The findings are particularly relevant as investors increasingly evaluate companies not only through profitability but also through their investment quality, financial resilience, and commitment to environmental and social responsibility. For firms listed on the Indonesia Stock Exchange (IDX), maintaining a high market valuation has become increasingly challenging amid changing economic conditions and shifting investor expectations.
Why Firm Value Continues to Fluctuate
The study focuses on companies included in the LQ45 Index, which consists of Indonesia's largest and most liquid publicly traded companies. Although these firms are considered blue-chip companies with strong fundamentals, their market value fluctuated considerably during the 2022–2025 period.
Several major companies experienced declining valuations, while only a few recorded significant increases. According to the researchers, these fluctuations indicate that investors evaluate companies using a combination of financial performance, investment strategies, dividend policies, and corporate sustainability initiatives rather than relying solely on historical profitability.
A literature mapping analysis using VOSviewer further supports this conclusion. The visualization identifies three interconnected research clusters: financial fundamentals, investment decisions, and Corporate Social Responsibility, suggesting that all three contribute to corporate value creation in today's capital markets.
Simple Research Design with Comprehensive Financial Data
The researchers analyzed 32 companies that consistently remained in the LQ45 Index between 2022 and 2025.
To be included in the sample, companies had to:
- Remain consistently listed in the LQ45 Index.
- Publish audited annual reports.
- Release Sustainability Reports.
- Distribute dividends consistently throughout the observation period.
The study relied on secondary financial data obtained from the Indonesia Stock Exchange (IDX) and Yahoo Finance. The researchers then analyzed the relationships among financial variables using a Structural Equation Modeling (SEM) approach with SmartPLS 4.0 software.
Financial Strength and Investment Decisions Increase Firm Value
The study found that every major financial indicator examined has a positive and statistically significant effect on firm value.
Key findings include:
- Liquidity improves firm value by increasing investors' confidence in a company's ability to meet short-term financial obligations.
- Leverage, when managed effectively, signals healthy capital structure management and future growth potential.
- Profitability strengthens investor confidence by demonstrating a company's ability to generate sustainable earnings.
- Dividend policy positively influences firm value because consistent dividend payments indicate financial stability.
- Investment decisions directly increase firm value by supporting long-term business growth.
- Corporate Social Responsibility (CSR) strengthens the positive impact of investment decisions on firm value, making investments more valuable in the eyes of investors.
The statistical analysis confirmed that every proposed relationship in the research model was significant, reinforcing the importance of integrating financial management with strategic investment planning and sustainability initiatives.
Investment Decisions Bridge Financial Performance and Market Value
One of the study's most important contributions is identifying investment decisions as a mediating factor between financial performance and firm value.
The findings indicate that healthy liquidity, strong profitability, optimal leverage, and consistent dividend policies do not automatically translate into higher company value. Instead, these financial strengths create greater market value only when management allocates resources efficiently through productive investment decisions.
This means that effective capital allocation serves as the mechanism that transforms financial performance into higher shareholder value.
Corporate Social Responsibility Strengthens Investor Confidence
The study also highlights the growing importance of Corporate Social Responsibility (CSR) in modern financial markets.
Companies that combine sound investment strategies with responsible environmental, social, and governance (ESG) practices receive stronger positive market responses. CSR enhances investor trust by demonstrating that business growth is supported by sustainable and ethical corporate practices.
According to the researchers, sustainable corporate value is no longer driven solely by financial performance. Long-term competitiveness increasingly depends on balancing profitability with social responsibility and environmental stewardship.
Implications for Businesses, Investors, and Policymakers
The findings offer practical guidance for corporate leaders seeking to improve firm value in competitive capital markets.
Companies are encouraged to:
- Maintain healthy liquidity levels.
- Optimize debt management.
- Improve long-term profitability.
- Implement stable dividend policies.
- Prioritize strategic investment decisions.
- Strengthen Corporate Social Responsibility programs as part of long-term business strategy.
For investors, the study suggests that evaluating a company's financial statements alone is insufficient. Investment decisions and CSR performance should also be considered when assessing long-term investment potential.
The findings also provide useful insights for policymakers and financial regulators promoting sustainable corporate governance within Indonesia's capital market.
Academic Perspective
The authors from Universitas 17 Agustus 1945 Surabaya conclude that maximizing firm value requires more than strong financial performance. Their findings indicate that investment decisions serve as the key mechanism connecting liquidity, leverage, profitability, and dividend policy to higher firm value, while Corporate Social Responsibility amplifies these positive effects by strengthening stakeholder trust and corporate legitimacy. This conclusion reflects the evidence presented throughout their empirical analysis.
Author Profile
Alviano De Partho is a researcher from the Faculty of Economics and Business, Universitas 17 Agustus 1945 Surabaya, specializing in corporate finance, firm value, investment decisions, and sustainable business strategy.
Tri Ratnawati is a professor at the Faculty of Economics and Business, Universitas 17 Agustus 1945 Surabaya, whose expertise includes financial management, investment strategy, corporate governance, and value creation.
Ida Ayu Sri Brahmayanti is a lecturer and researcher at the Faculty of Economics and Business, Universitas 17 Agustus 1945 Surabaya, specializing in financial management, investment decisions, Corporate Social Responsibility, and corporate sustainability.
Source
Article Title: The Effect of Liquidity, Leverage, Profitability, and Dividend Policy on Company Value with Investment Decisions as a Mediation Variable and Corporate Social Responsibility as a Moderating Variable in Companies Listed in the LQ45 Index on the Indonesia Stock Exchange
Authors: Alviano De Partho, Tri Ratnawati, Ida Ayu Sri Brahmayanti
Journal: International Journal of Sustainability in Research (IJSR), Vol. 4, No. 4, 2026, pp. 241–260
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