Capital Structure and Profitability as Determinants of Firm Value: The Moderating Role of Firm Size in Indonesia’s Property and Infrastructure Sectors

Abstract

The property and infrastructure sector has experienced a decline in firm value from 2021 to 2023, despite the fact that firm value is an essential factor for investors’ consideration before making investment decisions. Firm value can be influenced by company performance, such as capital structure and profitability, as well as other factors that can moderate the influence between capital structure and profitability on firm value. This research aims to analyze the effect of capital structure, measured by Debt-to-Equity Ratio (DER), and profitability, measured by Return on Investment (ROE), on the firm value of property and real estate sectors. It also assesses the moderating role of firm size in the relationship between capital structure and profitability on firm value. This quantitative research uses the Moderated Regression Analysis (MRA) method to analyze the relationship between variables in the model. The results show that capital structure has a positive and significant effect on the firm value of the property and infrastructure sectors. Profitability also positively and significantly affects the firm value of property and infrastructure sectors. Furthermore, the firm size significantly strengthens the effect of capital structure on firm value and the impact of profitability on firm value, suggesting that larger firms may be better positioned to enhance their market valuation through improved financial performance.