Accounting Analysis Journal

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1 AAJ 6 (1) (2017) Accounting Analysis Journal Profitability Mediating The Effect Of Managerial Ownership And Institutional Ownership On Firm Value Anisa Septiani Aenul Fajriah, Agus Wahyudin Jurusan Akuntansi, Fakultas Ekonomi, Universitas Negeri Semarang, Indonesia Article History Received January 2017 Approved February 2017 Published March 2017 Keywords: Firm Value; Institutional Ownership; Managerial Ownership; Profitability Abstrak Penelitian ini bertujuan untuk menganalisis pengaruh kepemilikan manajerial dan kepemilikan institusional terhadap nilai perusahaan, serta menganalisis peran profitabilitas dalam memediasi pengaruh kepemilikan manajerial dan kepemilikan institusonal terhadap nilai perusahaan. Populasi dalam penelitian ini adalah 44 perusahaan barang konsumsi yang terdaftar di Bursa Efek Indonesia (BEI) periode Pengambilan sampel menggunakan metode purposive sampling dihasilkan sampel sebanyak 19 perusahaan. Pengujian hipotesis penelitian dilakukan dengan menggunakan analisis regresi berganda. Penelitian ini menghadirkan variabel intervening sehingga dilakukan uji jalur (Path Analysis). Hasil penelitian menunjukkan bahwa kepemilikan manajerial dan kepemilikan institusional tidak berpengaruh terhadap nilai perusahaan. Profitabilitas berpengaruh positif signifikan terhadap nilai perusahaan. Kepemilikan institusional berpengaruh positif signifikan terhadap profitabilitas. Kepemilkan manajerial tidak berpengaruh terhadap profitabilitas. Profitabilitas hanya memediasi secara signifikan pengaruh kepemilikan institusional terhadap nilai perusahaan. Abstract This purpose of this study is to analyze the influence of managerial ownership and institutional ownership to firm value, and to analyze the profitability role in mediating the effects of managerial ownership and institutional ownership to firm value. The population in this study were 44 consumer goods companies listed in Indonesia Stock Exchange (IDX) in the period Data were selected by purposive sample, it obtained 19 firms for the sample of the research. Research hypothesis testing was done by using multiple regression analysis. This study presented an intervening variable so that the Path Analysis was used. The results showed that managerial ownership and institutional ownership had no effect on the firm value. Profitability had significant positive effect on the firm value. Institutional ownership had significant positive effect on profitability. Managerial ownership had no effect on profitability. Profitability only significantly mediated the effect of institutional ownership on the firm value Universitas Negeri Semarang Correspondence Author: Gedung L2 Lantai 2 FE Unnes Kampus Sekaran, Gunungpati, Semarang, anisaseptiani92@gmail..com ISSN

2 INTRODUCTION The main purpose of the establishment of a company is to increase firm value which is marked by the prosperity level of the corporate shareholders. Firm value has an important role in the company due to with high firm value will get its own position in the business environment. In addition, firm value is also used as a benchmark for investors to assess the success of a company. Firm value can be seen from the amount of stock price owned by the company. The higher the stock price of a company, the higher the value of the company. Every company wants its stock price is high and increase from year to year. Various efforts are made to increase corporate stock price. One of the efforts made is to appoint a professional (manager) to manage the company. The existence of manager within the company is expected to be able to increase corporate earnings that will be able to impact on the value of the company. However, in reality the stock prices of companies in Indonesia tend to be inconsistent and different from the expected situation. Management that is trusted by shareholders does not always do as the owner desires. Management tends to take opportunistic actions that can harm shareholders. Based on the data published by the stock exchange through its official website shows the symptom of decline from the top point at the position of Rp. 5,514 (June 03, 2015) to Rp. 4,802 at the end of July 2015 ( This means that within 2 months the average stock price has fallen by about 13%. This is contrary to expectations from companies that are targeting their stock prices continue to rise. To solve this problem, corporate managers must pay attention to the factors that influence the value of the company. On this occasion, the researcher focuses on assessing the effect of managerial ownership and institutional ownership. This is due to previous research findings indicates that managerial ownership and institutional ownership have a weak influence on firm value. Julianti (2015) and Lestari (2014) find that managerial ownership has an effect on firm value with regression coefficients of and respectively. Even research conducted by Astriani (2014) and Hidayah (2015) shows the result that managerial ownership does not affect the value of the company. Weak institutional ownership on firm value is evidenced by research conducted by Julianti (2015) and Wida and Suartana (2014), both of which show that institutional ownership has an effect on firm value with regression coefficients of and respectively. Even Susanti and Mildawati (2014) and Lestari (2014) stated that institutional ownership has no effect on firm value. The amount of previous studies which show the result of weak influence between managerial ownership and institutional ownership is interesting for conducting re-examination by presenting profitability as an intervening variable to strengthen the effect of managerial ownership and institutional ownership on firm value. Based on the previous studies, it indicates that profitability has an effect with a relatively high coefficient on firm value. Wulandari (2013) shows that profitability has an effect on firm value with coefficient equal to In line with this result, Rashid (2015) and Sucuahi and Cambarihan (2016) show that profitability affects the value of company with each coefficient of and Agency theory explains that with the existence of stock offers to management can be an alternative to minimize opportunistic action done by management, because the involvement of management in the shareholdings, the management is positioned as a shareholder so that the management will be careful in making decisions because they will feel the impact that resulted from the decision taken. In addition, the presence of managerial ownership will align the goals of management and shareholders. Based on the explanation, it can be formulated hypothesis: H1: Managerial ownership has a positive effect on firm value. Wiranta and Nugrahanti (2013) state that a high degree of institutional ownership will lead to greater monitoring effort by institutional investors so that it can prevent manager s opportunistic 28

3 behaviour. Shareholding is a source of power that can be used to support or deny the existence of management. Management will be cautious in carrying out its duties in order to maintain its position within the company regarding the threats that may occur if the management does actions that harming shareholders. Based on the description, it can be formulated hypothesis: H2 : Institutional ownership has a positive effect on firm value. Signal theory explains about how a company should signal the users of the financial statements. Profitability is one of the information that can be used as a signal for investors. Information related to the profitability of the company is a signal that is able to influence market reaction in the form of purchase request of corporate stock. The higher the demand for shares will raise the price of the stock itself. High stock price indicates the higher the value of the company. From the description, it can be formulated hypothesis: H3 : Profitability has a positive effect on firm value. Increased ownership of shares by managers (insider ownership) can be a control for agency costs arising from mechanisms to minimize agency conflict that occurs between owners and managers (Sulito, 2008). This can happen because the management involved in shareholding has the same goals as shareholders. High percentage of managerial ownership decreases the risk of management acting opportunistically so that management performance becomes focused. Managerial ownership will encourage management to act actively in the seeking of corporate profits. Based on the explanation, it can be formulated hypothesis: H4 : Managerial ownership positively affects on profitability Jensen and Meckling (1976) argue that institutional ownership has a very important role in minimizing agency conflict. High degree of institutional ownership will lead to greater monitoring efforts by institutional investors so that management is less likely to do opportunistic action and will work in accordance with what has been mandated to prosper shareholders through the profits generated by the company. Based on the description, it can be formulated hypothesis: H5 ; Institutional ownership positively affects on profitability Stock offers to management can be an alternative to minimize management's opportunistic actions. With the involvement of management in shareholding, management is positioned as a shareholder so that they will be careful in making decisions because they will feel the impact that resulted from the decision taken. Management will pay more attention to earnings in the company considering that there will be dividends to be distributed. The amount of corporate earnings shows the level of corporate profitability. Increased number of shares owned by the management will increase profitability that will ultimately impact on the value of the company. The higher level of managerial ownership increases management performance marked by increasing corporate earnings. Thus, profitability plays a role in mediating the relationship between managerial ownership on firm value. Based on the explanation can be formulated hypothesis: H6: Managerial ownership significantly affects firm value through profitability Profitability is a signal for investors to attract investors to invest in the company. The high profitability of the company indicates an improved corporate performance. Increased number of shares owned by the institution will increase supervision on the performance of profitability management which will ultimately impact the value of the company. Optimal supervision can minimize the existence of opportunistic action so that management performance increases. Increased management performance is characterized by improving corporate profits. Based on the explanation can be formulated hypothesis: H7: Institutional ownership significantly affects firm value through profitability 29

4 The theoretical framework that can be described in this study is illustrated in Figure 1. Figure 1. Research Model METHODS This research was a quantitative research. The data used in this study was secondary data in the form of financial statements from the manufacturing companies of consumer goods sector listed on the Indonesia Stock Exchange (IDX) in The population of this study was consumer goods sector manufacturing company listed on the Indonesia Stock Exchange (IDX) in which amounted to 41 companies. Meanwhile, the sample of this study was determined using purposive sampling method so that there were 22 companies in accordance with the criteria. With 4 year observation year and minus 3 data outlier, then, the unit of analysis was 76 units. Variables used in this study included dependent variable, independent variables and intervening variable. The dependent variable in this research was firm value. The independent variables of this research were managerial ownership and institutional ownership. Profitability was positioned as intervening variable in the research. The operational definition in this research could be seen in table 1. Table 1. Operational Definition of the Variables Name of Definition Variables Firm value Firm value that also shareholder value reflects the reaction of stock market to the company Managerial Percentage of shares owned by Ownership management that actively participate in corporate decision making (commissioners and directors) Institutional Ownership Profitability Percentage of corporate shares owned by institution or agency such as assurance, bank, investment companies, and other institutions The ability of a company to generate earnings over a certain period Measurement PBV= X100% X100% ROE= x100% Source: Various Sources 30

5 Data collection techniques used in this study was the method of documentation. The data in the form of audited financial statements of Indonesian manufacturing companies for the period of was obtained from the official website of Indonesia Stock Exchange (IDX) namely The methods of analysis used descriptive statistical data and inferential statistics analysis. Descriptive statistical analysis provided an overview or description of data viewed from the mean value, standard deviation, maximum value, and minimum value (Ghozali, 2013). Inferential statistics was used to test the research hypothesis with multiple regression analysis technique. This research added intervening variable so that additional test was done in the form of path analysis to know indirect effect and Sobel test to know the significance of indirect effect. However, prior to hypothesis testing, the data must pass the classical assumption test consisting of normality test, multicollinearity, autocorrelation, and heteroscedasticity. RESULTS AND DISCUSSIONS The descriptive statistical analysis was used to describe the profile of research variables individual. The following table 2 presented the descriptive statistics of corporate performance, capital structure, managerial ownership, free cash flow, and agency cost variables. Based on table 2, Managerial Ownership (KM) had an average of % with standard deviation of The minimum value of managerial ownership (KM) was 0.00%. Meanwhile, the maximum value was %. Institutional ownership (KI) had an average of % with a standard deviation of The minimum value of institutional ownership (KI) was 33.07%, while the maximum value was 98.18%. The average value of profitability (ROE) was % with a standard deviation of The minimum value of profitability (ROE) is negative 9.18% while the maximum value is %. Firm value (PBV) had an average of , with a standard deviation of The minimum value of firm value was 0.190, while the maximum value was The inferential analysis included classical assumption test and hypothesis test. Based on the results of the classical assumption test, the model used in the study was free from the classical assumption test. Direct test (t test) in this study was shown in Table 3 and Table 4. Table 2. The Result of Descriptive Statistical Test N Minimum Maximum Mean Std. Deviation KM KI ROE PBV Source: Output of SPSS 21, 2016 Table 3. The Result of t Statistical Test Equation 1 Coefficients a Model Unstandardized Coefficients Standardized Coefficients B Std. Error Beta (Constant) KM KI ROE Source : Output of SPSS 20, 2016 T Sig. 31

6 Table 3 showed that the significance value of managerial ownership of was greater than = 0.05 which meant that H1 which stated that managerial ownership positively affected on firm value, was rejected. High and low managerial ownership did not affect the value of the company. This result was in line with Astriani (2014) and Hidayah (2015). Contrary to the results of this study was a study conducted by Lestari (2014) and Susanti, et al (2010). H2 which stated that institutional ownership positively affected the value of the company was rejected. The significance value of institutional ownership was greater than = High and low institutional ownership could not affect the value of the company. The result of this study was in line with Lestari (2014) and Susanti and Mildawati (2014). This result was contrary to research conducted by Susanti, et al (2010). H3 which stated that profitability had a positive effect on firm value was accepted. The significance value of profitability was 0.00 smaller than = The regression coefficient of indicated that the increase of 1% ROE was able to raise the firm value by The behaviour of profitability variable was consistent with the view of signal theory. Information of profitability issued by the company as a signal was responded by market players (investors). The result of this study was consistent with Sucuahi and Cambarian (2016) and Rashid (2015). The result of this study was differrent from the result of research conducted by Astriani (2014). Table 4. The Result of Statistical Test Equation 2 Coefficientsa Model Unstandardized Coefficients Standardized Coefficients T Sig. B Std. Error Beta (Constant) KM KI Source: Output of SPSS 20, 2016 Based on Table 4, it could be seen that the significance value of managerial ownership to profitability of was greater than = This indicated that H4 which stated that managerial ownership had a positive effect on profitability was rejected. High and low managerial ownership was not able to influence profitability as the agency theory view. This situation indicated that management performance was not affected by management involvement in terms of shareholding. This result was in line with research conducted by Wida and Suartana (2014) and contradicted the research undertaken by Julianti (2015). H5 which formulated that institutional ownership had a positive effect on profitability, was accepted. Institutional ownership affected profitability with a coefficient of with a significance value of This was consistent with agency theory view. The existence of institutional ownership of management performance was assured because of institutional supervision. This result was consistent with research conducted by Rimardhani et al (2016) but contrary to research conducted by Susanti and Mildawati (2014). Testing of the sixth and seventh hypotheses were done by using path analysis to determine the indirect effect between managerial ownership and institutional ownership on firm value. The indirect effect of managerial ownership (KM) on firm value (PBV) through profitability (ROE) was x = The indirect effect of institutional ownership (KI) on firm value (PBV) through profitability (ROE) was To test the significance used t count using Sobel test as follows: 32

7 The indirect effect of KM on PBV through ROE Sp2p3 = = = Based on the result of Sp2p3 could be calculated t statistical value of mediating effect with the formula as follows: = Because the value of t count = smaller than t table with the level of significance of 0.05 that was equal to 1666, it could be concluded that the mediation coefficient of was not significant meaning there was no influence of mediation, so H6 which stated that profitability significantly mediated the effect of managerial ownership on firm value, rejected. This could be interpreted that the presence of profitability could not strengthen the effect of managerial ownership on the value of the company. Investors were not only oriented to profitability only in investing their capital. The indirect effect of KI on PBV through ROE Sp5p3 = = = Based on the result of Sp2p3 could be calculated t statistical value of mediating effect with the formula as follows = Since the value of t count = was greater than t table with the level of significance of 0.05 that was equal to 1.663, it could be concluded that the mediation coefficient of was significant which meaning there was influence of mediation, so H7 which states that profitability significantly mediated the influence of institutional ownership on firm value, accepted. This proved that profitability could be a signal in influencing firm value. Given high profitability would further increase the influence of institutional ownership of firm value. CONCLUSIONS The results of this study show that managerial ownership and institutional ownership have no effect on firm value. Profitability has a positive effect on firm value. Managerial ownership has no effect on profitability, while institutional ownership affects profitability. Profitability is only capable of mediating the effect of institutional ownership on firm value. Decision makers can increase the value of company by increasing profitability. To increase profitability can be achieved by raising institutional ownership. Efforts to increase the value of the company can also be pursued by increasing institutional ownership in order to increase profitability that will ultimately impact the value of the company. The results of this study there are variables that are not significant to the value of the company, namely managerial ownership and institutional ownership. It is considered still interesting to be re-examined by further researchers by adding samples and years of research observation. 33

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