Jurnal Ilmiah Akuntansi dan Keuangan Vol. 11, No. 2, July-December 2022

http://jurnal.universitasputrabangsa.ac.id/index.php/jiak/index
ISSN: 2580-510X/ P-ISSN: 2548-9453
ARTICLE INFORMATION
th

Received June 27 2022
th
Accepted December 5 2022
st
Published December 21 2022

The Effects of Company Size, Business
Diversification, and Investment Decision on Firm
Value with Capital Structure as a Moderating
Variable
Thia Margaretha Tarigan1, Novia Utami2*, Selvi Arifin3
1,2)

Atma Jaya Catholic University of Indonesia
PricewaterhouseCoopers Indonesia
email: novia.utami@atmajaya.ac.id2
3)

ABSTRAK
Penelitian ini bertujuan untuk menguji kembali apakah ukuran perusahaan, diversifikasi usaha, dan
keputusan investasi berdampak terhadap nilai perusahaan dengan struktur modal sebagai mediator.
Metode pengambilan sampel yang digunakan dalam penelitian ini adalah purposive sampling. Populasi
yang menjadi kriteria sampel dalam penelitian ini adalah semua perusahaan manufaktur yang terdaftar di
Bursa Efek Indonesia selama 5 tahun yaitu periode pengamatan 2016-2020, kemudian dipilih berdasarkan
kriteria-kriteria tertentu yang paling memenuhi. Analisis data menggunakan pendekatan kuantitatif dan
analisis regresi liner berganda. Hasil penelitian menyimpulkan bahwa ukuran perusahaandan keputusan
investasi berpengaruh positif dan signifikan terhadap nilai perusahaan. Hasil berbeda terjadi pada
diversifikasi usaha yang memiliki pengaruh negatif dan signifikan terhadap nilai perusahaan. Kesimpulan
hubungan antara variabel independen dengan variabel dependen ini diperkuat dengan variabel struktur
modal.
Kata kunci: Diversifikasi Usaha, Keputusan Investasi, Nilai Perusahaan, Struktur Modal, Ukuran Investasi

ABSTRACT
This research aims at reviewing whether company size, business diversification, and investment decision
affect firm value by using capital structure as a mediator. Samples were collected from a population (all
manufacturing companies listed in Indonesia Stock Exchange within observation period of 2016-2020)
using a purposive sampling method following specific criteria. Data were then analyzed using a
quantitative approach and a multiple linear regression technique. Results show that company size and
investment decision affect firm value positively and significantly. Meanwhile, business diversification
negatively and significantly affects firm value. At the same time, capital structure variable makes the
relationship between independent and dependent variables stronger.

Page

127

Keywords: Business Diversification; Capital Structure; Company Size; Firm Value; Investment Decision

DOI: https://doi.org/10.32639/jiak.v11i2.122

Jurnal Ilmiah Akuntansi dan Keuangan Vol. 11, No. 2, January-July 2022

INTRODUCTION
Firm value describes a company’s current state, reflecting how much trust the public puts in it after
years of activity process. Firm value is reflected by a share price that is stable but rising in the long term.
Share price is the company’s price in the stock market, which is highly critical to the company as it
reflects the company’s value as well as its success in managing business. If a company shows an
excellent performance, its stocks will normally be favored by investors.
Share price is highly valuable, and is also considered one of indicators of a company’s success. Often
associated with high performance, high-priced stock attracts investors hoping for an increase in the
price of the stocks, hence allowing the company to raise its investment. In contrast, a decrease in share
price reflects company’s unsatisfactory performance from investors’ perspectives that will affect their
trust and prevent them from investing in the company.
Increasing firm value is now companies’ main goal, given the spread of Covid-19 virus, which began on
December 1, 2019 in Wuhan, Hubei Province, China, and continued around the world, including
Indonesia. Covid-19 has affected not only people’s health, but also business sector. It has caused share
price declines in the stock market, particularly after WHO declared Covid-19 a pandemic (AlAli, 2020),
and negative abnormal returns (Narayan et al., 2021).
The Covid-19 pandemic in Indonesia has affected the country’s capital market and changed the trading
hours on Indonesia Stock Exchange, sending negative signals to investors before stimulating stock selloff (Kusnandar & Bintari, 2020). On the other hand, companies need to raise capital to ensure continuity
of their businesses. According to Indonesian Public Listed Companies Association (2020), issuers from
hospitality, tourism, transportation, manufacturing, and agribusiness industries are most affected.
Suffering from the impacts of the Covid-19 pandemic, many companies are pushed to maximize their
values to survive, and most importantly to recover.
Companies must innovate in order to raise their values. Innovation can have impacts on companies’
profit growth, an aspect that will benefit investors. Besides, it will also increase companies’ size. A
company is strong when it holds certain amount of revenue, assets, and capital. A large company tends
to make use of its assets to innovate. Company size is determined by its assets, total sales, average total
sales and average total assets, and is believed to have the ability to influence firm value, with larger
companies being easier to raise finance. This easiness sends positive signals and shows good prospect,
indicating that company size can influence firm value positively. In other words, how big or small a
company is has direct effects on firm value. This is pursuant to results of a study conducted by Suryana
& Rahayu (2018) showing that company size positively and significantly influences firm value. It means
that the larger the company is, the higher its value will be.

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Investment decision is extremely important considering how company’s investment can help achieve
company’s goals. It is the overall process of planning and making decisions on the money spent on
investment whose returns will be gained in no less than a year. Investment decision focuses more on a
range of options such as buying assets, running a project, and other activities directed at procurement
of infrastructure that supports operational activities. Signaling theory states that spending on
investment sends positive signals, indicating company’s growth in the future, and, hence, an increase in
share price is an indicator of firm value. In line with the notion, research conducted by Widodo & Kurnia
(2016), and Sudiani & Wiksuana (2018) found the influence of investment decision on firm value.

128

Companies can also opt to implement a diversification strategy to grow their business. This strategy
allows companies to produce products and services completely unrelated to the company’s main
competence. Diversification strategy is chosen by the company’s manager to speed up business,
improve the company’s ability to generate profit, take up market opportunities, level up company’s
competitive advantage in the industry, speed up company’s growth, and increase efficiency in allocation
of company’s resources and competencies (Salindeho et al., 2018). Similarly, Njuguna et al. (2018), and
Mehmood et al. (2019) also stated that diversification strategy influences firm value.

Tarigan, Utami & Arifin
THE EFFECTS OF COMPANY SIZE…

Companies must also take into account their capital structure, considering how it is related to company
size, business diversification strategy and investment decision. Capital structure describes the
proportion of company’s financing sources, more specifically the ratio of company’s debt to equity;
therefore, its presence can strengthen company size, business diversification, and investment decision—
factors determining valuation of the company. In companies where growth is high, larger capital is
needed. On the other hand, when sales growth is low, the need for capital is lower. This explains why
sales growth has positive influences. However, this implication will have different effects on capital
structure, particularly in determining the types of capital to use.
When a company implements a business diversification strategy, it will need a significantly large amount
of finance and take considerable risks, causing long-term debts. It shows that business diversification
leads to greater capital structure. Similarly, when a company increases its investment, its need for
finance rises. Companies must consider their capital structure, whether they want to source their
funding internally or externally. In addition, they must also determine the proportion of debt and equity
to use as this ratio will influence the cost of capital, the basis for calculating the required return.

LITERATURE REVIEW
Signaling Theory
Signaling theory arises from the fact that managers and shareholders do not have the same access to
information related to the company (information asymmetry). Certain information is only available to
the managers but not to the shareholders (Chod & Lyandres, 2021).Signaling theory describes how
managers use financial statements to send positive signals to investors in order to reduce information
asymmetry. According to signaling theory, only companies with good performances can send positive
signals to the external parties. These positive signals are inimitable, making it difficult for companies
with poor performances to copy. Signals can be sent through information disclosure or corporate
actions determined by corporate insiders, which involve increases in debt financing and other financial
decisions. Signaling theory also states that investment decisions made by companies send positive
signals for growth in the future, and hence increases in share price in the capital market—one of the
indicators of firm value. This signal will attract investors to invest in the company through stocks. If
many investors invest in a company, trading volume for the company’s stock will rises, and in such
conditions, share price in the market or firm value moves up.

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Company Size
According to Indrawan & Damayanthi (2020), company size is closely related to financing decisions
implemented by the company to optimize its value. It can be said that company size reflects the
company’s total assets. A large size sends positive signals to investors or creditors and attract them to
invest in the company, leading to an increase in externally sourced financing and a decrease in financial
distress. Furthermore, company size also influences investors’ trust. The larger the company is, the
better-known it is among people, and hence the easier access to information that will eventually
increase firm value. A company with large total assets can attract investors to invest in the company.

129

Firm Value
Firm value demonstrates company’s conditions—a reflection of how much trust people put in the
company after years of business process and activities since its establishment. An increase in firm value
is something all business owners want to achieve. Firm value is highly important given how high value
brings wealth to shareholders (Jihadi et al., 2021). Often associated with share price, firm value is
investors’ perceptions of a company’s success levels in managing the resources it has. One of the ratios
used to measure firm value is the price-to-book value (P/B). The price-to-book value describes the net
worth of a company on its balance sheet, or a comparison between a company’s share price and its
book value. Book value is the total equity divided by shares outstanding.

Jurnal Ilmiah Akuntansi dan Keuangan Vol. 11, No. 2, January-July 2022

Diversification
Diversification is a strategy that is used to develop businesses by expanding business segment or
geographical scope of the company. Diversification can be done by aiming at new business segments,
creating more uniform products, expanding marketing areas, opening branch offices, carrying out
merger and acquisition to increase economies of scale (Salindeho et al., 2018).
Investment Decision
Investment decision can be described as the commitment on funds invested in one asset or more while
expecting positive future returns whose value is higher than it is today along with low risks to optimize
firm value. Investment decision is also referred to as capital budgeting; it is related to not only active
assets, but also all decisions including commitment on relatively large funds today (Agung et al., 2021). It
is expected that this decision can help the company generate more funds within a relatively long time in
the future.
Capital Structure
Mardevi et al. (2020) defined capital structure as the ratio of total debt to total equity, and the value in
the capital structure will rise if a company fails to factor in the cost of debt, namely interest. If this value
moves up, default risk level increases.
Hypothesis Formulation
The influence of company size on firm value
Company size is considered one of factors influencing firm value given how larger companies can have
more financing options available to help them achieve their goals (Antoro et al., 2020). Size affects
company’s flexibility and accessibility to capital market with larger companies having easier access and
more opportunities to get into the capital market. Therefore, the larger the company is, the higher the
firm value is.
H1: Company size positively influences firm value.
The influence of diversification on firm value
Diversification is a strategy implemented to develop businesses by expanding company’s business
segments or geographical scope. It can be done by entering a new business segment, creating more
uniform products, expanding marketing areas, opening branch offices, and carrying out merger and
acquisition to increase economies of scale. One of the ways to measure how diversified a company has
become is by seeing how many business segments or subsidiaries it has, and the more diversified a
company is, the higher the firm value is (Yustyarani & Yuliana, 2020).
H2: Diversification positively influences firm value.
The influence of investment decision on firm value
According to Triani & Tarmidi (2019), a high investment is a signal of company’s revenue growth in the
future. This signal is perceived as good news that will influence investors’ perceptions of the company’s
performance, and affect firm value eventually. In short, it can be said that the more investment the
company makes, the higher the firm value is.
H3: Investment decision positively influences firm value.

H4: Capital structure is able to moderate the relationship between company size, diversification,
investment decision, and firm value.

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Capital structure is the ratio of total debt to total equity. A decrease in the capital structure as a result of
a careful calculation of the cost of debt will lead to increase in firm value. At the same time, a large
company size, diversification and the right investment decision, along with strong capital structure, will
raise firm value and send positive signals to investors (Sudrajat & Setiyawati, 2021).

130

The influence of capital structure as a moderating variable in the relationship among company size,
diversification, investment decision and firm value

Tarigan, Utami & Arifin
THE EFFECTS OF COMPANY SIZE…

METHOD
Sample and Collection
Population of the study is all non-financial companies listed in Indonesia Stock Exchange within
observation period of 2016-2020. Samples were selected using a purposive sampling method following
specific criteria, which include:
1. Manufacturing companies listed in Indonesia Stock Exchange within observation period of
2016-2020.
2. Companies issuing a complete set of financial statement that has been audited from 2016 to
2020, with fiscal year ending on December 31.
3. Companies issuing financial statement maintained in rupiah.
4. Companies that recorded from 2016 to 2020.
5. Companies with positive total equity from 2016 to 2020.
Analysis Method
This study used secondary data. They were pooled data combining time series and cross-section data.
The following is the regression formula used in the analysis:
Y = α + β1 X1 + β2 X1*Z1+ β3 X2 + β4 X2*Z2+ β5 X3 + β6 X3*Z3 + е
Where:
Y
Α
Β1-6
X1
X2
X3
Z1-3

: Firm Value
: Constant
: Regression coefficient of each factor
: Company Size
: Diversification
: Investment Decision
: Capital Structure

Dependent Variable
Dependent variable of the study—firm value—was measured using price book value (PBV) ratio,
calculated as:
PBV = Market price per share
Book value per share

Independent Variable
Independent variables of the study are company size, diversification, and investment decisions.
Company Size
In this study, company size is measured using companies’ total assets. The formula used in the
calculation is described below:
Size = Ln Total Asset

= Total sales

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Sales

131

Diversification
Diversification is measured using Herfindahl Index (HERF) expressed below:
Where:
Segsales = Sales of each segment

Jurnal Ilmiah Akuntansi dan Keuangan Vol. 11, No. 2, January-July 2022

Investment Decision
Growth of total asset reflects how companies invest their funds in assets while expecting higher returns
in the future. Total Assets Growth is calculated using the formula below:

Moderating Variable
Capital structure is measured using the Debt-to-Equity ratio stated below:
DER =

Total Liabilities
x 100%
Total Shareholders’ Equity

RESULT AND DISCUSSION
Classical Assumption Test
16

Series: Residuals
Sample 11 672
Observations 188

14
12
10
8
6
4
2
0
-0.8

-0.6

-0.4

-0.2

0.0

0.2

0.4

0.6

0.8

Mean
Median
Maximum
Minimum
Std. Dev.
Skewness
Kurtosis

7.32e-17
0.038609
1.027098
-0.875528
0.342961
-0.177479
2.672370

Jarque-Bera
Probability

1.827803
0.400957

1.0

Figure 1. Normality Assumption
Referring to the test result, with Jarque-Bera value being greater than α = 5%, error term is normally
distributed.
Table 1. Multicolinearity Assumption
Coefficient Uncentered
Variable
Centered VIF
Variance
VIF
C
0.339066
521.6557
NA
LNX1
0.000415
514.9551
1.408258
LNX2
1.89E-06
7.879112
1.230553
LNX3
0.000713
8.594367
1.358448
1.706857
1.680056
1.222552
1.824822

Referring to the above table, there are no independent variables showing a VIF ≥ 10, an indicator for
absence of multicollinearity among independent variables in the regression model.

132

2.071326
1.930760
1.242260
2.226051

Page

Z
0.000106
X1Z
1.56E-30
X2Z
2.25E-19
X3Z
0.006847
Source: Secondary data processed

Tarigan, Utami & Arifin
THE EFFECTS OF COMPANY SIZE…

Variable
C
LNX1
LNX2
LNX3
Z
X1Z
X2Z
X3Z
R-squared
Adjusted R-squared
S.E. of regression
Sum squared resid
Log likelihood
F-statistic
Prob(F-statistic)

Table 2. Heteroscedasticity Assumption
Coefficient
Std. Error
t-Statistic
0.711491
0.327084
2.175257
-0.012311
0.011448
-1.075334
0.001646
0.000773
2.129434
-0.002034
0.015000
-0.135599
0.001356
-2.44E-16
-7.22E-10
-0.022803
0.060651
0.024121
0.196357
6.940082
43.35762
1.660289
0.121428

0.005790
7.03E-16
2.67E-10
0.046481

0.234161
-0.347264
-2.708320
-0.490582

Mean dependent var
S.D. dependent var
Akaike info criterion
Schwarz criterion
Hannan-Quinn criter.
Durbin-Watson stat

Prob.
0.0309
0.2837
0.0346
0.8923
0.8151
0.7288
0.0074
0.6243
0.278743
0.198769
-0.376145
-0.238424
-0.320346
1.053304

Source: Secondary data processed
processed
The Glejser test was conducted to see presence of heteroscedasticity. Regression analysis using the
Glejser method generated an Obs*R-squared of 11.40234 and a p-value of 0.1634 (greater than α =
0.05). Hence, it can be concluded that the residuals are homoscedastic, and that no heteroscedasticity is
present in the model.

0.009716
-0.005733
17.87712
204858.1
-2799.657
0.628885
0.789710

Mean dependent var
S.D. dependent var
Akaike info criterion
Schwarz criterion
Hannan-Quinn criter.
Durbin-Watson stat

Prob.
0.9819
0.9828
0.9989
0.9786
0.9929
0.9965
0.9911
0.9841
0.0421
0.2825
0.5723
-6.81E-16
17.82609
8.621648
8.697231
8.650960
2.030396

Source: Secondary data processed
processed
Results of the
autocorrelation test using the Breusch-Godfrey serial correlation LM test demonstrate an
Obs*R-squared of 6.334623 and a p-value of 0.0964 (greater than α = 0,05). It can be inferred that the
regression model does not contain any autocorrelation.

133

R-squared
Adjusted R-squared
S.E. of regression
Sum squared resid
Log likelihood
F-statistic
Prob(F-statistic)

Table 3. Autocorrelation Assumption
Coefficient
Std. Error
t-Statistic
-0.017016
0.749976
-0.022688
6.02E-16
2.79E-14
0.021547
-1.31E-10
9.52E-08
-0.001377
0.006258
0.233355
0.026817
-0.000492
0.055185
-0.008910
1.04E-16
2.40E-14
0.004351
5.04E-10
4.53E-08
0.011123
-0.002569
0.128870
-0.019937
0.080465
0.039500
2.037069
0.042597
0.039599
1.075726
0.022319
0.039509
0.564905

Page

Variable
C
X1
X2
X3
Z
X1Z
X2Z
X3Z
RESID(-1)
RESID(-2)
RESID(-3)

Jurnal Ilmiah Akuntansi dan Keuangan Vol. 11, No. 2, January-July 2022

Hypotesis Test

R-squared
0.042160
Adjusted R-squared
0.031276
S.E. of regression
1.152536
Sum squared resid
818.2571
Log likelihood
-969.9778
F-statistic
3.873399
Prob(F-statistic)
0.000387
Source: Secondary data processed
processed

Variable
C
X1
X2
X3
Z
X1Z
X2Z
X3Z

Mean dependent var
S.D. dependent var
Akaike info criterion
Schwarz criterion
Hannan-Quinn criter.
Durbin-Watson stat

Table 5. Fixed Effect Result
Coefficient
Std. Error
3.675375
0.735602
1.81E-14
8.42E-15
-1.23E-08
6.17E-09
0.443917
0.167740
-0.009607
0.038316
4.06E-15
5.16E-15
4.36E-09
2.20E-09
0.285524
0.100290

R-squared
0.317104
Adjusted R-squared
0.131708
S.E. of regression
17.05044
Sum squared resid
148847.4
Log likelihood
-2695.534
F-statistic
3.710415
Prob(F-statistic)
0.000014
Source: Secondary Data Processed

t-Statistic
4.996416
2.150543
-1.997389
2.646466
-0.250732
0.787825
1.985002
2.846967

Mean dependent var
S.D. dependent var
Akaike info criterion
Schwarz criterion
Hannan-Quinn criter.
Durbin-Watson stat

Prob.
0.0082
0.0446
0.1030
0.0372
0.0312
0.2739
0.0674
0.0656
0.206751
1.170993
3.134544
3.191418
3.156645
0.440521

Prob.
0.0000
0.0320
0.0463
0.0084
0.8021
0.4312
0.0477
0.0046
3.361626
18.29796
8.697958
9.659930
9.071031
3.035145

134

Table 4. Common Effect Result
Coefficient
Std. Error
t-Statistic
0.137550
0.051828
2.653946
3.72E-15
1.85E-15
2.012164
1.00E-08
6.14E-09
1.632994
0.098817
0.047330
2.087801
0.019551
0.009056
2.158934
-1.77E-15
1.61E-15
-1.095158
-5.35E-09
2.92E-09
-1.832317
-0.049416
0.026789
-1.844610

Page

Variable
C
X1
X2
X3
Z
X1Z
X2Z
X3Z

Tarigan, Utami & Arifin
THE EFFECTS OF COMPANY SIZE…

Variable
C
X1
X2
X3
Z
X1Z
X2Z
X3Z

Table 6. Random Effect Result
Coefficient
Std. Error
3.526229
1.015963
-1.18E-14
1.06E-14
8.11E-09
2.35E-09
-0.469686
0.161453
-0.001053
0.034021
7.58E-15
2.19E-15
-8.55E-09
3.21E-09
0.329101
0.090172
Effects Specification

Cross-section random
Idiosyncratic random

t-Statistic

Prob.

3.470824
-1.111922
3.444977
-2.909116
-0.030937
3.459117
-2.665268
3.649703

0.0006
0.2666
0.0006
0.0037
0.9753
0.0006
0.0079
0.0003

S.D.
5.574853
17.05044

Rho
0.0966
0.9034

Weighted Statistics
R-squared
Adjusted R-squared
S.E. of regression
F-statistic
Prob(F-statistic)

0.048381
0.038038
17.03146
4.677392
0.000040

Mean dependent var
S.D. dependent var
Sum squared resid
Durbin-Watson stat

2.717563
17.36474
186805.5
2.421239

Unweighted Statistics
R-squared
0.050631 Mean dependent var
Sum squared resid
206929.1 Durbin-Watson stat
Source: Secondary data processed

Variable
C
X1
X2
X3
Z
X1Z
X2Z
X3Z
R-squared
Adjusted R-squared
S.E. of regression
Sum squared resid
Log likelihood
F-statistic
Prob(F-statistic)

Table 7. Chow Test Result
Coefficient
Std. Error
t-Statistic
3.512242
0.751845
4.671498
-1.28E-14
2.80E-14
-0.457301
1.40E-08
9.54E-08
0.147213
-0.478356
0.233912
-2.045029
0.002452
0.055320
0.044324
8.77E-15
2.41E-14
0.364579
-1.15E-08
4.54E-08
-0.252926
0.346421
0.129182
2.681658
0.050912
0.040596
17.92271
206867.9
-2802.840
4.935131
0.000019

Mean dependent var
S.D. dependent var
Akaike info criterion
Schwarz criterion
Hannan-Quinn criter.
Durbin-Watson stat

3.361626
2.185776

Prob.
0.0000
0.6476
0.8830
0.0413
0.9647
0.7155
0.8004
0.0075
3.361626
18.29796
8.622208
8.677178
8.643527
2.188819

Source: Secondary data processed

The likelihood ratio test that aims to select between the common effect and the fixed effect models
generated a p-value of 0.000<0.05. This result suggests that fixed effect is the best model.

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H1 : Fixed Effect Model

135

H0 : Common Effect Model or pooled OLS

Jurnal Ilmiah Akuntansi dan Keuangan Vol. 11, No. 2, January-July 2022

Table 7. Hausman Test Result
Chi-Sq.
Test Summary
Statistic
Chi-Sq. d.f.
Cross-section random
6.406557
7
Cross-section random effects test comparisons:
Variable
Fixed
Random
Var(Diff.)
X1
-0.000000
-0.000000
0.000000
X2
-0.000000
0.000000
0.000000
X3
-0.443917
-0.469686
0.012968
Z
-0.009607
-0.001053
0.000783
X1Z
0.000000
0.000000
0.000000
X2Z
0.000000
-0.000000
0.000000
X3Z
0.285524
0.329101
0.004037
R-squared
0.317104
Adjusted R-squared
0.131708
S.E. of regression
17.05044
Sum squared resid
148847.4
Log likelihood
-2695.534
F-statistic
1.710415
Prob(F-statistic)
0.000014
Source: Secondary data processed

Mean dependent var
S.D. dependent var
Akaike info criterion
Schwarz criterion
Hannan-Quinn criter.
Durbin-Watson stat

Prob.
0.0432
Prob.
0.9567
0.7652
0.8210
0.7598
0.8106
0.7967
0.4928
3.361626
18.29796
8.697958
9.659930
9.071031
3.035145

H0 : Random Effect Model
H1 : Fixed Effect Model
The Hausman test that aims at selecting between fixed effect model and random effect model
generated a probability value of 0.0432 < 0.05. Pursuant to this result, fixed effect is considered the best
model.
Table 8. Breusch-Godfrey Serial Correlation LM Test Result
F-statistic
2.986207
Prob. F(2,642)
0.0512
Obs*R-squared
6.009537
Prob. Chi-Square(2)
0.0496
Source: Secondary data processed
H0 : Common Effect Model
H1 : Fixed Effect Model
The LM test that aims at selecting between common effect model and fixed effect model generated a
probability value of 0.0496< 0.05. Therefore, it can be concluded that fixed effect is the best model.

Coefficient

Std. Error

t-Statistic

Prob.

C

3.675375

0.735602

4.996416

0.0000

X1

1.81E-14

8.42E-15

2.150543

0.0320

X2

-1.23E-08

6.17E-09

-1.997389

0.0463

X3

0.443917

0.167740

2.646466

0.0084

Z

-0.009607

0.038316

-0.250732

0.8021

X1Z

4.06E-15

5.16E-15

0.787825

0.4312

X2Z

4.36E-09

2.20E-09

1.985002

0.0477

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Variable

136

Table 9. Fixed Effect Regression Analysis

Tarigan, Utami & Arifin
THE EFFECTS OF COMPANY SIZE…

X3Z

0.285524

0.100290

2.846967

0.0046

R-squared

0.317104

Mean dependent var

3.361626

Adjusted R-squared

0.131708

S.D. dependent var

18.29796

S.E. of regression

17.05044

Akaike info criterion

8.697958

Sum squared resid

148847.4

Schwarz criterion

9.659930

Log likelihood

-2695.534

Hannan-Quinn criter.

9.071031

F-statistic

3.710415

Durbin-Watson stat

3.035145

Prob(F-statistic)

0.000014

Determination Test:
From the test, an R-squared of 0.131708 was generated, This number indicates that 13.17% of PBV can
be explained the independent variables while the remaining (100% – 13.17% = 86.83%) is determined
by other variables not included in this study.
F-Test
With 95% confidence level, df1 (the number of variables-1) = 7, and df2 (n-k) = 650, an F table of 2.023
was generated, with 0.048 significance level. Therefore, with an F-value being greater than the critical Fvalue in the table (3.710415 > 2.023) or p< (0.000 < 0.05), H0 is rejected. This finding indicates that
independent variables simultaneously and significantly influence PBV.
t-Test
X1 symbolizes Ln Total Assets
Results show that the coefficient of X1 is 1.18E-14, and its p-value is 0.0320 (less than α=0.05). It
can be then concluded that X1 variable positively and significantly influences PBV.
b) X2 symbolizes Diversification
Results show that the coefficient of X2 is -1.23E-08, and its p-value is 0.0463 (less than α=0.05). It
can be then concluded that X2 variable negatively and significantly influences PBV.
c) X3 symbolizes Investment Decision
Results show that the coefficient of X3 is 0.443917, and its p-value is 0.0084 (less than α=0.05). It
can be then concluded that X3 variable positively and significantly influences PBV.
d) Z symbolizes DER
Results show that the coefficient of Z is -0.009607, and its p-value is 0.8021 (greater than α=0.05). It
can be then concluded that Z variable does not have any significant influence on PBV.
e) X1Z is the multiplication of X1 and Z
Results show that the coefficient of X1Z is 4.06E-15 and its p-value is 0.4312 (greater than α=0.05).
It can be then concluded that Z does not moderate the relationship between X1 and Y.
f) X2Z is the multiplication of X2 and Z
Results show that the coefficient of X2Z is 4.36E-09, and its p-value is 0.0477 (less than α=0.05). It
can be then concluded that Z moderates the relationship between X2 and Y.
g) X3Z is the multiplication of X3 and Z
Results show that the coefficient of X3Z is 0.285524, and its p-value is 0.0046 (less than α=0.05). It
can be then concluded that Z moderates the relationship between X3 and Y.

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137

a)

Jurnal Ilmiah Akuntansi dan Keuangan Vol. 11, No. 2, January-July 2022

Discussion
Company Size Influences Firm Value
The hypothesis saying that company size positively and significantly influences firm value is accepted.
This finding also supports the theory saying the bigger the companies, the better-known they become,
and hence, the easier the access to information about the company. This availability of information will
raise the company’s value. Large company size sends positive signals to investors and creditors,
attracting them to invest in the company, hence increase in external financing and lower financial
distress.
Diversification Influences Firm Value
According to the test results, diversification strategy negatively influences company’s performance. In
other words, high (low) diversification levels can reduce (improve) the company’s performance.
Diversification strategy poses risks to the company considering how ineffective management of
diversification will compromise the company’s performance. On the other hand, low levels of
diversification make it easier for the company’s management to handle businesses, hence higher
performance.
Investment Decisions Influence Firm Value
Investment decisions significantly influence the value of the company. When right decisions are made,
positive signals are sent to investors, and this will eventually increase the value of the company.
Similarly, Utami & Darmayanti (2018) stated that investment decisions positively and significantly
influence company’s value with better decisions leading to higher value of the company. A company
that makes a good investment decision attracts investors, hence an increase in demand for its stocks.
Capital Structure Does Not Influence Firm Value
It has been found that capital structure has no influence on firm value. The agency theory acknowledges
the role of external monitoring as a consequence of using debt. When debt takes up more space in the
capital structure, stock financing decreases and agency costs of equity is minimized. However, the
company is still obliged to make the required payment on its debt principal and interests periodically. In
addition, using too much debt may lead to an agency problem between shareholders and debtholders,
and thus agency cost of debt incurs. Agency cost does not change firm value. Growing debt will increase
risks to company’s revenue stream, which is highly influenced by external factors. Debt always comes
with interests regardless of how big or small the revenue is. In addition, bigger debts come with higher
interests, which can even exceed tax savings. Therefore, company’s debt policy negatively and
significantly influences firm value. If capital structure is dominated by debts, share price will move
down, hence decrease in firm value.
The Influence of Company Size, Diversification and Investment Decision on Firm Value with Capital
Structure as Moderating Variable
Raising capital in the capital market is easier for a well-established, large company than it is for the
smaller one. Larger companies often gain greater trust when it comes to financing businesses, making it
easier for them to find external capital sources. For creditors, large company size is seen as a positive
signal to give credit. In addition, when companies have much debt, managers are ‘forced’ to provide
free cash flow to pay for the debt; it prevents the company from spending money for things considered
unnecessary (to minimize cash flow used by the company’s management). When planning to implement
a diversification strategy, a company will need to secure large funds and take a high risk; this can lead to
a long-term debt. It can be seen that diversification increases the value in the capital structure.

Page

While company size, business diversification and investment decision directly affect firm value, capital
structure does not have any direct influence on firm value. This is because too much debt will increase
the company’s default risk and reduce profit. However, it turns out that capital structure strengthens
the relationship among company size, diversification and investment decision because when a company

138

CONCLUSION

Tarigan, Utami & Arifin
THE EFFECTS OF COMPANY SIZE…

increases its assets, enters new business segments, expands its market and makes investment decisions,
it needs a large additional amount of capital.
Recommendation
1. This study uses PBV to measure firm value; however, it is recommended that future studies can
use Qtobin, Price-to-Earnings Ratio, or other proxies.
2. Future researchers can use other independent variables not included in the model but directly
related to firm value.

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