THE INTERPLAY OF CAPITAL STRUCTURE AND ENTERPRISE VALUE IN INDONESIA'S EVOLVING MARKET

• Dr. Dewi R. Prasetyo

  Research Fellow in Financial Strategy and Market Evolution Centre for Southeast Asian Studies, National University of Singapore

  Author

• Dr. Budi Santika

  Assistant Professor of Financial Economics Faculty of Economics, Gadjah Mada University, Yogyakarta, Indonesia

  Author

• Dr. Maya Lestari

  Senior Lecturer in Corporate Finance and Risk Management School of Business and Management, Bandung Institute of Technology, Indonesia

  Author

This article empirically investigates the determinants of capital structure and its subsequent impact on firm value among publicly listed non-financial companies in Indonesia. Utilizing a quantitative research design with panel data analysis, the study examines how factors such as profitability, firm size, growth opportunities, asset tangibility, and liquidity influence the debt-to-equity ratio, and how this capital structure, in turn, affects firm value as measured by Tobin's Q. The findings suggest that a higher leverage ratio can positively influence firm value in the Indonesian context, aligning with the trade-off theory. Conversely, profitability is inversely related to debt, supporting the pecking order theory, where firms prioritize internal financing. Larger firms and those with greater asset tangibility are found to utilize more debt. The study also highlights that firms with higher growth opportunities and greater liquidity tend to rely less on debt. These insights provide valuable evidence from an important Southeast Asian emerging economy, offering practical implications for managers, investors, and policymakers navigating this dynamic financial landscape.

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