The Effect of Profitability and Solvency on the Firm Value of Listed State-Owned Banks in Indonesia

Abstract

This study examines the effects of profitability and solvency on the firm value of publicly listed state-owned banks in Indonesia. A quantitative approach was employed using financial statement data from four state-owned banks listed on the Indonesia Stock Exchange over the 2011–2020 period. The study applied a saturated sampling technique, resulting in 40 observations, and used documentation to collect the data. Multiple linear regression was employed to analyze the data and test the proposed hypotheses. Profitability was measured using return on equity (ROE), solvency was measured using the debt-to-equity ratio (DER), and firm value was measured using Tobin’s Q. The findings indicate that profitability has a positive and statistically significant effect on firm value, whereas solvency has a negative and statistically significant effect. Furthermore, profitability and solvency jointly have a statistically significant effect on firm value. The coefficient of determination ((R^2)) is 0.580, indicating that the two independent variables explain 58% of the variation in firm value, while the remaining 42% is associated with factors outside the model. These findings suggest that profitability and debt management are important considerations in evaluating the firm value of publicly listed state-owned banks. Investors may use these financial indicators to support investment decisions and assess corporate financial performance.