Working Capital, Net Profit Margin, and Exchange Rate Effects on Corporate Value through Leverage: Evidence from Listed Indonesian Construction Companies (Journal of Applied Business Taxation and Economics Research)

Summary

• Average Net Working Capital among listed Indonesian construction issuers dropped from IDR 1,911.42 billion in 2021 to IDR 640.83 billion in 2025.p.2
• The IDR/USD exchange rate depreciated from IDR 14,269 in 2021 to IDR 16,335 in 2025.p.2
• Average Price to Book Value (PBV) for the sample declined from 1.20x in 2021 to 0.95x in 2025, moving below book value.p.2
• The sample companies exhibited a high average Debt to Asset Ratio (DAR) of 72.99% across the observation period.p.3
• The Random Effect Model for Corporate Value achieved an Adjusted R-squared of 81.11%.p.7

Key insights

1. Net Profit Margin has a significant negative effect on Leverage (t = −3.587; p = 0.0008), supporting Pecking Order Theory as profitable firms use internal funds over debt.p.1
2. Exchange Rate exhibits a significant negative effect on Leverage (t = −7.483; p = 0.0000), reflecting firm deleveraging behavior during periods of rupiah depreciation.p.1
3. Working Capital shows no significant effect on Leverage (t = −1.673; p = 0.1014) or Corporate Value (t = 0.390; p = 0.6981) due to project-driven cash flow fluctuations.p.1
4. Exchange Rate exerts a significant negative effect on Corporate Value (t = −3.748; p = 0.0004), confirming high macroeconomic cost sensitivity across the construction sector.p.1
5. Leverage has a significant negative effect on Corporate Value (t = −2.809; p = 0.0069), supporting Trade-off Theory where excessive debt increases financial distress risks.p.1
6. Leverage partially mediates the impacts of Net Profit Margin (z = 2.2124; p = 0.0269) and Exchange Rate (z = 2.6300; p = 0.0085) on Corporate Value.p.8