The study, published in 2026 in the International Journal of Sustainable Applied Sciences, examined how capital adequacy, profitability, company size, and exchange rate fluctuations influence firm value and stock prices among major Indonesian banks listed on the Indonesia Stock Exchange.
The research was conducted by Anum Nuryani, Azhar Affandi, Liza Laila Nurwulan, Jaja Suteja, and Masno Marjohan. Their findings highlight how financial resilience and profitability remain critical indicators for investors evaluating banking stocks in Southeast Asia’s largest economy.
The issue has become increasingly relevant as Indonesia’s banking industry faces pressure from global economic uncertainty, currency volatility, digital transformation, and tighter financial regulations. Investors are now paying closer attention to whether banks can maintain stable earnings while managing risks linked to inflation and foreign exchange exposure.
The researchers analyzed 16 banks listed on the main board of the Indonesia Stock Exchange between 2020 and 2024, producing 80 financial observations. The study evaluated several financial indicators, including Capital Adequacy Ratio (CAR), Return on Assets (ROA), company size, and the rupiah-to-US-dollar exchange rate. Firm value was measured using Tobin’s Q, a common indicator used to assess how markets value a company relative to its assets.
Using panel data regression analysis, the researchers examined how these variables affected firm value and how firm value subsequently influenced stock prices. Statistical testing was conducted to ensure the reliability and consistency of the model.
The results showed a clear pattern: banks with stronger capital structures and higher profitability consistently achieved higher firm valuations and stronger stock market performance.
Several findings stood out:
- Capital Adequacy Ratio (CAR) had a positive and significant effect on firm value.
- Return on Assets (ROA) emerged as one of the strongest drivers of investor confidence.
- Firm size showed a positive but statistically insignificant effect.
- Exchange rate depreciation negatively affected firm value.
- Higher firm value significantly increased stock prices.
The study found that the combined influence of CAR, profitability, company size, and exchange rates significantly explained changes in bank valuations. The statistical model demonstrated exceptionally strong explanatory power, with an adjusted R-squared value of 0.977 for firm value analysis and 0.986 for stock price analysis.
According to the researchers, the findings reinforce the importance of financial stability in the banking industry. Banks with strong capital reserves are viewed as more capable of absorbing economic shocks and managing operational risks, which increases investor trust.
“Strong financial performance signals stability to investors,” the authors from Universitas Pasundan wrote in the discussion section of the paper. They emphasized that profitability and capital adequacy continue to function as positive market signals in the Indonesian banking sector.
The study also revealed that exchange rate volatility remains a major concern for investors. When the Indonesian rupiah weakens against the US dollar, banks face higher operational costs and greater foreign currency exposure. This reduces investor confidence and places downward pressure on firm value.
Interestingly, company size alone was not enough to guarantee higher market valuation. Large banks with extensive assets still needed strong profitability and efficient operations to maintain investor trust.
The findings align with broader global research showing that investors increasingly prioritize financial efficiency over sheer corporate scale. In Indonesia’s banking market, profitability and risk management appear to matter more than asset expansion alone.
The implications extend beyond investors and stock traders. Policymakers and financial regulators may also benefit from the study, particularly in strengthening banking resilience during periods of macroeconomic uncertainty.
The authors recommend that Indonesian banks maintain capital adequacy levels above regulatory minimums while continuing to improve operational efficiency through digital transformation and cost management strategies. They also encourage banks to implement stronger currency risk mitigation measures such as hedging and diversification.
For investors, the research provides practical guidance in evaluating banking stocks. Rather than focusing only on company size, investors are encouraged to assess profitability indicators, capital strength, and exposure to exchange rate fluctuations before making investment decisions.
The study further highlights the growing relationship between firm value and stock price performance. When investors perceive a bank as financially stable and profitable, demand for its shares tends to rise, driving stock prices higher.
The researchers believe future studies should explore additional factors influencing bank valuation, including corporate governance, digital banking transformation, liquidity management, and environmental, social, and governance (ESG) performance.
They also suggest comparative research involving ASEAN banking markets to better understand whether the same financial indicators influence investor confidence across different regulatory environments.
Author Profile
Anum Nuryani is the lead author of the study. She specializes in corporate finance, banking performance, firm valuation, and capital market analysis. The research team also includes scholars from Universitas Pasundan and Universitas Pamulang with expertise in financial management, corporate governance, and banking economics.
Source
Article Title: Firm Value Determinants and Their Implications for Stock Prices: Evidence from Main Board Banks in Indonesia
Journal: International Journal of Sustainable Applied Sciences (2026)
DOI: https://doi.org/10.59890/ijsas.v4i5.440
Official Journal URL: https://dmimultitechpublisher.my.id/index.php/ijsas
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