Purwokerto- How Indonesian property and real estate companies finance their operations matters more to investors than how big or profitable they appear on paper. This conclusion comes from a 2026 study by Anindya Mustikasari Az Zahra, Ika Yustina Rahmawati, Naelati Tubastuvi, and Alfato Yusnar Kharismasyah from Universitas Muhammadiyah Purwokerto, published in the East Asian Journal of Multidisciplinary Research. By examining dozens of listed firms over five turbulent years, the researchers show that capital structure plays a decisive role in shaping company value, while profitability and company size do not significantly influence market perception.
The findings are highly relevant for Indonesia’s property sector, which is still navigating recovery after the Covid-19 pandemic. For investors, company executives, and policymakers, the research offers clear evidence that funding decisions—especially the balance between debt and equity—carry greater weight than headline profit figures or asset size when valuing property companies.
Property Sector Under Pressure
Indonesia’s property and real estate industry has faced sustained uncertainty since 2020. Pandemic-related restrictions slowed construction projects, reduced property transactions, and weakened consumer purchasing power. Although the sector rebounded in 2021, growth has remained uneven, reflecting ongoing adjustments to macroeconomic conditions, interest rate changes, and shifting buyer behavior.
These fluctuations have had a direct impact on company value, commonly reflected in stock prices and market-based indicators such as Price to Book Value. When sector prospects weaken, investor confidence declines, pushing valuations down even if companies maintain sizable assets or record short-term profits. In this context, understanding what truly shapes company value becomes critical.
What the Researchers Examined
The research team from Universitas Muhammadiyah Purwokerto analyzed 73 property and real estate companies listed on the Indonesia Stock Exchange between 2020 and 2024. Using financial data drawn from annual company reports, they observed 184 firm-year data points after filtering out incomplete and extreme cases.
Instead of focusing on operational details, the study concentrated on three widely discussed financial factors:
- Profitability, measured by how efficiently companies generate profit from their assets
- Company size, represented by the total value of assets owned
- Capital structure, defined as the proportion of debt compared to shareholders’ equity
The researchers applied a quantitative analysis to identify which of these factors significantly influenced company value as perceived by the market.
Clear Results from Five Years of Data
The results challenge some common assumptions in corporate finance, especially in the property sector.
The analysis shows that profitability does not have a significant effect on company value. While profits are often considered a positive signal, in property and real estate businesses they are frequently tied to long-term projects. Revenue and profit realization may occur years after development begins, making short-term profitability less relevant for investors assessing future value.
Company size also fails to significantly influence company value. Large asset holdings do not automatically translate into higher valuations. In some cases, large companies carry higher financial risk if asset growth is accompanied by heavy borrowing without proportional returns.
Capital structure stands out as the only variable with a significant positive effect on company value. Companies that manage debt and equity more effectively tend to be valued higher by investors.
In practical terms, the study finds that:
- Firms with well-balanced debt-to-equity ratios are perceived as more stable
- Responsible use of debt can enhance company value by improving returns without excessive risk
- Investors pay close attention to how companies finance growth, not just how much they earn
Why Capital Structure Matters Most
Property development is capital-intensive by nature. Companies often rely on long-term debt to fund land acquisition, construction, and infrastructure. Debt itself is not inherently negative; interest expenses can reduce tax burdens and amplify returns when managed carefully.
According to Ika Yustina Rahmawati from Universitas Muhammadiyah Purwokerto, capital structure acts as a strong market signal. “The way a company balances debt and equity reflects its financial discipline and risk management,” she explains in ethical paraphrase. “Investors respond positively when financing decisions indicate sustainability rather than aggressive risk-taking.”
This aligns with financial signaling theory, which suggests that funding choices communicate information about management confidence and long-term strategy. In a volatile sector like property, these signals become even more important than short-term profit numbers.
Implications for Investors and Businesses
For investors, the study provides a practical takeaway: evaluating property stocks requires more than scanning profit margins or asset size. Examining debt levels and equity composition offers deeper insight into long-term value and risk.
For company managers, the findings highlight the importance of financing strategy. Expanding assets or chasing short-term profits may not improve valuation if capital structure becomes unbalanced. Careful debt management can strengthen market confidence and increase company value even in uncertain economic conditions.
The research also has policy relevance. Regulators and financial institutions can use these insights to encourage healthier funding practices in the property sector, reducing systemic risk and supporting sustainable growth.
Opportunities for Further Research
While capital structure proved influential, the study notes that the three variables together explain only a small portion of overall company value variation. This suggests that other factors—such as dividend policy, corporate governance, growth prospects, and business risk—also play important roles.
Future research expanding on these variables could offer a more comprehensive picture of how company value is formed in Indonesia’s evolving property market.
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