The Effect of Capital Structure on Equity and Company Value: A Study of Financial Companies Listed on the Indonesia Stock Exchange

Abstract

Introduction/Objective: This research intends to examine the impact of capital structure, as indicated by debt-to-equity and debt-to-assets ratios, on the value of companies and their equity within the financial sector firms listed on the Indonesia Stock Exchange (IDX) from 2020 to 2024. Problem Background: The trade-off between the benefits of debt taxation and bankruptcy risk makes capital structure an important issue, especially in the financial sector, which is strictly regulated in terms of capital adequacy and liquidity. Novelty: This study simultaneously examines the effect of capital structure on company value and equity in the Indonesian financial sector. The use of panel data with GMM robustness testing provides a stronger empirical approach in overcoming potential endogeneity. Research Method: Using panel data from BEI financial companies (2020–2024) with the independent variable of debt ratio, the dependent variables of company value and equity, and the controls of ROA and capital adequacy ratio. Findings/Results: Leverage has a negative and significant effect on firm value, indicating the dominance of debt costs in the financial sector. Conclusion: Capital structure has a negative effect on firm value and a varying impact on equity.