putra b,3, Amnah Hadi c,4
a Department of Accouting, Faculty of Economic and Business, Universitas Bosowa, b Department of Management, Faculty of Economic and Business, Universitas Muslim Indonesia, c Politeknik Maritim AMI Makassar
1 muhtar.sapiri62@gmail.com, 2 fyrdha.faradyba@umi.ac.id , 3 adityatrojhan@gmail.com, 4 amnahhadi06@gmail.com
* corresponding author
I. Introduction
The development of the property business in Indonesia has recently increased rapidly and is predicted to continue its trend along with the growing demand for property. This increase in demand is also in line with the proliferation of apartment and housing developments in cities in Indonesia. The Real Estate Association (REI) revealed that the property business in Indonesia will continue to increase and could even reach 20%-30% in the coming years. The property business is one of the businesses that can be said to have little risk. For example, housing prices from year to year never fall but continue to increase. With a low risk of price decline, many investors flock to invest in this business. In making an investment, an investor can invest his capital through direct investment in the form of property or through the shares of property companies listed on the Indonesia Stock Exchange.
If an investor wants to invest his funds through the stock market, he must be careful in making investment decisions. One of the references in determining investment is company value. There are several factors that can affect the value of a company. [1], [2] in his research argues that leverage, profitability, company size and company growth are factors that can affect firm value, with capital structure as a moderating variable. In research conducted by [3] using the hypothesis that liquidity has a positive influence on firm value. The higher the liquidity of a company will show that the more funds the company can use to pay dividends, finance its operations and investments. So that investors will think that the company's performance is in good condition. However, the study found different results that liquidity does not have a significant effect on firm value.
ARTICLE INFO A B S T R A C T
Article history:
Received 14 May 2022 Revised 6 July 2022 Accepted 13 Sept 2022
This study analyzes the relationship between financial performance variables, financial distress, and firm value. The object of this research is property companies listed on the Indonesia Stock Exchange. The choice of research location is based on the consideration that company value needs to be increased by streamlining financial performance, company value and financial distress.
Meanwhile, the time required by the author in this study was two months, from June 2021 to August 2021. In this study, the population is 40 property companies listed on the Indonesia Stock Exchange in 2015-2019. The data analysis method used in this study is to use multiple linear regression analysis to analyze data and path analysis to determine the effect of intervening variables. Path analysis is an extension of multiple linear regression analysis which is useful for estimating the causal relationship between variables that have been previously determined based on theory using SPSS. The results of the analysis state that simultaneously and partially financial performance variables and financial distress have a significant direct effect on the value of property companies listed on the IDX. The direct effect of the financial performance variable on firm value is greater than that on firm value through financial distress as an intervening variable, and the t-count value of the sobel test < from the t-table for each variable, so financial distress is not proven as an intervening variable. Indirectly, the financial performance variable has no significant effect on the value of manufacturing companies listed on the IDX through financial distress as an intervening variable.
Copyright © 2023 International Journal of Artificial Intelegence Research.
All rights reserved.
Keywords:
Financial Performance, Financial Distress, Firm Value
Muhtar Sapiri et al (The Effect of Financial Performance on Firm Value with Financial Distress as Depreciation of industry capabilities in conclusion affects industry profits in a total way. The depreciation of industry profits is allowed to result in possible financial distress [4]–[7]. Therefore, financial distress is a significant problem for the industry to be observed and predicted. This is because financial distress affects industry figures. [8] who examined the effect of profitability on firm value found that profitability significantly has a positive effect on firm value. High profitability will indicate the company's good prospects, causing an increase in demand for shares and will affect the share price.
In line with this research, another study conducted by [9] also argues that profitability significantly has a positive effect on firm value. However, when including capital structure as a moderating variable, the profitability variable has a significant negative effect on firm value [10]. The problem formulation in this study is as follows:
1. Does financial performance affect firm value in property companies listed on the Indonesia stock exchange?
2. Does financial distress affect firm value?
3. Does financial performance affect firm value through financial distress in property companies listed on the Indonesia stock exchange?.
II. Methods
The object of this research is a property company listed on the Indonesia Stock Exchange. The choice of research location is based on the consideration that company value needs to be increased by streamlining financial performance, company value and financial distress. Meanwhile, the time required by the author in this study was two months, from June 2021 to August 2021, the population is 40 property companies listed on the Indonesia Stock Exchange in 2015-2019. The data analysis method used in this study is to use multiple linear regression analysis to analyze data and path analysis to determine the effect of intervening variables. Path analysis is an extension of multiple linear regression analysis which is useful for estimating the causal relationship between variables that have been previously determined based on theory using SPSS..
III. Result and Discussion A. Research Results
Based on the results of classical assumptions which include descriptive test, autocorrelation test, and coefficient of determination test, the following results are obtained.
1) Hypothesis testing by autocorrelation
Table 1. Autocorrelation Test Results Model Summaryb
Model R R Square Adjusted R Square Std. Error of the Estimate Durbin-Watson
1 ,784a ,741 ,740 2,86335 2,038
a. Predictors: (Constant), Kinerja Keuangan b. Dependent Variable: Financial Distress
The table above shows the financial performance Z-score of 2.038. Based on the table above with a sample size of n = 10 and a significance of 0.05, 4 independent variables (k = 4) obtained a value of du = 1.8005. So that du 1.8005 < dw 1.927 < 2.1995 (4 - du). From these results it can be concluded that there is no autocorrelation.
2) Partial Hypothesis Testing
Table 2. Partial Hypothesis Test Results Descriptive Statistics
N Minimum Maximum Sum Mean Std.
Deviation
Variance
Statistic Statistic Statistic Statistic Statistic Std.
Error
Statistic Statistic
Likuiditas 50 -17,86 18,30 179,05 3,5810 ,95951 6,78475 46,033
Muhtar Sapiri et al (The Effect of Financial Performance on Firm Value with Financial Distress as
Leverage 50 -10,54 11,52 220,04 4,4008 ,58676 4,14901 17,214
Proababilitas 50 -14,06 21,84 220,61 4,4122 ,96564 6,82808 46,623
ROA 50 -11,62 13,72 279,79 5,5958 ,69259 4,89734 23,984
PBV 50 -2,82 4,11 56,12 1,1224 ,21107 1,49251 2,228
Valid N (listwise)
50
a. Source: Data Processed, 2022
Table 2 shows the highest value, lowest value, average and standard deviation of the liquidity, leverage, profitability, firm value, and financial distress variables with 10 observations during 2015- 2019. The results of descriptive statistical analysis of company value proxied from 10 property companies observed have a value.
3) Hypothesis testing by the coefficient of determination
Table 3. Determination Coefficient Test Coefficientsa
Model Unstandardized Coefficients
Standardized Coefficients
t Sig. Collinearity Statistics
B Std. Error Beta Tolerance VIF
1 (Constant) ,576 ,306 1,972 ,066
Financial Performance
,279 ,077 ,259 3,845 ,001 ,966 1,035
Financial Distress
,347 ,061 ,345 5,890 ,000 ,966 1,035
a. Dependent Variable: Company Value
b. Source: Data Processed, 2022
Table 3 shows that the significance level of each variable of financial performance and financial distress> α = 0.05, thus it can be concluded that there is no heteroscedasticity in the data used.
Discussion
B. The effect of financial performance on firm value
Financial performance as measured by ROA in theory is positively related to firm value. The higher the profitability, the higher the firm value and the lower the profitability, the lower the firm value. The better the company pays returns to shareholders will increase company value. Partial financial performance in the results of this study found that financial performance has a significant positive effect on firm value. This research is in accordance with research conducted by [20] which states that financial performance (ROA) has an effect on firm value and research conducted by Carlson and Bathala in Suranta found that ROA has a positive effect on firm value assets used to operate are able to provide profits for the company, the higher the ROA shows the better the company's performance and the company's value will also increase so that it will make investors interested in investing in the company. The results of hypothesis testing can be concluded that the level of a company's ability to generate profits has a significant positive effect on firm value. The higher the profit that the company manages to obtain, the market will give the perception that the company is doing well and will increase the demand for the company's shares which has a direct impact on the increase in stock prices. The increase in share price will also have a direct impact on Price Book Value. Previous research conducted by [21], [22] also argues that profitability significantly has a positive effect on firm value.
He also added that these results are in line with signaling theory which states that companies that have increasing income will signal that the company has good prospects in the future. Thus, the third hypothesis in this study can be proven correct. While the Current Ratio The results of the multiple regression test prove that the higher the liquidity ratio will reflect that the company's ability to meet its short-term obligations is also greater and will give a positive perception to investors, that the company's financial condition is in good condition because the company has funds to fulfill its obligations. The investor's perception or opinion will increase the demand for the company's shares and will influence increasing the company's PBV. And on Debt Equality Ratio (DAR) A high DER ratio indicates that the company has high debt. A high level of debt can affect the company's financial performance and will have an impact on stock price appreciation and depreciation. A DER level that
Muhtar Sapiri et al (The Effect of Financial Performance on Firm Value with Financial Distress as is too high will cause a risk commonly referred to as Financial Risk. Financial Risk is the risk imposed on shareholders because of the use of debt by the company. The higher the leverage, the greater the financial risk and vice versa [23]. The risk that arises will lead to stock price depreciation. On the other hand, investors also assume that companies in developing their business also need debt to fund their operations. A company is impossible if it only relies on the capital it has. Because of these differences of opinion, the effect of DER on firm value is less significant. Thus, the second hypothesis in this study cannot be proven.
C. The Effect of Company Value on Financial Ditress
Based on the results of testing the second hypothesis, it can be concluded that the higher the company value the company has, the lower the company is exposed to the risk of possible financial distress. According to [19]found that companies that can manage their company value well will improve company performance which indicates that the company is healthy and not experiencing financial distress. [24] who found financial distress had a significant effect on firm value in the Altman model, while in the Springate and Zmijewski models the results had no effect. [5] found that financial distress has a negative and significant effect on profitability, financial distress has a negative and insignificant effect on firm value. This indicates that if Financial Distress is higher, it will be inversely proportional to the Company Value that investors will see. The higher the Financial Distress provides information that the higher the level of corporate debt. A high level of corporate debt if effectively used such as managing assets, the company can produce more to increase sales which will also increase profits. Some investors tend to choose not to invest in the company so that there is a decrease in price and followed by a decrease in company value. The results of this study are consistent with [25]. However, it is different from Oktarina's research (2018) which shows that intellectual capital has no effect on financial distress.
D. The Effect of Financial Performance on Firm Value with financial distress as an Intervening variable
Based on the results of hypothesis testing through the Sobel test, it shows that financial distress can mediate the indirect effect of ni on firm value. The relationship between financial performance on firm value with financial distress as an intervening variable is that if the financial performance of the company increases and the company can develop and utilize its financial performance, it will reduce the risk of the company being exposed to financial distress. However, to get intellectual capital which will be an advantage for the company requires expensive costs so there is a possibility that the company in developing and utilizing existing financial performance will affect the company's finances which raises the possibility of the company being exposed to financial distress.
The possibility of the company being exposed to financial distress in this situation will increase the value of the company, where investors will assess that the financial problems that the company has are a form of company development in improving its resources or financial performance.
IV. Conclusion
Simultaneously and partially, financial performance variables and financial distress have a significant direct effect on the value of property companies listed on the IDX. The direct effect of financial performance variables on firm value is greater than on firm value through financial distress as an intervening variable, and the calculated t-value of the sobel test < from the t-table for each variable, so financial distress is not proven as an intervening variable. Indirectly, the financial performance variable has no significant effect on the value of manufacturing companies listed on the IDX through financial distress as an intervening variable. By considering the results of the analysis, conclusions and limitations of the research that has been stated above, the researchers provide suggestions for future research, namely: Future researchers are expected to conduct research on the population of other companies listed on the Indonesia Stock Exchange besides property companies.
Future research should use different proxies such as acid test ratio or cash ratio for liquidity variables, long term debt to equity ratio or debt to total asset ratio for solvency variables and return on assets or return on investment for profitability variables..
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