The effect of profitability and bank size on firm value sustainability: The mediating role of capital structure

Linawati, Nanik and Moeljadi, (2022) The effect of profitability and bank size on firm value sustainability: The mediating role of capital structure. [UNSPECIFIED]

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Abstract

Firm value is the main concept for corporations. Bank operational efforts are made to increase firm value. The research sample, namely six banks in Indonesia, implemented digital banking from 2007 to 2019. Data analysis used two stages least squares. The results showed that profitability had a significant effect on the capital structure. Higher profitability, as indicated by the increase in return on equity, provides an opportunity for banks to increase retained earnings, which is an internal source of funding, and reduce the dependence on debt funding, or the capital structure will decrease. Bank size has a significant effect on capital structure and firm value. Profitability has a significant effect on firm value. The banks ability to generate net income by using all its equity shows that the bank has good asset-liability management, so it can improve the banks opera-tional capabilities, which will increase the firm value. Capital structure has a significant effect on firm value. This finding shows that the declining capital structure of the bank indicates that the banks dependence on debt to bank customers is also decreasing, so the responsibility of the bank to pay interest and loan principal decreases so that it can increase the banks firm value.

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