Do Leverage Concentration Influence Firms Value

Abstract

The primary objective of financial managers is generally stated to be the maximization of shareholders’ wealth by increasing the firm value. This research was undertaken to investigate the effect of corporate financing decisions on firm value. A sample of 10 Iinvestment subsectors companies listed on Indonesia stock exchange for a period of 9 years from 2009-2017 was used. Data were sourced from annual reports of selected firms. The study uses price to book value (PBV) representing firm value for the dependent variable and the corporate financing was measured by Debt equity ratio representing for the independent variable. Ddescriptive analysis, correlation coefficient analysis, coefficient of determination, significance test, linear regression analysis was used for statistical technique for data analysis and hypothesis testing. The study revealed that there is a low significant relationship between financial leverage and firms’ value. It was found that an increase in financial leverage is negatively correlated with firm value. The conclusions of this study have practical implications for financial managers of Investment Subsector Companies to include a suitable amount of debt in their equity. The study therefore recommends that financial leverage be optimized by firms to aid maximization of firms’ value.