The Effect of Corporate Governance on Profitability, Capital Structure and Corporate Value

Abstract

This study is motivated by theoretical inconsistencies that underlie agency relations, within the corporate governance framework to increase profitability, optimal capital structure, and corporate value. The results of previous researchers' research are conflicting about the effect  between variables. The originality of this study lies in providing empirical evidence of the effect of corporate governance, profitability, capital structure, on corporate value. This research is considered important to be carried out to study corporate governance within the framework of agency theory capable of directing management to make managerial decisions that minimize agency problems and improve the welfare of shareholders.This study focuses on empirical testing of the theory through testing the effect  between the variables of Corporate Governance, Profitability, Capital Structure, and Corporate Value. This research was conducted in Indonesia with observation objects covering all Basic Industry Manufacture companies listed on the Indonesia Stock Exchange, the observation period from 2012 to 2017. The population was 84 companies and a sample of 25 companies. The sampling method is purposive sampling. The data analysis technique uses statistical procedures to test hypotheses with the Generalized Structured Component Analysis (GSCA) software. The findings of this study are corporate governance has a positive and significant effect on profitability, capital structure and corporate value. Profitability has a positive effect on the capital structure and corporate value. Capital structure has a positive and significant effect on corporate value. This study concludes that good corporate governance will maintain an optimal capital structure that is able to increase profitability and Corporate value. Corporate management can use these variables to predict the Corporate's future.

Keywords: Corporate Governance, Profitability, Capital Structure, Corporate Value

DOI: 10.7176/RJFA/10-8-20

Publication date: April 30^th 2019