Mediating role of profitability in the relationship between institutional ownership and firm value: Evidence from Indonesia
DOI:
https://doi.org/10.28932/vikara.v1i2.13361Keywords:
firm value, Indonesia, institutional ownership, profitabilityAbstract
This study examines the effect of institutional ownership on profitability and firm value, with profitability as a mediating variable, in manufacturing companies listed on the Indonesia Stock Exchange (IDX) from 2018 to 2022, variable control is firm size and interest rate. The research sample includes 54 purposive-sampled manufacturing enterprises. Secondary data from IDX and company yearly financial statements is used. STATA version 17 is used for structural equation modelling (SEM) with bootstrapping data analysis. The study found that institutional ownership increases profitability (ROE) and firm value (PBV) at 5% and 10% significance levels, respectively. Profitability also increases company value at a 1% significance level. Profitability also mediates the effect of institutional ownership on firm value at the 10% significance level, indicating that institutional ownership can increase firm value through increased profitability. This study helps explain how institutional ownership boosts business value through profitability. This research has implications for regulators (OJK & IDX) and policymakers regarding corporate governance. Managers need to strengthen governance and transparency to maximize profitability and enhance company value. To better understand how institutional ownership affects business value, future research should expand variables, incorporate data from various industries, and conduct cross-country studies.References
Ahmed, S. K. (2024). How to choose a sampling technique and determine sample size for research: A simplified guide for researchers. Oral Oncology Reports, 12, 100662. https://doi.org/10.1016/j.oor.2024.100662
Bao, S. R., & Lewellyn, K. B. (2017). Ownership structure and earnings management in emerging markets: An institutionalized agency perspective. International Business Review, 26(5), 828-838. https://doi.org/10.1016/j.ibusrev.2017.02.002
Boone, A. L., & White, J. T. (2015). The effect of institutional ownership on firm transparency and information production. Journal of Financial Economics, 117(3), 508-533. https://doi.org/10.1016/j.jfineco.2015.05.008
Buchanan, B., Cao, C. X., & Chen, C. (2018). Corporate social responsibility, firm value, and influential institutional ownership. Journal of Corporate Finance, 52, 73-95. https://doi.org/10.1016/j.jcorpfin.2018.07.004
Cao, Y., Dong, Y., Lu, Y., & Ma, D. (2020). Does institutional ownership improve firm investment efficiency? Emerging Markets Finance and Trade, 56(12), 2772-2792. https://doi.org/10.1080/1540496X.2018.1486705
Fitri, E. N., & Hakim, D. R. (2021). Determinants of earning management at Indonesias coal mining companies. JIFA: Journal of Islamic Finance and Accounting, 4(1), 41-56. https://doi.org/10.22515/jifa.v4i1.3316
Jihadi, M., Vilantika, E., Hashemi, S. M., Arifin, Z., Bachtiar, Y., & Sholichah, F. (2021). The effect of liquidity, leverage, and profitability on firm value: Empirical evidence from Indonesia. The Journal of Asian Finance, Economics and Business, 8(3), 423-431. https://doi.org/10.13106/jafeb.2021.vol8.no3.0423
Lin, Y. R., & Fu, X. M. (2017). Does institutional ownership influence firm performance? Evidence from China. International Review of Economics & Finance, 49, 17-57. https://doi.org/10.1016/j.iref.2017.01.021
Machmuddah, Z., Sari, D. W., & Utomo, S. D. (2020). Corporate social responsibility, profitability and firm value: Evidence from Indonesia. The Journal of Asian Finance, Economics and Business, 7(9), 631-638. https://doi.org/10.13106/jafeb.2020.vol7.no9.631
Nugroho, R. C., & Hakiman, H. (2020). The effect of institutional ownership, managerial ownership and leverage on company value in subsectors property and real estate listed in Indonesia Stock Exchange for 2016-2018. International Journal of Innovative Science and Research Technology, 5(8), 1663-1667. https://doi.org/10.38124/IJISRT20AUG834
Putri, E. A., & Suseno, G. (2024). Peran mediasi profitabilitas pada pengaruh solvabilitas terhadap nilai perusahaan di sektor perbankan Indonesia. Jurnal Syntax Imperatif: Jurnal Ilmu Sosial dan Pendidikan, 5(1), 193-209. https://doi.org/10.36418/syntax-imperatif.v5i1.360
Ridha, A., Wahyuni, D., & Sari, D. M. S. (2019). Analisis pengaruh kepemilikan institusional dan profitabilitas terhadap cash holding dengan ukuran perusahaan sebagai variabel moderasi pada perusahaan terindeks LQ45 di Bursa Efek Indonesia. Jurnal Manajemen dan Keuangan, 8(2), 135-150. https://doi.org/10.33059/jmk.v8i2.1618
Sakawa, H., & Watanabel, N. (2020). Institutional ownership and firm performance under stakeholder-oriented corporate governance. Sustainability, 12(3), 1-21. https://doi.org/10.3390/su12031021
Schmidt, C., & Fahlenbrach, R. (2017). Do exogenous changes in passive institutional ownership affect corporate governance and firm value? Journal of Financial Economics, 124(2), 285-306. https://doi.org/10.1016/j.jfineco.2017.01.005
Smith, D. D., Meier, H. H., & Alam, P. (2019). Does institutional ownership affect information sharing with independent board members? Journal of Corporate Accounting & Finance, 30(4), 54-68. https://doi.org/10.1002/jcaf.22403
Sudiyatno, B., Puspitasari, E., Suwarti, T., & Asyif, M. M. (2020). Determinants of firm value and profitability: Evidence from Indonesia. The Journal of Asian Finance, Economics and Business, 7(11), 769-778. https://doi.org/10.13106/jafeb.2020.vol7.no11.769
Sutrisno, S., & Ulfah, T. A (2020). Ownership structure and agency cost case study on manufacturing company in Indonesia Stock Exchange. Asian Journal of Empirical Research, 10(12), 239-244. https://doi.org/10.18488/journal.1007.2020.1012.239.244
Utami, N. C. R., Wianto, I. M., & Surasmi, I. A. (2025). The effect of profitability and firm size on firm value with capital structure as a mediating variable. International Journal of Environmental, Sustainability, and Social Science, 6(4), 700-713. https://doi.org/10.38142/ijesss.v6i4.1442
Downloads
Published
Issue
Section
License
Copyright (c) 2026 Giri Suseno, Endah Arianti Putri, Nurmala Sari, Willi Meilita, Jusniarty Sihite
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.
