The Effect of Company Size on Company Profitability and Company Value: The Case of Manufacturing Companies
Purpose: Economic conditions have created a tough competition between companies in the industry. The large companies, seek to obtain, acquire, develop, utilize, maintain and disclose strategic resources to the fullest. The paper aims to examine the effects of company size to company profitability and corporate value. Design/Methodology/Approach: The article used random sampling analyzed by variable linearity assumption test. The population consists by manufacturing companies which are included in LQ 45 Index 2013-2015, during the period February 2013 until August 2015 for 6 consecutive years. There are as many as 25 companies in the sample. Findings: The result shows that firm size has strong influence to the determination of profitability and value of manufacturing companies in Indonesia, while profitability has no effect to their value, neither with company size through profitability to company value. This proves that together the size of the company and profitability have no influence on the value of the company, which is caused by profitability because of no effect on the value of the company. Practical Implications: The perception of investors on the level of corporate success is reflected through the value of the company. Increased corporate value due to high stock prices will make investors believe the prospects of the company in the future. Originality/Value: Results must be used by top management because in a highly competitive environment companies must choose the cheapest way in executing investment plans trying to maximize the value of the company.