Financial Performance, Exchange Rate, and Firm Value: The Indonesian Public Companies Case
Articles
Yulita Setiawanta
Dian Nuswantoro University
https://orcid.org/0000-0001-8207-0552
Dwiarso Utomo
Dian Nuswantoro University
Imam Ghozali
Diponegoro University
Jumanto Jumanto
Dian Nuswantoro University
https://orcid.org/0000-0002-0963-8970
Published 2020-12-30
https://doi.org/10.15388/omee.2020.11.37
PDF
HTML

Keywords

Exchange Rate
Capital Structure
Profitability
Firm Value

How to Cite

Setiawanta Y., Utomo D., Ghozali I. and Jumanto J. (2020) “Financial Performance, Exchange Rate, and Firm Value: The Indonesian Public Companies Case”, Organizations and Markets in Emerging Economies, 11(2), pp. 348-366. doi: 10.15388/omee.2020.11.37.

Abstract

Transactions between countries require a stable exchange rate. When the exchange rate of the country experiences uncertainty, then this will influence the company’s financial performance and even affect the company’s market value. This study aims to look for the direct influence of the company’s financial performance as an independent variable and the firm value as a dependent variable within the investor perspective, also including the exchange rate factor as a moderating variable. Investors could probably learn about information on the ups-and-downs of the Indonesian rupiah against foreign currencies before their investment decisions, even though financial performance substantially influences the company’s market value. The sample in this study was 50 companies within four years of observation. Data processing was carried out by the Eviews statistical application. The results showed that the financial performance, which is proxied by the capital structure, affects firm value, but not profitability. The impact of exchange rate moderation also occurs in the relationship of capital structure and firm value, while the moderation effect on profitability and firm value is not proven. This study provides information that exchange rates influence investment interests upon investors’ analysis of the financial performance of the capital structure, but not profitability.

PDF
HTML

References

Abdullah, M., Shukor, Z. A., Mohamed, Z. M., & Ahmad, A. (2015). Risk management disclosure : A study on the effect of voluntary risk management disclosure toward firm value Maizatulakma. Journal of Applied Accounting Research, 16(3), 400–432.
Adjasi, C., Harvey, S. K., & Coast, C. (2008). Effect of Exchange Rate Volatility on the Ghana Stock Exchange. Banking, 3(3), 28–47.
Aggarwal, D., & Padhan, P. C. (2017). Impact of capital structure on firm value : Evidence from Indian hospitality industry. Theoretical Economics Letters, 7(1), 982-1000-2086. https://doi.org/10.4236/tel.2017.74067
Alagidede, P., Alagidede, P., Panagiotidis, T., & Zhang, X. (2010). Causal Relationship between Stock Prices and Exchange Rates Stirling Economics Discussion Paper 2010-05 February 2010 Online at http://www.economics.stir.ac.uk Causal Relationship between Stock Prices and Exchange Rates, (February).
Allayannis, G., & Ofek, E. (1998). Exchange Rate Exposure, Hedging, and the Use of Foreign Currency Derivatives, (June 1997). Retrieved from http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.198.2125&rep=rep1&type=pdf
Allayannis, G., & Weston, J. P. (2001). The Use of Foreign Currency Derivatives and Firm Market Value, 14(1), 243–276.
Antwi, S., Mills, E. F. E. A., & Zhao, X. (2012). Capital structure and firm value: Empirical evidence from Ghana. International Journal of Business and Social Science, 3(22), 103–111.
Ararat, M., Black, B. S., & Yurtoglu, B. B. (2017). The effect of corporate governance on firm value and profitability: Time-series evidence from Turkey. Emerging Markets Review, 30(November 2014), 113–132. https://doi.org/10.1016/j.ememar.2016.10.001
Ayuba, H., Bambale, A. J., Ibrahim, M. A., & Sulaiman, S. A. (2019). Effects of Financial Performance, Capital Structure and Firm Size on Firms’ Value of Insurance Companies in Nigeria. Journal of Finance, Accounting and Management, 10(1), 57–74.
Baron, R. M., & Kenny, D. a. (1986). The Moderator-Mediator Variable Distinction in Social The Moderator-Mediator Variable Distinction in Social Psychological Research: Conceptual, Strategic, and Statistical Considerations. Journal of Personality and Social Psychology, 51(6), 1173–1182. https://doi.org/10.1037/0022-3514.51.6.1173
Bodnar, G. M., Marston, R. C., & Guy, J. R. F. (2000). Exchange Rate Exposure : A Simple Model. Finance Wharton School University of Pennsylvania.
Bodnar, G. M., & Wong, M. H. F. (2000). Estimating Exchange Rate Exposures: Some“Weighty” Issues. National Bureau of Economic Research, 1050 Massachusetts Avenue (Vol. Working pa).
Chen, L., & Chen, S. (2011). The influence of profitability on firm value with capital structure as the mediator and firm size and industry as moderators. Investment Management and Financial Innovations, 8(3), 121–129.
Chen, L. J., & Chen, S. Y. (2011). The influence of profitability on firm value with capital structure as the mediator and firm size and industry as moderators. Investment Management and Financial Innovations, 8(3), 121–129.
Choi, J. J., & Prasad, A. M. (1995). Exchange Risk Sensitivity and Its Determinants: A Firm and Industry Analysis of U.S. Multinationals. Financial Management, 24(3), 77. https://doi.org/10.2307/3665559
Connelly, B. L., Certo, S. T., Ireland, R. D., & Reutzel, C. R. (2011). Signaling theory: A review and assessment. Journal of Management, 37(1), 39–67. https://doi.org/10.1177/0149206310388419
Degryse, H., de Goeij, P., & Kappert, P. (2012). The impact of firm and industry characteristics on small firms’ capital structure. Small Business Economics, 38(4), 431–447. https://doi.org/10.1007/s11187-010-9281-8
Dowell, G., Hart, S., & Yeung, B. (2000). Do Corporate Global Environmental Standards Create or Destroy Market Value? Management Science, 46(8), 1059–1074. https://doi.org/10.1287/mnsc.46.8.1059.12030
Evans, G. R. (2014). Exchange Rates (First edition March 14, 2014).
Flota, C. (2014). The Impact of Exchange Rate Movements on Firm Value in Emerging Markets : The Case of Mexico. American Journal of Economics, 4(2(a)), 51–72. https://doi.org/10.5923/s.economics.201401.05
Gharaibeh, A. M. O., & Sarea, A. M. (2015). The impact of capital structure and certain firm specific variables on the value of the firm: Empirical evidence from Kuwait. Corporate Ownership and Control, 13(1CONT10), 1191–1200.
Ghozali, I. (2016). Desain Penelitian Kuantitatif dan Keualitatif untuk akuntansi , Bisnis dan Ilmu sosial lainya (1st ed.). Yoga Pratama.
Giannellis, N., Papadopoulos, A. P., & Kanas, A. (2010). Asymmetric Volatility Spillovers between Stock Market and Real Activity : Evidence from UK and US. University of Crete, Department of Economics, Rethymno Campus, GR 741-00, Greece “Asymmetric, 0–16.
Glaum, M., Brunner, M., & Himmel, H. (2000). The DAX and the dollar: The economic exchange rate exposure of German corporations. Journal of International Business Studies, 31(4), 715–724. https://doi.org/10.1057/palgrave.jibs.8490931
Hart, M., Lukpszova, X., & Rasner, J. (2012). Contemporary supply chain trends and world’s freight traffic, (September), 197–206.
Hartono, J. (2017). Teori Portofolio dan analisis Investasi (Vol. Cetakan Pe). Yogyakarta: BPFE-Yogyakarta.
Hutabarat, S. H., Fitrawaty, & Nugrahadi, E. W. (2018). An analysis of asset growth, profitability and caiptal structure effect through risk on price to book value (PBV) in bangking compnaies, Indonesia. International Journal of Business and Management Review, 6(2), 29–44.
Inylama, O. I., & Ozouli, C. N. (2014). Interactions between Exchange Rate and Financial Performance Indicators in Nigeria Beer Industry : Evidence from Nigeria Breweries Plc. Academic Journal of Interdisciplinary Studies, 3(6), 341–352. https://doi.org/10.5901/ajis.2014.v3n6p341
Ioannou, I., & Serafeim, G. (2014). The Consequences of Mandatory Corporate Sustainability Reporting. Havard Business School. https://doi.org/10.2139/ssrn.1799589
Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3(4), 305–360. https://doi.org/10.1016/0304-405X(76)90026-X
Jubaedah, Yulivan, I., & Hadi, R. A. A. (2016). The Influence of Financial Performance , Capital Structure and Macroeconomic Factors on Firm ’ s Value – Evidence from Textile Companies at Indonesia Stock Exchange. Applied Finance and Accounting, 2(2), 18–29. https://doi.org/10.11114/afa.v2i2.1403
Jubb, C. A. (2016). Risk disclosure , cost of capital and bank performance. https://doi.org/10.1108/IJAIM-02-2016-0016
Karaca, S. S., & Savsar, A. (2012). The effect of financial ratios on the firm value : Evidence from Turkey. Journal of Applied Economic Science, 7(1), 56–63. https://doi.org/10.5958/0973-9343.2015.00026.5
Kasmir. (2018). Analsis Laporan Keuangan. Jakarta: PT Rajagrafindo Persada.
Kothari, S. P. (2001). Capital markets research in, 31, 105–231.
Lau, Y.-Y., Ng, A. K. Y., Fu, X., & Li, K. X. (2013). Evolution and research trends of container shipping. Maritime Policy & Management, 40(7), 654–674. https://doi.org/10.1080/03088839.2013.851459
Lun, Y. H. V., & Hoffmann, J. (2016). Connectivity and trade relativity: the case of ASEAN. Journal of Shipping and Trade, 1(11), 1–13. https://doi.org/10.1186/s41072-016-0015-1
Maheen Jamil, N. U. (2013). Impact of Foreign Exchange rate on stock prices. Journal of Business and Management, 7(3), 45–51.
Mantari, J. S. (2016). Moderating Effect of Monetary Indicators on The Packing order Theory Validity in Indonesia Stock Exchange ( BEI ). International Journal of Economics, Commerce and Management, IV(7), 1–15.
Mantari, J. S., & Nuryasman. (2017). Moderation Effect of Exchange Rate to Signaling Theory Validity in Indonesia Stock Exchange. Business and Management Studies, 3(1), 80. https://doi.org/10.11114/bms.v3i1.2259
Manurung, H. (2014). Joko Widodo National Leaderships on Indonesia’s World Maritime Policy. Ssrn, (January 2014). https://doi.org/10.2139/ssrn.2510986
Marimuthu, M., Arokiasamy, L., & Ismail, M. (2009). Human Capital Development and Its Impact on Firm Performance: Evidence from Developmental Economics. The Journal of International Social Research2, 2(8), 265–271. https://doi.org/10.1017/CBO9781107415324.004
Marlina, T. (2013). Pengaruh Earning Per Share, Return On Equity , Debt To Equity Ratio dan Size Terhadap Price To Book Value. Jurnal Ilmiah Akuntansi Kesatuan, 1(1), 59–72. Retrieved from http://digilib.mercubuana.ac.id/manager/t!@file_artikel_abstrak/Isi_Artikel_715653482132.pdf
Masidonda, J. La, Idrus, M. S., Salim, U., & Djumahir. (2013). Determinants of Capital Structure and Impact Capital Structure on Firm Value. IOSR Journal of Business and Management, 7(3), 23–30. https://doi.org/10.9790/487x-0732330
Munim, Z. H., & Schramm, H.-J. (2018). The impacts of port infrastructure and logistics performance on economic growth: the mediating role of seaborne trade. Journal of Shipping and Trade, 3(1), 1. https://doi.org/10.1186/s41072-018-0027-0
Mwangi, L. W., Makau, S. M., & Kosimbei, G. (2014). Relationship between Capital Structure and Performance of Non- Financial Companies Listed In the Nairobi Securities Exchange, Kenya. Global Journal of Contemporary Research in Accounting, Auditing and Business Ethics (GJCRA), 1(2), 72–90. https://doi.org/10.11648/j.jfa.20130103.11
Obura, J., & Anyango, C. (2016). Moderating Effect of Interest Rates on Relationship b etween Foreign Exchange Rate Fluctuation and Performance of Nairobi Securities Exchange Market. Universal Journal of Accounting and Finance, 4(2), 27–34. https://doi.org/10.13189/ujaf.2016.040201
Puck, J., Hödl, M. K., Filatotchev, I., & Wolff, H. (2016). Ownership mode , cultural distance , and the extent of parent firms ’ strategic control over subsidiaries in the PRC. Asia Pacific Journal of Management, 1075–1105. https://doi.org/10.1007/s10490-016-9471-2
Purwanto, P., & Agustin, J. (2017). Financial performance towards value of firms in basic and chemicals industry. European Research Studies Journal, 20(2), 443–460.
Rashid, A. (2010). The Economic Exchange Rate Exposure : Evidence for a Small Open Economy, VIII(4), 46–59.
Rasyid, A. (2015). Effects of ownership structure, capital structure, profitability and company’s growth towards firm value. International Journal of Business and Management Invention ISSN (Online, 4(4), 25-31-8028.
Raymond Donnelly, E. S. (1996). The Share Price Reaction of U.K. Exporters to Exchange Rate Movements: An Empirical Study. Journal of International Business Studies, 27(1), 157–165.
Riahi -Belkoui, A. (2002). Behavioral management accounting. Greenwood Publishing Group.
Setiawanta, Y., & Purwanto, A. (2019). Stakeholder power, Sustainability Reporting, and Corporate Governance: A Case study of Manufacturing Industry at Indonesia’s Stock Exchange. Scientific Papers of The University of Pardubice Series D, 46(2), 147–158.
Setiawanta, Y., Purwanto, A., & Hakim, M. A. (2019). Financial Performance and Firm Value Lesson from Mining Sub-sector Companies on the Indonesia Stock Exchange. Jurnal DInamika Akuntansi, 11(1), 70–80.
Simorangkir, I. (2004). Sistem dan Kebijakan Nilai Tukar. In Seri Kebanksentralan (pp. 53–47). Pusat Pendidikan dan Studi Kebanksentralan (PPSK) BI, 2004.
Sutriani, A. (2014). Pengaruh Profitabilitas, Leverage dan Likuiditas terhadap Return Sahan dengan Nilai Tukar sebagai Variabel Moderasi pada Saham LQ-45. Journal of Business and Banking, 4(1), 67–80.
Tabak, B. M. (2006). Working Paper Series and Exchange Rates : evidence for Brazil.
Tahir, I. M., & Razali, ahmad R. (2011). The Relationship Between Entreprise Risk Management ( ERM ) and Firm Value : Evidence from Malaysian Public Listed Companies. International Journal of Economics and Management Sciences Vol., 1(2), 32–41, NaN-6359.
Tristiarini1, N., Utomo1, S. D., & Setiawanta1, Y. (2019). The Capability of Risk as a Corporate Reputation Driver to increase Market Value. QUALITY Access to Success, 20(168), 54.
UNCTAD. (2015). Freight Rate and Maritim Transport costs. In Review of Maritim Transport 2015 (pp. 45–64).
Wagenhofer, A. (2010). Discussion of “‘ Signaling firm value to active investors .’” Rev Account Stud Springer Science+Business Media, (March), 620–628. https://doi.org/10.1007/s11142-010-9123-6
Yau, H. Y., & Nieh, C. C. (2009). Testing for cointegration with threshold effect between stock prices and exchange rates in Japan and Taiwan. Japan and the World Economy, 21(3), 292–300. https://doi.org/10.1016/j.japwor.2008.09.001
Creative Commons License

This work is licensed under a Creative Commons Attribution 4.0 International License.

Please read the Copyright Notice in Journal Policy.