Working Capital, Net Profit Margin, and Exchange Rate Effects on Corporate Value through Leverage: Evidence from Listed Indonesian Construction Companies
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Abstract
This study analyzes the effects of Working Capital, Net Profit Margin (NPM), and Exchange Rate on Leverage (Debt to Asset Ratio) and Corporate Value (Price to Book Value), and the effect of Leverage on Corporate Value among publicly listed construction companies on the Indonesia Stock Exchange (IDX) during 2021–2025. Using a quantitative approach with panel data regression, twelve construction companies were selected through purposive sampling, generating 60 balanced observations. The Fixed Effect Model (FEM) was applied to the Leverage equation and the Random Effect Model (REM) to the Corporate Value equation, determined through Chow, Hausman, and Lagrange Multiplier tests. Results indicate that: (1) Working Capital has no significant effect on Leverage (t = −1.673; p = 0.1014); (2) NPM has a significant negative effect on Leverage (t = −3.587; p = 0.0008); (3) Exchange Rate has a significant negative effect on Leverage (t = −7.483; p = 0.0000); (4) Working Capital has no significant effect on Corporate Value (t = 0.390; p = 0.6981); (5) NPM has a significant negative effect on Corporate Value (t = −2.599; p = 0.0120); (6) Exchange Rate has a significant negative effect on Corporate Value (t = −3.748; p = 0.0004); and (7) Leverage has a significant negative effect on Corporate Value (t = −2.809; p = 0.0069). Adjusted R-squared values of 79.45% and 81.11% for the two models demonstrate strong explanatory power. Findings support Pecking Order Theory in explaining leverage decisions and Trade-off Theory in explaining the negative impact of excessive leverage on firm value. Exchange rate emerges as the most dominant variable, reflecting the construction sector's significant macroeconomic exposure to rupiah depreciation.
Keywords:
Working Capital Net Profit Margin Exchange Rate Leverage Corporate Value Construction Companies Panel Data Fixed Effect Model Random Effect ModelReferences
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