The pharmaceutical industry is one of Indonesia’s most strategic sectors, contributing not only to public healthcare but also to national economic growth. In the post-pandemic era, pharmaceutical companies have faced growing challenges, including stronger market competition, fluctuating raw material prices, shifting consumer demand, and global economic uncertainty. These conditions have increased pressure on companies to maintain strong financial performance and continuously improve their corporate value to remain attractive to investors.
Corporate value is widely regarded as one of the most important indicators of a company's long-term performance and future prospects. A higher corporate value reflects stronger investor confidence in a company's ability to generate sustainable returns. However, the study noted that the average Price-to-Book Value (PBV) of pharmaceutical companies listed on the Indonesia Stock Exchange declined from 3.532 in 2019 to 3.461 in 2024. Although the PBV remained above one, indicating that market value still exceeded book value, the downward trend suggested weakening investor confidence in the sector's future growth potential.
To better understand this trend, Domiri and Heri Ispriyahadi investigated three internal financial factors believed to influence corporate value: investment policy, cash holding, and asset efficiency. These variables were selected because they represent key aspects of corporate financial management and provide important signals to investors when evaluating investment opportunities.
The researchers employed a quantitative causal research design using secondary data from the annual financial reports of nine pharmaceutical manufacturing companies listed on the Indonesia Stock Exchange between 2019 and 2024. A total of 54 observations were analyzed using multiple linear regression to determine both the individual and combined effects of the three financial variables on corporate value.
The study found that not all financial indicators contribute equally to increasing firm value. Two variables demonstrated a significant positive impact, while one showed no statistically significant effect.
Key Findings
- Investment policy has a positive and significant effect on corporate value. Companies that allocate capital to productive and strategic investments are more likely to gain investor confidence and improve their market valuation.
- Cash holding also has a positive and significant impact on corporate value. Maintaining adequate cash reserves strengthens financial flexibility, supports liquidity, and reassures investors that the company can respond effectively to economic uncertainty and investment opportunities.
- Asset efficiency does not significantly affect corporate value. Although efficient asset utilization improves operational performance, investors do not appear to consider it a primary factor when valuing pharmaceutical companies.
- Collectively, investment policy, cash holding, and asset efficiency significantly influence corporate value. This demonstrates that corporate value is shaped by a combination of financial strategies rather than by a single financial indicator.
The statistical analysis further revealed that these three variables explained 28.4 percent of the variation in corporate value, while the remaining 71.6 percent was influenced by other factors outside the research model, including profitability, capital structure, company size, macroeconomic conditions, interest rates, and overall market sentiment.
According to Domiri and Heri Ispriyahadi, the findings suggest that investors pay greater attention to a company's investment decisions and liquidity management than to operational asset efficiency alone. Well-planned investment policies send positive signals regarding future growth prospects, while healthy cash reserves demonstrate a company's ability to maintain financial stability and seize strategic opportunities.
By contrast, efficient asset utilization does not automatically translate into higher corporate value unless it is accompanied by stronger profitability, higher sales growth, and improved overall business performance. Investors typically evaluate multiple aspects of corporate performance before making investment decisions.
The research offers valuable practical implications for pharmaceutical companies as well as other manufacturing businesses. Corporate management is encouraged to make investment decisions more selectively by prioritizing projects with strong long-term growth potential. Companies are also advised to maintain an optimal level of cash holdings. Insufficient cash reserves may increase liquidity risk, whereas excessive idle cash can reduce financial efficiency if it is not invested productively.
For investors, the study provides additional guidance when evaluating pharmaceutical companies listed on the Indonesia Stock Exchange. Investment policy and cash holding can serve as important indicators of a company's financial health and long-term growth prospects, complementing traditional financial performance measures.
The researchers also recommend expanding future studies by including companies from additional industrial sectors, extending the observation period, and incorporating other variables such as profitability, capital structure, firm size, dividend policy, and macroeconomic indicators. These additions could provide a more comprehensive understanding of the factors influencing corporate value.
Author Profile
Domiri is a researcher and academic at Muhammadiyah University of Technology Jakarta, specializing in financial management, investment strategy, and corporate value.
Heri Ispriyahadi is a lecturer at Muhammadiyah University of Technology Jakarta with expertise in financial management, financial statement analysis, and corporate governance. Together with Domiri, he actively conducts research on the financial factors that influence corporate performance and firm value in Indonesia.
Research Source
Article Title: The Effect of Investment Policy, Cash Holding and Asset Efficiency on the Value of Manufacturing Companies in the Pharmaceutical Sub-Sector on the Indonesia Stock Exchange in the 2019–2024 Period
Authors: Domiri, Heri Ispriyahadi
Journal: International Journal of Management and Business Intelligence (IJBMI), Vol. 4, No. 3, 2026, pp. 651–668.
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