The effect of profitability and bank size on firm value sustainability: The mediating role of capital structure

Abstract

Sustainable firm value is the central concept for corporations, including the banking industry. This study examines the effect of profitability and bank size on firm value through capital structure. This study surveyed six banks registered in BUKU 4-member commercial banks operating in Indonesia that have been listed on the Indonesian Stock Exchange and implemented digital banking practices from 2007 to 2019. The six banks are Bank Mandiri, Bank Rakyat Indonesia, Bank Negara Indonesia, Bank Central Asia, Bank CIMB Niaga, and Bank Panin. Data collection is carried out by tracing the banks’ reports from the Bloomberg system terminal. Data analysis used a two-stage least squares technique. The results showed that profitability negatively and significantly affected the capital structure with a coefficient of –0.374. Moreover, bank size influences the capital structure with a negative coefficient value of –0.334. In addition, profitability positively affects firm value with a coefficient value of 0.387. Furthermore, bank size influences capital structure with a beta coefficient value of 0.158. Finally, the bank size affects firm value with a coefficient value of –0.419. These findings provide an insight for bank management to enhance firm value by assessing profitability, bank size, and capital structure. This study also contributes to the ongoing research in financial management.