Evaluating The Firm Value Determinants: A Case of Indonesia's Energy Sector

Abstract

Purpose: This study examines the impact of profitability, liquidity, and firm size on firm value within Indonesia's energy sector, addressing contradictory findings in emerging market contexts. Design/Methodology/Approach: The research employed quantitative explanatory methods and purposive sampling to analyze 78 energy companies listed on the Indonesia Stock Exchange from 2019 to 2021. Multiple regression analysis was conducted to test hypotheses derived from agency and signaling theories. Findings: The results reveal three key insights: (1) profitability, measured by Return on Assets (ROA), negatively related to firm value as indicated by Tobin's Q; (2) liquidity, assessed through the current ratio, shows no significant effect; and (3) firm size, represented by the logarithm of assets, demonstrates a strong positive influence. These findings highlight unique market dynamics within Indonesia's energy sector. Suggestion: The study provides crucial benchmarks for investors evaluating energy equities in Southeast Asia and assists regulators in developing sector-specific policies. Additionally, managers should focus on optimizing assets rather than prioritizing short-term profitability metrics.