The Effect of Financial Condition on Firm Value: A Comparative Study
Abstract
This study analyzes a company’s financial condition on firm value. We also evaluated the difference in firm value between corporate sectors affected and unaffected by the COVID-19 pandemic. The regression analysis model used is the random effect model as well as the difference-in-difference technique. The study uses data from the company’s interim financial reports for the first and second quarters of 2018, 2019, and 2020. We found that firm size and leverage influence firm values. This applies to companies in the affected sectors, such as hotel, restaurant, and tourism sub-sectors, and unaffected sectors, such as health, pharmacy, and telecommunication sub-sectors. We also found that firm values in affected and unaffected sectors, before and during COVID-19, do not significantly differ.
Keywords: COVID-19, financial condition, firm value
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References
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Asante-Darko, D., Adu Bonsu, B., Famiyeh, S., Kwarteng, A., & Goka, Y. (2018). Governance structures, cash holdings and firm value on the Ghana Stock Exchange. Corporate Governance (Bingley), 18(4), 671–685. https://doi.org/10.1108/CG-07-2017-0148
Batten, J., & Vo, X. V. (2019). Liquidity and Firm Value in An Emerging Market. Singapore Economic Review, 64(2), 365-376. https://doi.org/10.1142/S0217590817470063
Benyamin, I. A., & Endri, E. (2019). Determinants of Stock Returns of Building Construction Companies Listed on The Indonesia Stock Exchange Period 2012-2016. Scholars Journal of Economics, Business and Management, 6(1), 39–47.
Bertrand, M., Duflo, E., & Mullainathan, S. (2004). How much should we trust differences-in-differences estimates? Quarterly Journal of Economics, 119(1), 249-275. https://doi.org/10.1162/003355304772839588
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Connelly, B. L., Certo, S. T., Ireland, R. D., & Reutzel, C. R. (2011). Signaling theory: A review and assessment. Journal of management, 37(1), 39-67. https://doi.org/10.1177/0149206310388419
De Vito, A., & Gómez, J. P. (2020). Estimating the COVID-19 cash crunch: Global evidence and policy. Journal of Accounting and Public Policy, 39(2), 1-14. https://doi.org/10.1016/j.jaccpubpol.2020.106741
Ding, H., Fan, H., & Lin, S. (2020). COVID-19, Firm Exposure, and Firm Value: A Tale of Two Lockdowns. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.3574401
Ding, W., Levine, R., Lin, C., & Xie, W. (2021). Corporate immunity to the COVID-19 pandemic. Journal of Financial Economics, 141(2), 802-830. https://doi.org/10.3386/w27055
Endri, E., & Fathony, M. (2020). Determinants of firm’s value: Evidence from financial industry. Management Science Letters, 10(1), 111-120. https://doi.org/10.5267/j.msl.2019.8.011
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Foster, A. D. (1995). Nutrition and health investment. American Economic Review, 85(2), 148-152. https://doi.org/10.2307/2117909
Gharaibeh, A. M. O., & Qader, A. A. A. A. (2017). Factors influencing firm value as measured by the Tobin’s Q: Empirical evidence from the Saudi Stock Exchange (TADAWUL). International Journal of Applied Business and Economic Research, 15(6), 333-358.
Gill, A., & Obradovich, J. (2012). The impact of corporate governance and financial leverage on the value of American firms. International Research Journal of Finance and Economics, 91, 1-14.
Ginglinger, E., & Saddour, K. (2012). Cash Holdings, Corporate Governance and Financial Constraints. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.2154575
Hadiwardoyo, W. (2020). Kerugian ekonomi nasional akibat pandemi Covid-19. Baskara: Journal of Business and Entrepreneurship, 2(2), 83-92. https://doi.org/10.24853/baskara.2.2.83-92
Halimatussadiah, A., Cesarina, A., Siregar, A. A., Hanum, C., Wisana, D., Rahardi, F., ... & Sofiyandi, Y. (2020). Thinking Ahead: Indonesia’s Agenda on Sustainable Recovery from COVID-19 Pandemic.
Harford, J. (1999). Corporate cash reserves and acquisitions. Journal of Finance, 54(6), 1969-1997. https://doi.org/10.1111/0022-1082.00179
Indrawati, S. M., Diop, N., Ikhsan, M., & Kacaribu, F. (2020). Enhancing Resilience to Turbulent Global Financial Markets: An Indonesian Experience. Economics and Finance in Indonesia, 66(1), 47-63. https://doi.org/10.47291/efi.v66i1.683
Jensen, M. C. (1986). Agency costs of free cash flow, corporate finance, and takeovers. The American economic review, 76(2), 323-329. https://doi.org/10.2139/ssrn.99580
Kalcheva, I., & Lins, K. V. (2007). International evidence on cash holdings and expected managerial agency problems. The review of financial studies, 20(4), 1087-1112. https://doi.org/10.1093/rfs/hhm023
Maksum, N. A., & Sirojuzilam, E. (2018). Value of The Firm In Capital Structure Perspective (Case study of Tourism Companies in Indonesia Stock Exchange). Economics, 6(1), 91–102.
Martínez-Sola, C., García-Teruel, P. J., & Martínez-Solano, P. (2013). Corporate cash holding and firm value. Applied Economics, 45(2), 161-170. https://doi.org/10.1080/00036846.2011.595696
Miglo, A. (2011). Trade-off, pecking order, signaling, and market timing models. Capital structure and corporate financing decisions: Theory, evidence, and practice, 171-191. https://doi.org/10.1002/9781118266250.ch10
Myers, S. C., & Rajan, R. G. (1998). The paradox of liquidity. Quarterly Journal of Economics, 113(3), 733-771. https://doi.org/10.1162/003355398555739
Njindan Iyke, B. (2020). The disease outbreak channel of exchange rate return predictability: Evidence from COVID-19. Emerging Markets Finance and Trade, 56(10), 2277-2297. https://doi.org/10.1080/1540496X.2020.1784718
Nugroho, D. S., & Pertiwi, M. I. (2021). Stock Price Reaction when Covid-19 Exist: Moderating by Firm’s Operating Cash Flow. Jurnal Ekonomi Malaysia, 55, 1.
Nunn, N., & Qian, N. (2010). The Columbian exchange: A history of disease, food, and ideas. Journal of Economic Perspectives, 24(2), 163-88. https://doi.org/10.1257/jep.24.2.163
Papaioannou, G. J., & Karagozoglu, A. K. (2017). Underwriting services and the new issues market. Academic Press.
Phan, D. H. B., & Narayan, P. K. (2020). Country responses and the reaction of the stock market to COVID-19—A preliminary exposition. Emerging Markets Finance and Trade, 56(10), 2138-2150. https://doi.org/10.1080/1540496X.2020.1784719
Tulcanaza Prieto, A. B., & Lee, Y. H. (2019). Internal and external determinants of capital structure in large Korean firms. Global Business & Finance Review (GBFR), 24(3), 79-96. https://doi.org/10.17549/gbfr.2019.24.3.79
Wibowo, A. I. L., Putra, A. D., Dewi, M. S., & Radianto, D. O. (2019). Differences In Intrinsic Value With Stock Market Prices Using The Price Earning Ratio (Per) Approach As An Investment Decision Making Indicator (Case Study Of Manufacturing Companies In Indonesia Period 2016-2017). Aptisi Transactions On Technopreneurship (ATT), 1(1), 82-92. https://doi.org/10.34306/att.v1i1.61
Ramelli, S., & Wagner, A. F. (2020). Feverish stock price reactions to COVID-19. The Review of Corporate Finance Studies, 9(3), 622-655. https://doi.org/10.1093/rcfs/cfaa012
Revindo, M. D., & Alta, A. (2020). Trade and Industry Brief. Seri Analisis Ekonomi.
Rjiba, H., Jahmane, A., & Abid, I. (2020). Corporate social responsibility and firm value: Guiding through economic policy uncertainty. Finance Research Letters, 35. https://doi.org/10.1016/j.frl.2020.101553
Setiadharma, S., & Machali, M. (2017). The effect of asset structure and firm size on firm value with capital structure as intervening variable. Journal of Business & Financial Affairs, 6(4), 1-5. https://doi.org/10.4172/2167-0234.1000298
Sabrin, A., Sarita, B., Takdir, D., & Sujono, C. (2016). The effect of profitability on firm value in manufacturing company at Indonesia Stock Exchange. The International Journal of Engineering and Science, 5(10), 81-89.
Shah, S. Z. A., & Jam-e-Kausar. (2012). Determinants of capital structure of leasing companies in Pakistan. Applied Financial Economics, 22(22), 1841-1853. https://doi.org/10.1080/09603107.2012.678978
Shen, H., Fu, M., Pan, H., Yu, Z., & Chen, Y. (2020). The impact of the COVID-19 pandemic on firm performance. Emerging Markets Finance and Trade, 56(10), 2213-2230. https://doi.org/10.1080/1540496X.2020.1785863
Spence, M. (2002). Signaling in retrospect and the informational structure of markets. American Economic Review, 92(3), 434-459. https://doi.org/10.1257/00028280260136200
Suartawan, P. A., & Gerianta, Y. (2016). Pengaruh Investment Opportunity Set dan Free Cash Flow pada Kebijakan Dividen dan Nilai Perushaan pada Perusahaan Manufaktur Tahun 2011–2013. Jurnal Ilmiah Akuntansi dan Bisnis Universitas Udayana, 11(2), 63-74. https://doi.org/10.24843/jiab.2016.v11.i02.p01
Sujoko, & Ugy, S. (2009). Pengaruh struktur kepemilikan saham, struktur modal, faktor intern dan faktor ekstern terhadap nilai perusahaan. Manajemen Dan Kewirausahaan, 9(1). https://doi.org/ 10.24034/j25485024.y2007.v11.i2.2236
Wahyuni, F. (2018). Nilai Perusahaan, Indeks Tata Kelola Perusahaan dan Struktur Modal. Jurnal Ilmiah Akuntansi Dan Bisnis, 13(2), 151-160. https://doi.org/10.24843/JIAB.2018.v13.i02.p08
Well, D. N. (2007). Accounting for the effect of health on economic growth. The quarterly journal of economics, 122(3), 1265-1306. https://doi.org/10.1162/qjec.122.3.1265
Widarjono, A. (2018). Ekonometrika : Pengantar dan Aplikasinya. Jakarta: Ekonosia.
Zhang, J., Zhang, J., & Lee, R. (2003). Rising longevity, education, savings, and growth. Journal of Development Economics, 70(1), 83-101. https://doi.org/10.1016/S0304-3878(02)00088-3
Adiputra, I. G., & Hermawan, A. (2020). The effect of corporate social responsibility, firm size, dividend policy and liquidity on firm value: Evidence from manufacturing companies in Indonesia. International Journal of Innovation, Creativity and Change, 11(6), 325-338. https://www.ijicc.net/images/Vol11iss6/11629_Adiputra_2020_E1_R.pdf
Aggarwal, D., & Padhan, P. C. (2017). Impact of Capital Structure on Firm Value: Evidence from Indian Hospitality Industry. Theoretical Economics Letters, 7(4), 982-1000. https://doi.org/10.4236/tel.2017.74067
Asante-Darko, D., Adu Bonsu, B., Famiyeh, S., Kwarteng, A., & Goka, Y. (2018). Governance structures, cash holdings and firm value on the Ghana Stock Exchange. Corporate Governance (Bingley), 18(4), 671–685. https://doi.org/10.1108/CG-07-2017-0148
Batten, J., & Vo, X. V. (2019). Liquidity and Firm Value in An Emerging Market. Singapore Economic Review, 64(2), 365-376. https://doi.org/10.1142/S0217590817470063
Benyamin, I. A., & Endri, E. (2019). Determinants of Stock Returns of Building Construction Companies Listed on The Indonesia Stock Exchange Period 2012-2016. Scholars Journal of Economics, Business and Management, 6(1), 39–47.
Bertrand, M., Duflo, E., & Mullainathan, S. (2004). How much should we trust differences-in-differences estimates? Quarterly Journal of Economics, 119(1), 249-275. https://doi.org/10.1162/003355304772839588
Brigham, E. F., & Houston, J. F. (2014). Dasar-Dasar Manajemen Keuangan Edisi 11 Buku 1. In Salemba Empat Jakarta.
Connelly, B. L., Certo, S. T., Ireland, R. D., & Reutzel, C. R. (2011). Signaling theory: A review and assessment. Journal of management, 37(1), 39-67. https://doi.org/10.1177/0149206310388419
De Vito, A., & Gómez, J. P. (2020). Estimating the COVID-19 cash crunch: Global evidence and policy. Journal of Accounting and Public Policy, 39(2), 1-14. https://doi.org/10.1016/j.jaccpubpol.2020.106741
Ding, H., Fan, H., & Lin, S. (2020). COVID-19, Firm Exposure, and Firm Value: A Tale of Two Lockdowns. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.3574401
Ding, W., Levine, R., Lin, C., & Xie, W. (2021). Corporate immunity to the COVID-19 pandemic. Journal of Financial Economics, 141(2), 802-830. https://doi.org/10.3386/w27055
Endri, E., & Fathony, M. (2020). Determinants of firm’s value: Evidence from financial industry. Management Science Letters, 10(1), 111-120. https://doi.org/10.5267/j.msl.2019.8.011
FEB-UI, LPEM. (2020). Sustainable Economic Recovery from Covid-19: An Agenda for Indonesia. Working Paper.
Foster, A. D. (1995). Nutrition and health investment. American Economic Review, 85(2), 148-152. https://doi.org/10.2307/2117909
Gharaibeh, A. M. O., & Qader, A. A. A. A. (2017). Factors influencing firm value as measured by the Tobin’s Q: Empirical evidence from the Saudi Stock Exchange (TADAWUL). International Journal of Applied Business and Economic Research, 15(6), 333-358.
Gill, A., & Obradovich, J. (2012). The impact of corporate governance and financial leverage on the value of American firms. International Research Journal of Finance and Economics, 91, 1-14.
Ginglinger, E., & Saddour, K. (2012). Cash Holdings, Corporate Governance and Financial Constraints. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.2154575
Hadiwardoyo, W. (2020). Kerugian ekonomi nasional akibat pandemi Covid-19. Baskara: Journal of Business and Entrepreneurship, 2(2), 83-92. https://doi.org/10.24853/baskara.2.2.83-92
Halimatussadiah, A., Cesarina, A., Siregar, A. A., Hanum, C., Wisana, D., Rahardi, F., ... & Sofiyandi, Y. (2020). Thinking Ahead: Indonesia’s Agenda on Sustainable Recovery from COVID-19 Pandemic.
Harford, J. (1999). Corporate cash reserves and acquisitions. Journal of Finance, 54(6), 1969-1997. https://doi.org/10.1111/0022-1082.00179
Indrawati, S. M., Diop, N., Ikhsan, M., & Kacaribu, F. (2020). Enhancing Resilience to Turbulent Global Financial Markets: An Indonesian Experience. Economics and Finance in Indonesia, 66(1), 47-63. https://doi.org/10.47291/efi.v66i1.683
Jensen, M. C. (1986). Agency costs of free cash flow, corporate finance, and takeovers. The American economic review, 76(2), 323-329. https://doi.org/10.2139/ssrn.99580
Kalcheva, I., & Lins, K. V. (2007). International evidence on cash holdings and expected managerial agency problems. The review of financial studies, 20(4), 1087-1112. https://doi.org/10.1093/rfs/hhm023
Maksum, N. A., & Sirojuzilam, E. (2018). Value of The Firm In Capital Structure Perspective (Case study of Tourism Companies in Indonesia Stock Exchange). Economics, 6(1), 91–102.
Martínez-Sola, C., García-Teruel, P. J., & Martínez-Solano, P. (2013). Corporate cash holding and firm value. Applied Economics, 45(2), 161-170. https://doi.org/10.1080/00036846.2011.595696
Miglo, A. (2011). Trade-off, pecking order, signaling, and market timing models. Capital structure and corporate financing decisions: Theory, evidence, and practice, 171-191. https://doi.org/10.1002/9781118266250.ch10
Myers, S. C., & Rajan, R. G. (1998). The paradox of liquidity. Quarterly Journal of Economics, 113(3), 733-771. https://doi.org/10.1162/003355398555739
Njindan Iyke, B. (2020). The disease outbreak channel of exchange rate return predictability: Evidence from COVID-19. Emerging Markets Finance and Trade, 56(10), 2277-2297. https://doi.org/10.1080/1540496X.2020.1784718
Nugroho, D. S., & Pertiwi, M. I. (2021). Stock Price Reaction when Covid-19 Exist: Moderating by Firm’s Operating Cash Flow. Jurnal Ekonomi Malaysia, 55, 1.
Nunn, N., & Qian, N. (2010). The Columbian exchange: A history of disease, food, and ideas. Journal of Economic Perspectives, 24(2), 163-88. https://doi.org/10.1257/jep.24.2.163
Papaioannou, G. J., & Karagozoglu, A. K. (2017). Underwriting services and the new issues market. Academic Press.
Phan, D. H. B., & Narayan, P. K. (2020). Country responses and the reaction of the stock market to COVID-19—A preliminary exposition. Emerging Markets Finance and Trade, 56(10), 2138-2150. https://doi.org/10.1080/1540496X.2020.1784719
Tulcanaza Prieto, A. B., & Lee, Y. H. (2019). Internal and external determinants of capital structure in large Korean firms. Global Business & Finance Review (GBFR), 24(3), 79-96. https://doi.org/10.17549/gbfr.2019.24.3.79
Wibowo, A. I. L., Putra, A. D., Dewi, M. S., & Radianto, D. O. (2019). Differences In Intrinsic Value With Stock Market Prices Using The Price Earning Ratio (Per) Approach As An Investment Decision Making Indicator (Case Study Of Manufacturing Companies In Indonesia Period 2016-2017). Aptisi Transactions On Technopreneurship (ATT), 1(1), 82-92. https://doi.org/10.34306/att.v1i1.61
Ramelli, S., & Wagner, A. F. (2020). Feverish stock price reactions to COVID-19. The Review of Corporate Finance Studies, 9(3), 622-655. https://doi.org/10.1093/rcfs/cfaa012
Revindo, M. D., & Alta, A. (2020). Trade and Industry Brief. Seri Analisis Ekonomi.
Rjiba, H., Jahmane, A., & Abid, I. (2020). Corporate social responsibility and firm value: Guiding through economic policy uncertainty. Finance Research Letters, 35. https://doi.org/10.1016/j.frl.2020.101553
Setiadharma, S., & Machali, M. (2017). The effect of asset structure and firm size on firm value with capital structure as intervening variable. Journal of Business & Financial Affairs, 6(4), 1-5. https://doi.org/10.4172/2167-0234.1000298
Sabrin, A., Sarita, B., Takdir, D., & Sujono, C. (2016). The effect of profitability on firm value in manufacturing company at Indonesia Stock Exchange. The International Journal of Engineering and Science, 5(10), 81-89.
Shah, S. Z. A., & Jam-e-Kausar. (2012). Determinants of capital structure of leasing companies in Pakistan. Applied Financial Economics, 22(22), 1841-1853. https://doi.org/10.1080/09603107.2012.678978
Shen, H., Fu, M., Pan, H., Yu, Z., & Chen, Y. (2020). The impact of the COVID-19 pandemic on firm performance. Emerging Markets Finance and Trade, 56(10), 2213-2230. https://doi.org/10.1080/1540496X.2020.1785863
Spence, M. (2002). Signaling in retrospect and the informational structure of markets. American Economic Review, 92(3), 434-459. https://doi.org/10.1257/00028280260136200
Suartawan, P. A., & Gerianta, Y. (2016). Pengaruh Investment Opportunity Set dan Free Cash Flow pada Kebijakan Dividen dan Nilai Perushaan pada Perusahaan Manufaktur Tahun 2011–2013. Jurnal Ilmiah Akuntansi dan Bisnis Universitas Udayana, 11(2), 63-74. https://doi.org/10.24843/jiab.2016.v11.i02.p01
Sujoko, & Ugy, S. (2009). Pengaruh struktur kepemilikan saham, struktur modal, faktor intern dan faktor ekstern terhadap nilai perusahaan. Manajemen Dan Kewirausahaan, 9(1). https://doi.org/ 10.24034/j25485024.y2007.v11.i2.2236
Wahyuni, F. (2018). Nilai Perusahaan, Indeks Tata Kelola Perusahaan dan Struktur Modal. Jurnal Ilmiah Akuntansi Dan Bisnis, 13(2), 151-160. https://doi.org/10.24843/JIAB.2018.v13.i02.p08
Well, D. N. (2007). Accounting for the effect of health on economic growth. The quarterly journal of economics, 122(3), 1265-1306. https://doi.org/10.1162/qjec.122.3.1265
Widarjono, A. (2018). Ekonometrika : Pengantar dan Aplikasinya. Jakarta: Ekonosia.
Zhang, J., Zhang, J., & Lee, R. (2003). Rising longevity, education, savings, and growth. Journal of Development Economics, 70(1), 83-101. https://doi.org/10.1016/S0304-3878(02)00088-3
Published
2021-05-10
How to Cite
NUGROHO, Dwiyanjana Santyo.
The Effect of Financial Condition on Firm Value: A Comparative Study.
Jurnal Ilmiah Akuntansi dan Bisnis, [S.l.], v. 16, n. 2, p. 199-217, may 2021.
ISSN 2303-1018.
Available at: <https://ojs.unud.ac.id/index.php/jiab/article/view/67063>. Date accessed: 26 apr. 2024.
doi: https://doi.org/10.24843/JIAB.2021.v16.i02.p02.
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