p–ISSN: 2723 - 6609 e-ISSN: 2745-5254

Vol. 5, No. 4 April 2024 http://jist.publikasiindonesia.id/

Indonesian Journal of Social Technology, Vol. 5, No. 4, April, 2024 1814

The role of profitability in mediating the influence of funding

decisions, investment decisions and company size on company

value

Introduction

market demand and supply which reflects people's assessment of the company's

performance. Explain that the main factors that affect company value are revenue,

operating expenses and taxes, new investments needed, funding decisions, investment

decisions, market risk, company risk, and interest rates. Revenue, as the first factor, is

influenced by sales, price, and growth rate, as well as the expected size of the company.

Operating expenses and taxes, as the second factor, can reduce income so that it becomes

after-tax profits. The third influencing factor is the amount of money that must be invested

by the company each year.

The results of previous studies that show the influence of funding decisions,

investment decisions, company size, and profitability on company value include

(Sondakh, 2019), and (Ramdhonah, Solikin, & Sari, 2019). (Wahyuni & Amanati, 2019)

stated that funding decisions have a positive and significant effect on company value,

while (Endri, 2020) found that funding decisions do not directly influence company value.

(Agung et al., 2021) concluded that Investment Decisions have a significant positive

effect on company value, while found that investment decisions do not significantly affect

company value. Company size has a negative and insignificant effect on company value

(Muliana & Ikhsani, 2019), while (Dewi & Abundanti, 2019) found that company size

has a positive and significant effect on company value. (Sondakh, 2019) states that

profitability has no effect and is not significant on the company's value. Profitability is

stated to have a positive effect on company value (Ramdhonah et al., 2019).

decisions on company value (Hairudin et al., 2022), while according to (Kusaendri &

Mispiyanti, 2022), profitability is not able to mediate the influence of investment

decisions on company value. (Muliana & Ikhsani, 2019) Stated that profitability is not

able to mediate the effect of company size on company value. In contrast, according to

(Octaviany, Hidayat, & Miftahudin, 2019) profitability is able to mediate the influence of

company size on company value.

Testing of company value related to funding decisions, investment decisions,

company size, and profitability is very important, especially by testing the effect of

profitability as a mediating variable in the influence of funding decisions, investment

decisions, and company size on company value in infrastructure sector companies listed

November 2023. This sector is below the financial sector with a weight of 35.2 percent

and above basic materials as the third largest sector with a weight of 12.2 percent.

As per the trade-off theory, company management must take into account taxes,

agency fees and financial hardship costs as well as assumptions of market efficiency and

symmetric data as a balance and benefit of using debt. The use of debt in funding

decisions will limit company management to run company operations more carefully.

Research conducted by (Fajartania and Utiyati, 2018) resulted in the conclusion that

additional debt will increase the company's net income. This shows that the stated capital

structure (funding decisions) has a positive and significant effect on profitability. The

Indonesian Journal of Social Technology, Vol. 5, No. 4, April, 2024 1816

decisions have a positive and significant effect on profitability.

Hypothesis 1: Funding Decisions positively affect Profitability

Agency theory explains that there is a separation of functions, namely in the

management carried out by company management and the ownership function by

shareholders. The main concern of agency theory is that all actions of company

management in the management function must have a real impact that can be felt so that

they are able to make continuous improvements (Mitnick, 2015). (Wahidahwati, 2021)

explained that if companies are able to determine and utilize their investment

opportunities well, profitability will increase. This shows that investment decisions have

a positive effect on profitability. The results of this study support the research of Setiawan

maximum profits in a sustainable manner. (Dewi & Abundanti, 2019) stated that the size

of the company will increase profitability so that the size of the company is stated to have

a positive and significant effect on profitability. The research supports the research of

(Octaviany et al., 2019) which found that company size has a positive and significant

effect on profitability.

Hypothesis 3: Company Size positively affects Profitability

The use of debt in funding decisions can show investors that a company has

adequate risk-based governance. This condition is related to signaling theory, where

shareholders can interpret management performance through financial statements,

namely by analyzing funding decisions and profits generated. Hamidy, et al., (2015)

Company management must optimally take into account every aspect that can

increase profits when designing strategies in the context of making investment decisions.

Adequate investment decisions can ensure the development of the company and profit

generation in a sustainable manner so that the company's value can continue to be

increased. Investors can catch these positive signals (signaling theory) by analyzing the

information available in the company's financial statements. Sari and Subardjo (2020)

found that the quantity of investment shows the growth of a company and is expected to

provide profits, so that investment decisions are declared to have a positive and significant

effect on company value. The results of this study are supported by the results of research

significant effect on company value.

Hypothesis 5: Investment Decisions positively affect Company Value

Companies with high asset values can attract greater attention because investors

assess that companies with large asset values are in healthy condition. In addition,

investors have a tendency to put trust in large-scale companies because they are

considered to have easy access to capital to run their business. According to signaling

theory, the ease of accessing capital shows that the company has great potential to develop

because it has flexibility in managing its operations. Research conducted by (Dewi &

Abundanti, 2019) and (Ardiana & Chabachib, 2018) found that company size has a

positive and significant effect on company value.

provide positive signals to investors so that the company's value increases. Salim and

Susilowati (2019) found that companies that have high profitability tend to attract

investors' attention so that it is stated that profitability has a positive and significant effect

on company value. The results of this study are in line with (Ramdhonah et al., 2019)

who found that profitability has a positive effect on company value.

Hypothesis 7: Profitability positively affects Company Value

High profitability indicates that the company has adequate funding decisions to

support its investment activities in order to generate profits. According to signaling

theory, the company's success in posting profits can be seen by investors as management's

success in managing funding decisions. This condition can increase the value of the

Hypothesis 8: Profitability can mediate the effect of Funding Decisions on Company

Value

According to signaling theory, the ability to generate profits from investment

implementation can increase company value because it is seen by investors as

management's success in determining company investment decisions in order to develop

the company and provide welfare for its shareholders. (KUMALASARI, 2020) found that

the more investment the company makes, the profitability will increase. The increase in

profitability drives an increase in the value of the company. The results of this study are

Indonesian Journal of Social Technology, Vol. 5, No. 4, April, 2024 1818

influence of investment decisions on company value.

Hypothesis 9: Profitability is able to mediate the influence of Investment Decisions

on Company Value

The success of the company in posting good performance can be explained by the

size of the company as seen from the total assets owned. According to signaling theory,

the ease of accessing capital by large companies shows that the company has great

potential to develop and provide profits in a sustainable manner so as to increase the

company's value in the eyes of investors. (Octaviany et al., 2019) found that the ability of

large companies to expand the market in order to obtain profits can attract the attention

of investors to invest their capital. This condition encourages an increase in stock prices,

Research Methods

which is reflected by stock prices formed by capital market demand and supply which

reflects the public's assessment of the company's performance. The variable company

value in this study is measured using Price to Books Value (PBV) by dividing the stock

price by the book value of the stock. (Brigham & Houston, 2013) stated that the PBV

ratio provides an indication of how investors value companies, namely companies with

low risk and high growth rates have high PBV ratios.

The funding decision is the company's obligation to obtain funds in order to finance

investments Brealy et al., (2001). The funding decision variables in this study were

measured using the Long Term Debt to Equity Ratio (LTDER). LTDER is used to

measure how much a company's capital can be used as collateral for long-term debt by

that PER indicates what price investors will pay from the profit reported by company

management.

seen through the company's total assets. According to Handayani and Rachadi (2009),

large and medium-scale companies are pressured by stakeholders to be able to meet

investor expectations in order to have high performance. The company size variable in

this study is measured using total assets that reflect the company's growth rate as well as

profitable business prospects.

The company is a profit-seeking entity and is required to generate a large profit with

the aim of maximizing the wealth of its shareholders. Profitability is the end result of a

series of policies and decisions established and implemented by the company. The

company's ability to generate profits and maximize shareholder wealth can show that

management has the capability to develop operational scale (company size) through

Z

= α +

+

β

2

+

β

3

X

3

+ e……………………………………….…..

(1)

Y

= α +

β

+ β

3

+

β

4

Z

+ e………………………………….….

(2)

Information:

Y = Company Value (PBV)

Indonesian Journal of Social Technology, Vol. 5, No. 4, April, 2024 1820

This study used two equation models. The first equation is used to determine the influence

of the independent variable on the mediation variable. The second equation is used to see

the effect of the independent variable and the mediation variable on the dependent

variable. To determine the effect of mediation on the influence of the independent

variable on the dependent variable, testing was carried out with the Sobel Test.

independent variables (PER, LTDER, Total Assets) on mediating variables (ROA).

results, it can be concluded that funding decision variables have a negative and

insignificant effect on profitability so that Hypothesis 1 of the study is rejected. Trade-off

theory explains that factors such as taxes, agency fees and financial hardship costs as well

as assumptions of market efficiency and symmetric information must be taken into

account as a balance and benefit of using debt. One of the factors that causes a decrease

in profits which ultimately reduces ROA is the use of debt in a larger portion to increase

the number of non-current assets. The use of high debt to increase the amount of non-

current assets, especially in the form of fixed assets, incurs costs in the form of

maintenance costs and security costs which directly reduce the amount of profit obtained.

The value of the regression coefficient of the Investment Decision (PER) variable

decisions in order to maximize company profits. However, the fact and/or possibility that

managers have a vested interest may decrease financial performance in order to achieve

these goals. If management takes a policy to increase the portion of its investment in non-

current assets, especially fixed assets, then the company's ability to develop business

while increasing profitability will decrease. High investment in fixed assets will incur

depreciation costs, maintenance costs, and asset security costs. These costs can directly

reduce the profits that have been recorded.

Indonesian Journal of Social Technology, Vol. 5, No. 4, April, 2024 1822

of -0.510 indicates a negative influence. The variable significance of the size of the

company is indicated by the value of prob. 0.000, where the value is < 0.05 so it is known

that the variable size of the company has a significant effect on profitability. According

to the test results, it can be concluded that the variable size of the company has a negative

but significant effect on profitability so that Hypothesis 3 of the study is rejected. A

company with a large asset value does not guarantee its ability to make a profit. This

happens if the asset is not managed to develop the scale of the business and operations in

order to generate profits. Companies with large scale have the advantage of a higher

ability to access capital and sources of funds. However, if management does not utilize

the funds owned to develop the company's business, the goal of maximizing company

The results of the Model 2 regression test in Table 3, show the value of the

regression coefficient of the Funding Decision variable (LTDER) of 0.102 shows that

can view that the policy to use debt is one of the company's strategies in developing its

business scale. This is related to signaling theory, where the strategy can provide positive

signals to investors about the direction of company development and promised profit

prospects. Positive signals received by investors can directly increase the value of the

company owned.

The value of the regression coefficient of the Investment Decision (PER) variable

of 0.404 indicates that there is a positive influence. The significance of investment