Economic Contributions and Declining Market Valuations
Plantation and crop production, tobacco, and processed food are important parts of Indonesia’s economy. These industries support employment, food supply chains, manufacturing activity, and export revenues. However, their economic contributions do not necessarily translate into higher stock market valuations.
The researchers reported that the average Tobin’s Q ratio across the companies and subsectors examined declined from 1.47 in 2020 to 1.21 in 2024. Tobin’s Q is a financial indicator used to assess how the market values a company relative to the value of its assets. A changing ratio can reflect investors’ expectations about a company’s future prospects and how effectively its resources are being used.
The tobacco subsector experienced a particularly notable decline, with its average Tobin’s Q falling from 2.38 in 2020 to 1.15 in 2024. In the processed food subsector, the average declined from 1.69 in 2021 to 1.46 in 2024.
These movements raised questions about which financial characteristics are associated with the market value of companies in these industries. Trikusdiano and Thamrin examined four indicators: the Current Ratio (CR), Return on Assets (ROA), Debt-to-Equity Ratio (DER), and firm size.
How the Researchers Examined Company Value
The research used a quantitative approach and a causal research design. The authors collected secondary data from audited annual financial reports of companies listed on the Indonesia Stock Exchange for the 2020–2024 period.
The initial population consisted of 49 companies across the three subsectors. Using purposive sampling and specified eligibility criteria, the researchers selected 23 companies, producing 115 company-year observations over five years. The data were analyzed using panel regression, a statistical method that examines relationships between financial indicators and company value across multiple firms and periods.
The four indicators represented different aspects of corporate financial management:
- Current Ratio (CR): Measures a company’s ability to meet short-term obligations using current assets.
- Return on Assets (ROA): Measures how effectively a company generates profits from its assets.
- Debt-to-Equity Ratio (DER): Indicates the proportion of debt financing relative to shareholders’ equity.
- Firm size: Represents the scale of a company, measured using the natural logarithm of total assets.
The researchers assessed the statistical significance of the relationships at a 5% threshold. This helped distinguish results supported by the analysis from relationships that could not be established statistically.
Profitability and Debt-to-Equity Ratio Show Significant Relationships
The results identified two indicators with statistically significant positive relationships with Tobin’s Q: Return on Assets and the Debt-to-Equity Ratio.
1. Profitability was positively associated with firm value.
ROA had a positive coefficient of 3.999709, with a p-value of 0.0146. Because the p-value was below the study’s 0.05 significance threshold, the relationship was statistically significant.
This finding suggests that the ability to generate profits from assets is an important financial characteristic associated with market valuation in the companies studied. Efficient use of assets and stronger profitability can provide investors with information about operating performance and potential future returns.
2. The Debt-to-Equity Ratio also had a significant positive relationship with firm value.
DER recorded a positive coefficient of 0.238155 and a p-value of 0.0433, indicating a statistically significant positive relationship with Tobin’s Q within the sample.
The result suggests that debt financing was associated with higher market valuations among the companies examined. Borrowing can support investment, capacity expansion, and other productive activities when companies use funds effectively.
However, this finding does not mean that increasing debt will always improve company value. Borrowing also creates repayment obligations and financial risks. The benefits depend on how companies use borrowed funds and whether the returns justify the costs and risks.
3. Short-term liquidity did not show a significant relationship with firm value.
The Current Ratio had a positive coefficient of 0.011121, but its p-value was 0.7561, well above the 0.05 threshold. The analysis therefore did not establish a statistically significant relationship between CR and Tobin’s Q.
Maintaining sufficient current assets remains relevant to meeting short-term obligations. Nevertheless, the findings suggest that differences in liquidity alone did not explain market valuations in a statistically significant way within this sample and period.
4. Firm size did not have a statistically significant effect.
Firm size recorded a negative coefficient of −0.553353, with a p-value of 0.0800. Because this value exceeded the study’s 0.05 threshold, the relationship was not statistically significant.
The result does not establish that larger companies have lower market value. Instead, it indicates that the analysis did not find sufficient statistical evidence that company size independently influenced Tobin’s Q in the sample.
Taken together, the four indicators were jointly statistically significant in the model. The adjusted R-squared was 0.789726, meaning that the model accounted for approximately 78.97% of the variation in Tobin’s Q within the analyzed data. The remaining 21.03% was associated with factors outside the model.
Implications for Business Leaders and Investors
The findings offer practical considerations for managers of plantation, tobacco, and processed food companies. Rather than focusing only on asset growth or maintaining high liquidity ratios, management can pay closer attention to improving profitability through more efficient asset utilization, cost control, and sustainable revenue generation.
Debt management also deserves careful attention. Companies may benefit from financing productive investments with debt, but borrowing decisions should account for repayment capacity, financing costs, and exposure to changing business conditions. The positive relationship identified in this study applies to the companies and period examined; it is not a guarantee that greater leverage will increase value in every business.
For investors, the results suggest that profitability and capital structure are useful factors to consider when assessing companies in the selected subsectors. They should not be treated as the only measures of investment quality, however. Market conditions, business risks, growth prospects, and other financial indicators may also influence valuation.
The authors also acknowledge limitations in the study’s scope. The analysis covered 23 companies in three subsectors over 2020–2024 and examined four financial indicators. Future research could include additional variables, such as dividend policy, sales growth, total asset turnover, and macroeconomic shocks, as well as other industries and longer observation periods.
Research Insight from Mercu Buana University
The findings of Viko Trikusdiano and Hakiman Thamrin of Mercu Buana University highlight the importance of distinguishing between company scale and financial performance. The analysis found significant positive relationships between profitability, debt-to-equity ratio, and market-based firm value, while liquidity and firm size did not show statistically significant individual relationships.
For companies in Indonesia’s plantation and crop, tobacco, and processed food subsectors, the results point to the importance of using assets productively and managing financing decisions prudently. The evidence also underscores that a company’s contribution to the wider economy does not automatically guarantee a higher market valuation.
Author Profiles
Viko Trikusdiano is a co-author of the study and is affiliated with the Faculty of Economics and Business at Mercu Buana University. The published article identifies him as the corresponding author. His academic degree and specific field of expertise are not stated in the article.
Hakiman Thamrin is a co-author affiliated with the Faculty of Economics and Business at Mercu Buana University. The article does not specify his academic degree or detailed field of expertise.
Source
Article title: “The Effect of Current Ratio, Return on Assets, Debt-to-Equity Ratio, and Firm Size on Tobin’s Q (A Study of Plantation and Crops, Tobacco, and Processed Foods Sub-Sectors Listed on the Indonesia Stock Exchange from 2020 to 2024)”
Authors: Viko Trikusdiano and Hakiman Thamrin
Journal: International Journal of Sustainable Applied Sciences (IJSAS)
Publication year: 2026
Volume and issue: Vol. 4, No. 10, pp. 1367–1380
DOI: https://doi.org/10.59890/ijsas.v4i10.74
Journal website: http://ijsasjournal.my.id/index.php/ijsas
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