The Effect of Liquidity and Leverage on Company Value with Profitability as a Mediation Variable (Study on the Property and Real Estate Sector Listed on the Indonesia Stock Exchange)

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FORMOSA NEWS - Yogyakarta - Excessive Corporate Debt Risks Lowering Company Value in Indonesia's Real Estate Sector. A recent economic study reveals that relying heavily on debt financing (leverage) can significantly reduce profitability for real estate companies listed on the Indonesia Stock Exchange (IDX). This drop in profitability subsequently leads to a direct decline in overall company valuation in the financial market. Published in 2026, the study was conducted by researchers Adelia Putri and Iwan Firdaus from Mercu Buana University Yogyakarta. Their findings provide vital strategic insights for corporate decision-makers and equity investors seeking to navigate post-pandemic financial recovery in Southeast Asia's real estate market.

Understanding the Real Estate Valuation Dilemma

The property and real estate sector functions as a vital engine for economic growth in Indonesia. According to Indonesia's Ministry of Finance, housing projects generate extensive economic multiplier effects, driving job creation, urban development, and long-term capital investment. Data from the Indonesian government shows steady growth in gross domestic product (GDP) contributions from the property market in recent years. However, this macroeconomic growth stands in stark contrast to the financial performance of publicly traded property firms on the Indonesia Stock Exchange. Between 2019 and 2024, the Price-to-Book Value (PBV) ratios of many listed real estate companies experienced a persistent decline. To understand why company valuations fell while the broader sector grew, Adelia Putri and Iwan Firdaus examined the intricate connections between corporate liquidity, leverage, profitability, and stock valuation. They framed their analysis around established financial frameworks, including trade-off theory, signaling theory, and pecking order theory.

Simplified Research Methodology
To investigate these corporate trends, the researchers evaluated financial data covering a six-year post-pandemic recovery period from 2019 to 2024. The primary data source comprised official annual financial statements published on the Indonesia Stock Exchange website. Using a targeted sampling strategy based on specific criteria (purposive sampling), the research team selected 7 representative real estate companies out of a total population of 78 firms listed on the bursa. The team performed panel data regression analysis using EViews 12 software and applied the Sobel Test to evaluate indirect mediating effects. The study examined four key financial indicators:

• Company Value: Measured using the Price-to-Book Value (PBV) ratio as the primary outcome variable.
  
• Liquidity: Measured via the Current Ratio (CR), representing short-term debt coverage.
  
• Leverage: Measured via the Debt-to-Equity Ratio (DER), representing total corporate debt exposure.
  
• Profitability: Measured through Return on Assets (ROA), acting as a mediating variable between capital structure and market valuation.
  

Key Research Findings
The statistical analysis yielded several critical discoveries regarding how capital management directly influences corporate valuation:

• Direct Valuation Drivers: Liquidity, leverage, and profitability each demonstrate a statistically significant direct positive impact on company value. Investors respond favorably when firms maintain short-term liquidity and utilize debt to finance major real estate developments.
  
• The Debt Paradox: Higher leverage negatively affects corporate profitability. While debt can fund capital-intensive land acquisitions, high interest obligations and long repayment schedules actively erode net profit margins.
  
• Liquidity Neutrality: Liquidity does not have a statistically significant effect on profitability. Maintaining high reserves of cash or liquid assets does not automatically generate higher operational earnings in real estate due to the slow turnover rate of land and building assets.
  
• Mediating Role of Profitability: The Sobel Test confirmed that profitability does not mediate the relationship between liquidity and company value. However, profitability acts as a strong negative mediator between leverage and company value. Excessive debt depresses operational profit margins, which in turn reduces overall valuation in the stock market.
  

Industry Implications and Real-World Impact
These findings offer clear practical guidance for real estate executives, corporate treasurers, and institutional investors. While debt financing remains necessary to fund land acquisitions and long-term construction projects, over-leveraging creates severe financial drag. Accumulated interest costs reduce Return on Assets (ROA), ultimately undermining investor confidence and lowering valuation metrics on the stock exchange. The researchers urge corporate leaders to exercise strict capital discipline when structuring project loans. "Companies must exercise prudence when formulating debt strategies to safeguard profitability and preserve firm value," state Adelia Putri and Iwan Firdaus of Mercu Buana University Yogyakarta in their report. They recommend that real estate developers maintain adequate liquidity buffers for operational obligations while prioritizing asset efficiency and cost management over uncontrolled debt expansion.

Author Profiles
Adelia Putri, S.E. — Researcher in the Department of Management at Mercu Buana University Yogyakarta. Her academic expertise includes corporate finance, stock market valuation, and financial analysis.
Iwan Firdaus, S.E., M.Si. — Academic supervisor and researcher at Mercu Buana University Yogyakarta. His research focuses on corporate financial management, capital markets, and applied economic analysis.

Source
Adelia Putri, Iwan Firdaus. The Effect of Liquidity and Leverage on Company Value with Profitability as a Mediation Variable (Study on the Property and Real Estate Sector Listed on the Indonesia Stock Exchange). Formosa Journal of Applied Sciences (FJAS), Vol. 5, No. 8, 2026, hal. 1713–1726
DOI: https://doi.org/10.55927/fjas.v5i8.106
URL: https://journalfjas.my.id/index.php/fjas