CAPITAL STRUCTURE, INVESTMENT OPPORTUNITY AND FIRM VALUE
Arieska Suwandhayani, SM and Noorlaily Fitdiarini, SE., MBA

Faculty of Economy and Business, Airlangga University

Abstract

This research aims to examine the impact of capital structure and investment opportunity set on firm value of 25 consumer goods companies listed in Indonesian Stock Exchange during 2009-2012. Capital structure proxies in this research were debt to equity ratio, debt to assets ratio and long term debt to assets ratio. Investment opportunity set proxies in this research were market to book value of assets, market to book value of equity, capital expenditure to book value of assets and firm value proxies in this research were price to book value and price earning ratio. The empirical result of Partial Least Square showed that both capital structure and investment opportunity set had positive significantly impact on firm value. All indicators on capital structure variables proved to be valid for measuring capital structure while capital expenditure to book value of assets and price earning ratio were not valid used in measuring each variables. This findings showed that funding policies and investment opportunity set of firm profoundly influenced the way the firm was viewed by investors and creditors.

Keywords: capital structure, investment opportunity, firm value

Topic: Financial Management and Accounting