Profitability’s impact on firm value in Indonesia’s real estate firms: a panel data investigation
Abstract
Purpose
Profitability is crucial for a company’s sustainability. This study aims to examine the influence of profitability and specific variables on the value of real estate companies in Indonesia.
Design/methodology/approach
The study uses a sample of 42 real estate companies listed on the Indonesia Stock Exchange from 2017 to 2023. A static panel regression approach was adopted, with the best model being the fixed effect model, verified through a robustness test.
Findings
The results indicate that the fixed effect model is the most effective in explaining firm value. Profitability, proxied by return on assets (ROAs), does not significantly impact firm value. This finding is confirmed by robustness tests using another profitability measure, return on equity (ROE). Additionally, company size negatively and significantly impacts firm value, while activity ratio and leverage have a positive and significant effect. Liquidity and company growth do not significantly affect firm value.
Research limitations/implications
The research is limited to Indonesian real estate firms, cautioning against broad generalization to other countries or industries. The study could not demonstrate the influence of profitability on the value of real estate companies. Instead, firm value is influenced by company size, activity ratio and leverage.
Practical implications
Real estate firms should increase their activity, optimize funding and consider company size to enhance firm value.
Originality/value
This study contributes to the Indonesian real estate sector by revealing that profitability does not enhance firm value. Indonesian real estate companies generally have low profitability and firm value.
Keywords
Acknowledgements
The authors would like to express their deepest gratitude to the Lembaga Pengelola Dana Pendidikan and Beasiswa Pendidikan Indonesia (Indonesia Endowment Fund for Education and Indonesian Education Scholarship) under ID 202327091123 for providing financial support for this research and doctoral studies. The authors are also profoundly thankful to Airlangga University and Hayam Wuruk Perbanas University for their invaluable academic support and resources throughout the research journey. Without their encouragement and contributions, this achievement would not have been possible.
Citation
Khalifaturofi’ah, S.O. and Setiawan, R. (2024), "Profitability’s impact on firm value in Indonesia’s real estate firms: a panel data investigation", Property Management, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/PM-08-2023-0082
Publisher
:Emerald Publishing Limited
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