THE INFLUENCE OF CORPORATE SOCIAL RESPONSIBILITY (CSR), PROFITABILITY, AND FIRM SIZE ON FIRM VALUE
(A STUDY ON JAKARTA ISLAMIC INDEX IN THE PERIOD OF 2014-2018)
Devina Stella Nabighah
Faculty of Economics and Business, Universitas Brawijaya devinastellan@gmail.com
Supervisor:
Noval Adib, SE., M.Si., Ph.D., Ak
ABSTRACT
This study aimed to examine the relationship between Corporate Social Responsibility (CSR), profitability (ROE), and firm size towards firm value (PBV). The CSR was measured using the Global Reporting Initiative (GRI) index. The population of this study was the companies in Jakarta Islamic Index (JII) listed in IDX during the period 2014-2018. 35 companies were selected as the samples by purposive sampling technique based on specified criteria. This study used secondary data annual report of the company and sustainability reports. The research data and hypothesis were analyzed using multiple regression analysis methods using SPSS application tools. The results of the analysis showed that CSR disclosure, profitability, and firm size has a positive influence on firm value. Thus, it can be concluded that the higher the CSR disclosure, profitability, and firm size, the higher the influence toward firm value.
Keywords: Corporate Social Responsibility, Profitability, Firm Size, Firm Value, Return to Equity (ROE), Price to Book Value (PBV), GRI
ABSTRAK
Penelitian ini bertujuan untuk menguji hubungan antara Corporate Social Responsibility (CSR), profitabilitas (ROE), dan ukuran perusahaan terhadap nilai perusahaan (PBV). CSR diukur menggunakan indeks Global Reporting Initiative (GRI). Populasi penelitian ini adalah perusahaan di Jakarta Islamic Index (JII) yang terdaftar di BEI selama periode 2014-2018. 35 perusahaan dipilih sebagai sampel dengan teknik purposive sampling berdasarkan kriteria yang ditentukan.
Penelitian ini menggunakan data sekunder dari laporan tahunan perusahaan dan laporan keberlanjutan. Data penelitian dan hipotesis dianalisis menggunakan metode analisis regresi berganda menggunakan aplikasi SPSS. Hasil analisis menunjukkan bahwa pengungkapan CSR, profitabilitas, dan ukuran perusahaan memiliki efek positif pada nilai perusahaan. Dengan demikian, dapat disimpulkan bahwa semakin tinggi pengungkapan CSR, profitabilitas, dan ukuran perusahaan, semakin tinggi pula pengaruhnya terhadap nilai perusahaan.
Kata kunci: Corporate Social Responsibility, Profitability, Firm Size, Firm Value, Return to Equity (ROE), Price to Book Value (PBV), GRI
I. Introduction
Maximizing the value of a company is one of the company goals. High level of firm value shows investor confidence in the company that can attracts potential investors to invest in the company (Susanto
& Subekti, 2012). Increasing firm value is a long-term goal that should be achieved by the company. This is reflected in the market price of its shares because investors' valuation of the company can be observed through the movement of the company's stock prices transacted on the capital market. The firm value is one of the indicators needed by investors in decision making for investment.
In the capital market, investors are people or parties who have the capital to be invested in the short or long term and expect return from the investment.
According to the Indonesia Stock Exchange (IDX), the capital market performs two functions. Firstly, as a medium for business funding or as a system for companies to get funds from the investor. Secondly, capital markets are medium for people to invest in financial instruments such as stocks, bonds, mutual funds, and others. Thus, people can invest their funds by the characteristics, the advantages, and risks of each instrument.
The company needs to go public to gain funding from external parties. Initial Public Offering (IPO) involves the issuing of securities to the public for the first time.
Based on data from the Kustodian Sentral Efek Indonesia (KSEI), at the end of 2018- , the capital market grew significantly with the number of Single Investor Identification (SID) reaching 1.61 million, or an increase of 44,06% from the end of 2017. Furthermore, in 2018, the number of
Islamic capital market investors in Indonesia grew 92% to 44,536 investors from the previous year's which was only 23,207 investors. For investors who want to invest in Islamic rules, the choice of investment products is now widely available and should be considered. The Islamic capital market existence aims to accommodate Muslims needs in Indonesia who want to invest by the basic principles of sharia and Islamic law.
PT Danareksa Investment Management (DIM) pioneered the emergence of Islamic instruments in the Indonesian capital market with the issuance of Islamic mutual funds. IDX, together with DIM launched the Jakarta Islamic Index (JII) of the 30 most liquid shares whose business activities have complied with sharia principles. Besides, JII aims to guide investors in investing their funds in a sharia manner. In other words, JII is a guide for investors who want to invest their funds in sharia without fear of being tangled with ribawi funds. Other criteria of Islamic shares by Otoritas Jasa Keuangan (OJK) states that, the company does not conduct any business activities as gambling, ribawi financial services, speculation (gharar) and producing, distributing, trading, and or providing products or services that are forbidden (haram and harmful).
Due to the emergence of awareness from the company to reduce the negative impacts of the business operations, the concept of Corporate Social Responsibility (CSR) began to develop. CSR as the new accounting concept is the transparency of social disclosures activities or activities carried out by the company, where transparency of the information disclosed is not only financial information but also
disclosing information about the social impacts caused by company activities (Saedah, 2015). Stakeholder theory states that a company does not only operate for its own sake but should provide benefits to its stakeholders. The relationship between CSR, company performance and firm value is inseparable from the existence of stakeholder support (Akisik & Gal, 2017).
Stakeholders are vital for the company because it influences the company's business activities since while carrying out its business activities, the company always involves stakeholders. A disclosure to stakeholders that a firm has more efficient operations may be taken as a broader signal of concern for the use of resources and an interest in more sustainable practices within a firm.
According to Act Number 40 year 2007 on Limited Liability Company in Article 74 par (1), a company that conducts business activities in the field of and/or related to natural resources must implement Corporate Social and Environmental Responsibility. CSR activities by companies usually informed in a sustainability report published every year.
A sustainability report is a report issued by a company or organization about the economic, environmental and social impacts caused by daily activities.
Furthermore, the sustainability report is the key platform for communicating sustainability performance and impacts – whether positive or negative (Global Reporting Initiative, n.d.).
According to Barnett (2007), the impact of CSR on firm value depends on the ability of CSR to influence stakeholders in the firm. The more CSR activities disclosed by the company, the higher the
value of the company because the market will give a positive appreciation to companies that carry out CSR as indicated by an increase in the company's stock price (Hutabarat, 2017). Miller (2005) argues that the Price to Book Value ratio (PBV) is an appropriate measure of firm value.
There are several factors that influence the value of companies, such as funding decisions, dividend policies, investment decisions, capital structure, company growth, firm size (Putri, 2013). Firm size is a scale that can be classified as large, small companies according to various ways, including: total assets, stock market value, number of employees, and others.
According to Rachmawati and Purwanti (2016), companies with small-scale value tend to be less profitable compared to large- scale companies. It is because small companies only have limited supporting factors for producing goods. The limitation of producing goods is also due to the struggle of getting external funding. Large companies will surely gain trust from creditors. Firm size is considered able to influence firm value, because the larger the size or scale of the company, the easier it will be for companies to receive funding sources, both internal and external, as researched by Setiawati & Lim (2018) who state that firm size has a positive effect on firm value.
The measurement of financial performance is one of the important factors for the company, because it is used as a basis for determining the reward system in the company, which can influence the decision-making behavior in the company and provide useful information in making important decisions regarding the assets which used to make decisions that channel
the interests of the company (Zuraedah &
Isnaeni, 2010). From the financial ratios, the success of the company management in managing its assets and capital to maximize the value of the company can be seen. The profitability ratio is used in this study because it is one of the company's measurement tools to determine the effectiveness of company performance.
Profitability in this study is measured by Return on Equity (ROE). This ratio shows the efficiency of own capital. ROE growth shows the company's prospects are getting better because it means there is a potential for increased profits earned by the company so, it will increase investor confidence and will facilitate the company's management to attract capital in the form of shares. In addition, company’s profit is an indicator of ability the company fulfills the obligations of its funders who are also an element in the creation of corporate value that shows the company's prospects in the future (Rahayu, 2010).
Furthermore, the second theory used in this study is signal theory. It is used as a basis to explain the relationship between profitability and firm size towards firm value. Based on the signal theory, a company can increase its value through reporting by sending signals through its annual report which showing the profitability ratio and the size of company.
Signaling theory explains that giving signals is done by managers to reduce information asymmetry.
II. Literature Review 2.1 Stakeholder Theory
Stakeholder theory is a theory concerned with the relationship between an organization and its stakeholders.
According Fernando & Lawrence (2014), Stakeholder theory suggests that the management of an organization is expected to perform its accountability towards its stakeholders by undertaking activities deemed important by its stakeholders, and by reporting information.
Helping company management to understand the environment of their stakeholders and managing more efficiently between the existence of their company's environmental relationships is the main goal of stakeholder theory.
However, the broader goal of stakeholders is to help company management maximize the value of their activities and minimize losses for the stakeholders. Based on Hadi (2011) in stakeholder theory company not only an entity that operates for its own interests but should provide benefits for stakeholders. Based on the assumption of the stakeholder theory, the company cannot be separated from the social environment.
Through CSR publications companies can provide more complete information relating to activities and their effects on the social conditions of the community and the environment.
Disclosure of CSR activities can increase company value because according to stakeholder theory states that companies are required to carry out and disclose CSR activities as a form of corporate responsibility to stakeholders (Chairiri and Ghazali, 2007).
2.2 Signaling Theory
According to Brigham & Houston (2011), signals are actions taken by the company to provide guidance for investors about how management views the company's prospects. This signal is in the form of information about what has been done by management to realize the goals of the company. The theory of signals related to the capital market response in response bad news coming from a company that has been listed in the investment portfolio of the investor (Kurniasari & Warastuti, 2015).
Signal theory perspective emphasizes that companies can increase firm value by giving signals to investors through reporting information related to company performance. Signal theory explains why companies have the urge to provide financial statement information to external parties.
2.3 Firm Value
Enterprise Value (EV) or also known as firm value is an indicator in determining the value of the company (Nurlela & Islahuddin, 2008). Company value is the price willing to be paid by prospective buyers if the company it is sold. Maximizing the value of the company is very important for the company because it also means increasing the prosperity of shareholders which is an important thing that must be achieved by company management (Brigham & Daves, 2010).
According to Kurniasari & Warastuti (2015), the value of the company will be reflected in its stock price. The market price of the company’s shares that is
formed between the buyer and the seller in the transaction is called the market value of the company, because the market price of the stock is considered as a reflection of the true value of the company's assets.
According to Ross, Westerfield, &
Jordan (2010:63-64), there are several indicators that can be used to measure market value, including; Price Earnings Ratio, Price-Sales Ratio, Price to book value (PBV), and Tobin’s Q ratio.
2.4 Profitability
Profitability determines the ability of a company to earn profits by using all the capital owned. Company interests in generating profits can attract investors to invest their funds in order to increase business, while low-profit rates will cause investors to withdraw their funds. For the company itself, profitability is used as an evaluation tool for the effectiveness of managing the company's operations (Puspaningrum, 2014).
Profitability is very important for the company not only to continue to maintain its business growth but also to strengthen the company's financial condition.
Profitability ratios examined thus far provide useful clues as to the effectiveness of a firm’s operations. The following are the ways to calculate profitability ratios based on Brigham &
Ehrhardt (2011:98-100), namely; Net Profit Margin (NPM), Operating Profit Margin (OPM), Gross Profit Margin (GPM), Basic Earning Power (BEP), Return on Assets (ROA), and Return on Common Equity (ROE). Researcher use ROE as a proxy variable for profitability
ratio. It measures the overall efficiency of the firm in managing its total investment in generating return to shareholders.
2.5 Firm Size
In general, a company is a certain unit of activity that transforms economic resources into use values in the form of goods and services to obtain other benefits and goals. Firm size is a scale that can be classified as large-small companies according to various measurement ways, including total assets, stock market value, number of employees, and others. Firm size is a reflection of a firm’s high assurance to consistently improve its performance so that the market will be willing to pay more to gets its stocks since the market believes to get the profitable returns from the company (Zuhroh, 2019).
In terms of company size, it can be seen from the total assets owned by the company, which can be used for company operations. Firm size also determines the level of investor confidence. The bigger the firm will result in more well known by the public, which means getting easier to obtain information that will enhance shareholder value. Even large companies that have total assets with a substantial value of the assets attract investors to invest in the company (Setiawati & Lim, 2018).
2.6 Corporate Social Responsibility CSR definition according to ISO 26000 stated that CSR is responsibility of an organization or the impacts of its decisions and activities on society and the environment, through transparent and ethical behavior that contributes to
sustainable development, health and the welfare of society; takes into account the expectations of stakeholders; is in compliance with applicable law and consistent with international norms of behavior; and is integrated throughout the organizations and practiced in its relationships (Rachman, Efendi, &
Wicaksana, 2011, p. 17).
According to Uddin, Tarique, &
Hassan (2008), The purpose of corporate social responsibility (CSR) is to make corporate business activity and corporate culture sustainable in three aspects;
Economic aspects, Social aspects, and Environmental and Ecological aspects.
Companies provides CSR disclosure in sustainability report which published annually. The index measurement and indicator for CSR disclosure variable is by using Global Reporting Initiative (GRI) G4 and GRI Standards depending on the disclosure standards used by the company in the Sustainability Report for the year. The company uses GRI G4 for 2014-2016 and GRI Standards for 2017- 2018. GRI Standards aim to build on the previous GRI G4 framework to help companies around the globe be more transparent in all areas of sustainability.
GRI guidelines are based on some key information that needs to be disclosed by the company.
2.7 Stock Indices
Currently, the Indonesia Stock Exchange has 22 types of stock indices based on the official website accessed on www.idx.co.id. A stock index is a measurement of a section or criteria of the stock market. Investors generally use
stock indices as indicators in seeing stock movements and as a benchmark to assess the performance of investments. The index can also be used as a reference to determine good or bad investment performance such as mutual funds.
The research object in this study are companies listed in Jakarta Islamic Index (JII) in 2014-2018. JII is an index that measures performance of 30 sharia stocks included in the Shariah and has large market capitalization and high liquidity.
IDX determined and selected the Islamic shares on JII constituents.
2.8 Hypothesis Development 2.8.1 CSR and Firm Value
The company's main goal is to increase the value of the company. The corporate value will be guaranteed to grow sustainably if the company pays attention to economic, social and environmental dimensions because sustainability is a balance between economic, environmental and community concerns. Stakeholder theory emphasizes organizational accountability, this theory states that organizations will choose to voluntarily disclose information about their environmental, social, and economic performance above their mandatory requests to meet the actual or recognized expectations of stakeholders.
The theory is confirmed from previous researchers, Medyawati (2014) and Setiawati (2018). On the contrary, Hutabarat (2017) and Kurniasari (2015) showed the opposite result. Based on the explanation above the researcher formulates the hypothesis as follows:
H1: Corporate Social Responsibility (CSR) has a positive influence on firm value
2.8.2 ROE and Firm Value
According to Harahap (2007), ROE is used to measure the amount of return on investment of shareholders. ROE level has a positive relationship with stock prices, so the greater the ROE the greater the market price. The high ROE indicates that the returns that investors will receive will be great so investors will be interested in buying these shares and generate high returns for shareholders.
The increase in stock prices and market prices will affect the firm value.
Based on the signal theory, companies can send signals to investors through disclosure of information owned by the company to reduce uncertainty about the company's prospects and to increase the firm value. According to Medyawati & Yunanto (2014), and Bidhari, Salim, Aisjah, & Java (2013) research, it showed that ROE significantly influence firm value.
Meanwhile, Putri (2013) conducted research that showes ROE variable have negative and significant influence to firm value (PBV). Then, the researcher formulates the hypothesis as follows:
H2: Return on Equity (ROE) has a positive influence on firm value
2.8.3 Firm Size and Firm Value Firm size is one factor to measure company performance. The large size of the company reflects that the company has a high commitment to the welfare of its shareholders. The ease with which large companies enter the capital market
also indicates a positive signal for investors which is also explained in signaling theory (Rahmansyah, 2018).
According to research conducted by Siahaan (2014) and Rizqia, Aisjah , &
Sumiati, (2013) it shows that firm size is positively and significantly affect to firm value. On the contrary, the size of the company has no significant effect on firm value based on Dewi & Wirajaya (2013).
From the description above, the researcher formulates the hypothesis as follows:
H3: Firm Size (SIZE) has a positive influence on firm value
III. Research Methodology
Based on the purpose of the study, this research type is causal research.
Next, based on the time horizon, this research classified to be a one-shot or a cross-sectional study. This research is conducted by using quantitative data. The purpose of this research besides to test hypotheses is also to explain the influence of independent variables toward dependent variable. The independent variables are corporate social responsibility, return on equity, and firm
size, and the dependent variable is firm value.
The populations of this research are companies in the Jakarta Islamic index are listed on the Indonesia Stock Exchange from 2014 until 2018.
Furthermore, this study used a comprehensive document review of CSR activity disclosure. The sample of this study was collected using purposive sampling. The criteria designed by the researcher are as follow:
a. The company listed on the Jakarta Islamic Index (JII) publishes annual reports and sustainability reports for 5 years 2014-2018.
b. The company provides complete data in annual reports and sustainability reports related to the variables used in the study.
c. The financial statements are presented in Rupiah.
The data collection method used in this study is the documentation method.
The data used in this study are:
a. The Annual Report of Jakarta Islamic Index (JII) companies listed on the Indonesia Stock Exchange (IDX) during the 2014-2018 period were obtained from the IDX official website:
www.idx.co.id.
b. Sustainability Report of Jakarta Islamic Index (JII) companies listed on the Stock Exchange during the period 2014-2018 were obtained from the official website of each sample company.
3.1 Research Variables and Measurement
3.1.1 Dependent Variable
The firm value in this study is measured by price to book value (PBV).
PBV describes how much the market values the book value of a company's stock. The higher the ratio indicates that the market believes in the prospect of the company. The formula used in this study is as follows (Ross, Westerfield, &
Jordan, 2010):
3.1.2 Independent Variables
3.1.2.1 Corporate Social Responsibility This study uses Corporate Social Responsibility as an independent variable. CSR performance will be measured through the aspects of the Global Reporting Initiative (GRI).
Calculation of CSR disclosure index (CSRDI) was conducted by a dichotomous approach. Each item in CSR research instrument was given value of 1 if disclosed and value 0 was not disclosed CSR. Furthermore, scores of each item were summed to obtain a score overall for each firm. Data source to calculate CSRDI come from year t (Haniffa &
Cooke, 2005).
CSRDI𝑗= CSR disclosure index,
n𝑗= number of items expected for 𝑗th firm,
𝑋𝑖𝑗= 1 if 𝑖th item disclosed, 0 if 𝑖th item not disclosed
so that 0 ≤ CSRDI𝑗 ≥ 1.
3.1.2.2 Return on Equity (ROE)
ROE is used to measure the rate of return of the company or the effectiveness of the company in generating profits by utilizing equity (shareholders' equity) owned by the company. The higher the ROE, the more efficient the company uses its own capital to generate profits (Ardimas & Wardoyo, 2014). The formula of ROE is below (Brigham &
Ehrhardt, 2011):
3.1.2.3 Firm Size
Firm size can be stated in a total of assets, sales, and market capitalization.
The proxy of firm size is measured by the book value of total assets. Because of the huge amount of firm assets’ value, it is calculated in a million rupiahs and is changed into a natural logarithm (Ln).
The formula of firm size is below (Nuringsih, 2005):
IV. Results and Discussion 4.1 General Illustration of Research
This research is a study on Jakarta Islamic Index (JII) listed on the Indonesia Stock Exchange (IDX) from 2014 to 2018 to determine the influence of Corporate Social Responsibility (CSR), profitability ratio, and firm size on firm value. The
samples selection in this study are presented in Table 4.1 below:
4.2 Descriptive Statistics Results
4.3. Multiple Regression Analysis 4.3.1. Regression Equation
The regression equation is used to determine the form of the relationship between the independent variable with the dependent variable. By using SPSS for Windows ver 21.00, the results are shown below:
The results of the multiple linear regression equation between CSR, ROE, and SIZE variables against PBV are presented as follows.
Y = -19.841 + 1.644 X1 + 0.217 X2 + 8.659 X3 + e
The above equation can be interpreted as follows:
a. The constant value (a) of -19.841 shows that without the influence of CSRD, ROE, and SIZE, the PBV value is -19.841.
b. The regression coefficient indicates that the PBV will increase by 1.644 units for each additional one unit of X1 (CSR).
So, if CSR increases by 1 unit, then PBV will increase by 1.644 units assuming the other variables are considered constant.
c. The regression coefficient X2 indicates that PBV will increase by 0.217 units for each additional one unit of X2 (ROE) So, if ROE has increased by 1 unit, then PBV will increase by 0.217 units assuming the other variables are considered constant.
d. The regression coefficient X3 indicates that PBV will increase by 8.659 units for each additional one unit of X3 (SIZE).
So, if SIZE has increased by 1 unit, PBV will increase by 8.659 units assuming the other variables are considered constant.
4.4. Hypothesis Testing Results 4.4.1 Coefficient of Determination
The coefficient of determination is used to measure the ability of the model to explain variations in the dependent variable. From the analysis in Table 4.3, the adjusted R (coefficient of determination) result is 0.694. It means that 69.4% of PBV variables will be influenced by the independent variables, namely CSR (X1), ROE (X2), and SIZE (X3), while the remaining 30.6% of PBV variables will be influenced by other causes outside the regression model or study.
4.4.2. F Test
The F test is fit test to know whether any independent variables which significant affect to dependent variable in a regression model. The results of the F test found that the calculated F value is 26.725. While the F table (α = 0.05; db regression = 3: db residual = 31) is 2.911.
Because the F count > F table is 26.725 >
2.911 or the value of sig F (0.000) <α = 0.05, the regression analysis model is significant. This means that H0 is rejected and H1 is accepted so it can be concluded that the dependent variable (PBV) can be significantly influenced by the independent variables (CSR (X1), ROE (X2), and SIZE (X3)).
4.4.3. T Test
T statistical test is to know if each independent variable has a significant effect on the dependent variable. This test was done by comparing the significance value of t in the table with a significance level. Based on Table 4.3, the results are as follows:
1. T-test between X1 (CSR) with Y (PBV) shows t count = 3.974. While t table (α = 0.05; db residual = 31) is 2.040.
Because t count > t table is 3.974 > 2.040 or sig t value (0.000) <α = 0.05, the effect of X1 (CSR) on PBV is significant. It means that H0 is rejected, and H1 is accepted, so it can be concluded that PBV can be significantly influenced by CSR, or by increasing CSR, PBV will experience a significant increase.
2. The t-test between X2 (ROE) with Y (PBV) shows t count = 3.082. While t table (α = 0.05; db residual = 31) is 2.040.
Because t count> T table is 3.082 > 2.040 or sig t value (0.004) <α = 0.05, the effect of X2 (ROE) on PBV is significant at alpha 5%. It means that H0 is rejected, and H2 is accepted, so it can be concluded that PBV can be significantly influenced by ROE, or by increasing ROE the PBV will experience a significant increase.
3. The t-test between X3 (SIZE) and Y (PBV) shows t count = 3.066. While t table (α = 0.05; db residual = 31) is 2.040.
Because t count > T table is 3.066 > 2.040 or sig t value (0.004) <α = 0.05, the effect of X3 (SIZE) on PBV is significant at alpha 5%. It means that H0 is rejected, and H3 is accepted, so it can be concluded that PBV can be significantly influenced by SIZE, or by increasing SIZE PBV will experience a significant increase.
4.5 Classic Assumption Test 4.5.1. Normality Test
This test is conducted to test whether, in the regression model, the independent variables and the dependent variable have normal data distribution or not. The test method is carried out by One Sample Kolmogorov-Smirnov test. If the value of sig. (p-value) > 0.05, then H0 is accepted, which means the data are normally distributed. The results of the normality test can be seen in appendix 6. From the calculation, the results have obtained the sig. value of 0.342 or greater than 0.05;
then, the provisions of H0 are accepted, or the normality assumption test is fulfilled.
4.5.2. Multicollinearity Test
A multicollinearity test is conducted to find out whether the regression model found a correlation between independent variables. The test method compares the Tolerance value obtained from the multiple regression calculation if the tolerance value < 0.1, then multicollinearity occurs. The test results obtained that the overall tolerance value is > 0.1 thus, it can be concluded that there is no multicollinearity between independent variables.
4.5.3. Autocorrelation Test
From the Durbin-Watson table for n = 35 and k = 3 (the number of independent variables), it is known that the value of du is 1.653 and 4-du is 2.347. As can be seen
in the figure below, if dU < d < (4 - dU), then H0 is accepted, meaning there is no autocorrelation between the remainder.
shows the result of the Durbin Watson value at 2.194. The number is located between 1.653 and 2.347 thus, it can be concluded that the assumption of no autocorrelation has been fulfilled.
4.5.4 Heteroscedasticity Test
Heteroscedasticity test is used to find if there is an inequality value of residual deviation caused by the small or great value of one of the independent variables or the difference of variance value by the greater value of the dependent variable.
The procedural test is done by using a scatter plot test. The homogeneity test of residual variables is based on the following hypothesis. Based on the test results, the scatterplot diagram shows the dots are spread randomly and does not form a particular pattern. Thus, it can be concluded that the regression model is free from heteroscedasticity.
4.6 Discussions and Analysis of Research Result
4.6.1 The Effect of Corporate Social Responsibility to Firm Value (H1)
The research result is in accordance with the statement of Hutabarat (2017), who said that the firm value will be guaranteed to grow sustainably if the company pays attention to the economic, social, and environmental dimensions because sustainability is a balance between it. These dimensions in the implementation of CSR conducted by the company are a form of responsibility for the environment around the company. Many benefits obtained by the company through the implementation of CSR, among others, products are increasingly preferred by consumers, the environment around the company will be maintained, employee loyalty increases, the company's reputation increases in the eyes of the community, which means CSR implementation will
provide an increase in company performance so that the company is also in demand by investors. Also, the company's main purpose is to increase firm value.
The results showed that the company cares about its stakeholder, and this study is consistent with the research from Medyawati & Yunanto (2014), Setiawati &
Lim (2018), Bidhari, Salim, and Puteri (2018) which show that CSR disclosure has a positive influence on firm value.
4.6.2 The Effect of Return on Equity to Firm Value (H2)
The data analysis result show that the company's financial performance measured by ROE has a significant positive effect on the firm value measured by PBV. Consistent with the results of research from Medyawati & Yunanto (2014) and Bidhari, Salim, Aisjah, & Java (2013). It is because the greater the profitability, the company's performance will be more productive so that it will increase investor trust to invest in the company. In accordance with the statement by Ross et al. (2010) which said that an increase in profit margins will increase the company's ability to generate internal funds; thus, promoting sustainable growth. Investors will be interested in investing, and the price of a company's shares will increase, from an increase in share prices will also increase the firm value.
The results of this study strengthen the signaling theory, which states the importance of information issued by the company to the investment decisions of parties outside the company. It explains at the time when information is announced and all investors have received the information, and investors first interpret and analyze the information as a good or bad signal. The higher ROE in annual reports means the company give good signal to the investor.
4.6.3 The Effect of Firm Size to Firm Value (H3)
Large companies generally have more access to the capital market, so the opportunity to obtain funds from outside is easier (Setiawati & Lim, 2018). Large companies also tend to have large amounts of assets; a large amount of assets causes the flexibility of management in using assets to increase the firm value. The large number of assets owned by the company will also make operating activities more effective.
Besides, companies that have large amounts of assets will find it easier to obtain loans because the value of the assets guaranteed is greater compared to the size of small companies. Dewi &
Wirajaya (2013) stated that the size of a large company reflect that the company has a high commitment to continue to improve its performance, so the market will be willing to pay more to get its shares because it believes it will get a favorable return from the company.
This study results is in accordance with the signaling theory which stated that the bigger companies show the company is improving, the size of the big company shows stable condition and higher investor return rate, it can be positively responded by the investor which makes the stock price increase so the firm value increase. Thus, signaling theory support this third hypotheses. The results of this study are consistent with the results of research by Setiawati (2018) which find that company size has a significant effect on firm value because large companies have easier access to the capital market so that it gets the ability to get more funds compared to smaller companies. Therefore, the greater the firm size, the higher the value of the company.
V. Conclusion
This study aims to examine the influence of Corporate Social Responsibility (CSR), profitability, and firm size on firm value through testing of the hypotheses of the issues raised. The sample used are companies listed on the Jakarta Islamic Index (JII) for the 2014- 2018 period. Multiple regression analysis is used for studying the relationship between the dependent and three independent variables, which are CSR, profitability, and firm size and stock price as the dependent variable. Based on the results of data analysis and discussions that have been carried out, it can be concluded in the following paragraph.
Firstly, Corporate Social Responsibility (CSR) has a positive influence on firm value. These results indicate that improvement of CSR information disclosure makes Jakarta Islamic Index companies listed at Indonesia Stock Exchange may increase the reputation assessment factor for investors, so that firm value increases.
Next, Return on Equity (ROE) has a positive influence on firm value.
Companies' financial performance improvement can increase shareholder value. Research results indicate that Jakarta Islamic Index companies listed at Indonesia Stock Exchange can generate capital gains and assets to affect its value.
Furthermore, firm size (SIZE) has a positive influence on firm value. An increase in company size can attract investors to invest their funds in the company so that the company's stock price increases and this influences the value of the company.
Research Limitations
There are some limitations to this study. The factors that influence firm value in this study only consist of three variables, namely CSR, profitability, and
firm size, while there are other factors that can affect firm value. This study only took on companies listed in Jakarta Islamic Index (JII) and the study period for five years from 2014-2018. Thus, it cannot reflect the capital market as a whole.
Suggestions
Based on the result, conclusions, and limitations above, these are suggestions that can be put forward and can be useful for the company, further researchers, and other parties. First, future researchers must employ a longer period of observation and expand the sample using all companies listed on Indonesia Stock Exchange in order to get the insight of real conditions practices in Indonesia.
Thus, the research samples obtained increase, and research results will be more accurate. Furthermore, future researchers must add more research variables in order to explain the firm value more broadly and provide more information for research users. The research variables that can be added for example are leverage ratio, good corporate governance, capital structure, and investment decisions.
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