The Role of Profitability as a Mediation to Increasing the Influence of Institutional Ownership on Company Value

Abstract

This study aims to examine the influence of institutional ownership on the value of the company and to analyze the role of profitability as a mediating variable in those relationship. This research was conducted on energy sector companies listed on the Indonesia Stock Exchange (IDX) during the 2018-2023 period, using secondary data obtained from the company's annual financial statements. Using the Partial Least Squares (PLS) analysis method with WarpPLS 7.0 software, this study found that institutional ownership has a positive and significant effect on company value as measured by the Price to Book Value (PBV) ratio. The results of the analysis showed a regression coefficient of 0.413 with a p-value of 0.000, which means that institutional ownership can directly increase the value of the company. In addition, profitability as measured by Return on Assets (ROA) also has a positive and significant influence on the company's value, with a coefficient of 0.489 and a p-value of 0.000, indicating that companies with high profitability have a higher market value. The study also found that profitability can mediate the influence of institutional ownership on company value, with a mediation coefficient of 0.105 and a p-value of 0.053, which is significant at the level of 10%. These findings suggest that higher institutional ownership increases managerial oversight, which in turn increases operational efficiency and profitability, as well as contributes to increased company value. Overall, the results of this study support the Agency Theory which states that institutional ownership can reduce agency conflicts and improve the efficiency of company management. Moreover, these findings are in line with Signaling Theory which emphasizes the importance of profitability as a positive signal for the market. This research contributes to the corporate governance literature, especially regarding the importance of the role of institutional ownership in increasing company value through profitability as a mediator.