Indonesian Property Firms Gain Value From Profitability and Foreign Investment, Study Finds
A new study from researchers at Universitas Muhammadiyah Yogyakarta shows that profitability, financing decisions, foreign ownership, and company size significantly strengthen the market value of Indonesian property and real estate firms. The research, conducted by Widya Puspa Diyana and Lela Hindasah, analyzed companies listed on the Indonesia Stock Exchange between 2013 and 2022. Published in 2026 in the Indonesian Journal of Economic & Management Sciences, the findings provide new insight into how investors assess corporate value in Indonesia’s property sector.
The study arrives at a time when Indonesia’s property and real estate industry faces mixed market sentiment. Although housing demand continues to grow and several major firms report strong operational performance, investor confidence in the sector has remained relatively weak. According to the researchers, some property companies experienced declining stock performance even while maintaining healthy financial fundamentals. This gap between business performance and market valuation has become an important issue for investors, policymakers, and companies seeking long-term growth.
Researchers examined 41 property and real estate companies listed on the Indonesia Stock Exchange over a ten-year period, generating 183 observations for analysis. The team used panel data regression analysis through E-Views 12 software to measure how several financial indicators influenced firm value.
The study focused on six major variables:
- Profitability
- Financing decisions
- Investment decisions
- Dividend policy
- Foreign ownership
- Firm size
Firm value itself was measured using the Price-to-Book Value (PBV) ratio, which reflects how the market values a company relative to its accounting value.
The research found that profitability had the strongest positive relationship with firm value. Companies with higher profits tended to attract stronger investor interest, leading to higher share prices and increased market valuation. The profitability variable recorded a highly significant positive coefficient of 4.01454.
Financing decisions also showed a significant positive effect. Companies using debt strategically were viewed by investors as more confident about future growth prospects. The researchers explained that debt financing can signal strong business confidence when managed properly, encouraging investors to purchase company shares.
Foreign ownership emerged as another important factor influencing firm value. Firms with larger proportions of foreign shareholders generally experienced higher market valuation. According to the study, foreign investors often bring stricter corporate oversight, better governance practices, international expertise, and advanced technology. These factors can increase investor trust and improve company performance.
The researchers wrote that foreign ownership may also trigger “herding behavior,” where local investors follow the investment patterns of foreign investors considered more experienced and informed.
Firm size also positively affected company value. Larger firms with stronger market capitalization were generally viewed as more stable and resilient during economic uncertainty. Investors tended to see large companies as better prepared to manage risks and maintain long-term growth.
One of the study’s most surprising findings involved investment decisions. Contrary to many earlier studies, the researchers discovered that aggressive investment growth had a significant negative effect on firm value. The coefficient for investment decisions was negative at -0.615868.
According to the researchers, investors may interpret rapid asset growth as a sign that companies are taking excessive risks or failing to manage expansion carefully. Instead of increasing confidence, large investment activity in some cases reduced investor interest and pressured stock prices downward.
Dividend policy, meanwhile, showed no significant influence on firm value. The findings suggest that investors in Indonesia’s property sector may not rely heavily on dividend payments when evaluating a company’s future prospects. Even firms paying consistent dividends did not necessarily experience stronger market valuation.
The overall regression model demonstrated strong explanatory power. The adjusted R-squared value reached 0.806503, meaning approximately 80.6 percent of firm value variation could be explained by the six variables included in the analysis.
The study also highlights broader implications for Indonesia’s capital market and property industry. For business leaders, the findings emphasize the importance of maintaining profitability, managing debt effectively, and building investor confidence through transparent governance. Companies seeking stronger market valuation may benefit from attracting reputable foreign investors and strengthening financial performance rather than relying solely on dividend distribution.
For policymakers, the research reinforces the importance of creating a stable investment climate capable of attracting international capital into Indonesia’s property sector. Foreign ownership, according to the findings, can improve corporate oversight and increase market trust.
The research may also help retail investors better understand the financial indicators that influence stock performance in Indonesia’s real estate market. Instead of focusing only on dividends, investors may pay closer attention to profitability trends, company scale, and ownership structure when evaluating long-term investment opportunities.
In an academic interpretation of the findings, the researchers from Universitas Muhammadiyah Yogyakarta explained that profitable companies tend to generate stronger investor demand because markets perceive them as having better future prospects. The study also noted that foreign ownership increases managerial supervision and strengthens efforts to maximize shareholder wealth.
The researchers acknowledged several limitations in the study. The analysis focused only on property and real estate firms listed on the Indonesia Stock Exchange, meaning the conclusions may not fully apply to other sectors. Future research could expand the analysis to manufacturing, infrastructure, or technology industries while also exploring moderating variables such as corporate governance and sustainability performance.
Author Profile
- Widya Puspa Diyana is a researcher in the Management Department at Universitas Muhammadiyah Yogyakarta with research interests in corporate finance, firm valuation, and investment management.
- Lela Hindasah is a lecturer and researcher in the Management Department at Universitas Muhammadiyah Yogyakarta specializing in financial management, corporate governance, and business valuation.
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