Relationship of Working Capital Management and Leverage on Firm Value: An Evidence from the Indonesia Stock Exchange

Rico Nur Ilham; Henny Irawati; Nurhasanah Nurhasanah; Lakharis Inuzula; Irada Sinta; Jumadil Saputra

doi:10.56225/jmsc.v1i2.129

Authors

Rico Nur Ilham Faculty of Economics and Business, Universitas Malikussaleh, Aceh, Indonesia
Henny Irawati Faculty of Economics and Business, Universitas Malikussaleh, Aceh, Indonesia
Nurhasanah Nurhasanah Faculty of Economics and Business, Universitas Malikussaleh, Aceh, Indonesia
Lakharis Inuzula Faculty of Economics and Business, Universitas Islam Kebangsaan Indonesia, Aceh, Indonesia
Irada Sinta Faculty of Agriculture, Universitas Malikussaleh, Aceh, Indonesia
Jumadil Saputra Faculty of Business, Economics and Social Development, Universiti Malaysia Terengganu, Malaysia

DOI:

https://doi.org/10.56225/jmsc.v1i2.129

Keywords:

working capital management, leverage, profitability, firm value

Abstract

The owners' prosperity level represents the high firm value. Investors' primary focus has shifted to the firm's value. The firm's value reflects the prosperity of its shareholders and investors. One of the primary company goals is to obtain maximum profit from business activities. However, the purpose of establishing a company is not only to achieve maximum profit but also to increase the prosperity of parties related to the company's business activities, such as shareholders and stakeholders, so that the company's value increases. Thus, the current investigation examines the relationship between working capital management and leverage towards firm value in the Indonesia Stock Exchange. This quantitative study utilized secondary data from the Central Bureau of Statistics of Indonesia from 2016 to 2020. The data were analyzed using time series regression by assisting econometrical software, namely EVIEWS-10. The results indicated that Working Capital Management positively and significantly affects firm Value. Besides that, leverage has a negative and significant effect on Firm Value. Also, profitability moderates the relationship between working capital and firm performance. Besides that, profitability does not moderate the relationship between leverage and firm performance. In conclusion, this study has identified the important factors influencing firm value, and leverage has not affected firm value. The findings of this research can be used as the basis for making investment decisions. The aspect measures the ability of the company's assets to generate a return on the investment made in the company's asset instruments.

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