Pathways to Firm Value: The Effects of Financial Distress, Capital Structure, Investment Opportunity Set, and Dividend Payout on Firm Value through Profitability with Firm Size as a Moderator
Abstract
Firm value remains a central issue in Indonesia's property and real estate industry, as market valuation does not always reflect firms' financial performance. Prior studies have reported inconsistent findings regarding the effects of financial distress, capital structure, investment opportunity set, and dividend policy on profitability and firm value, while the moderating role of firm size in the profitability–firm value relationship remains underexplored. This study employs an integrated corporate finance framework to examine the effects of financial distress, capital structure, investment opportunity set, and dividend policy on profitability, the effect of profitability on firm value, and the moderating role of firm size. An explanatory quantitative research design was employed using secondary data from property and real estate companies listed on the Indonesia Stock Exchange during the 2010–2019 period. Through purposive sampling, 270 firm-year observations meeting the criteria were obtained from an initial 420 firm-year observations. Financial distress was measured using the Altman Z-Score; panel data were estimated using the Fixed Effect Model (FEM) based on the Chow and Hausman tests, while the moderating effect was tested using Moderated Regression Analysis (MRA). The results show that the four independent variables have a significant effect on profitability (R² = 0.7602, or 76.02%): financial distress exerts a negative effect, whereas capital structure, investment opportunity set, and dividend policy exert significant positive effects. Profitability significantly affects firm value (R² = 0.8091, or 80.91%); after firm size is incorporated as a moderator, R² increases to 0.8443 (84.43%), indicating that firm size strengthens this effect. These findings support Trade-off Theory, Agency Theory, and Signaling Theory, and offer practical implications for managers, investors, and regulators in formulating financial strategies to enhance profitability and sustainable firm value.