The role of investment opportunity set on financially distressed firm’s value

  • Authors

    • Satria Tri Nanda
    • Raisya Zenita
    • Rizqa Anita
    • Muhammad Rasyid Abdillah
    https://doi.org/10.14419/ijet.v7i3.35.29277
  • Financial Distress, Firm Value, Investment Opportunity Set, Mediating, Warp PLS.

  • Sustainability of a company is one of them determined by financial performance that is perceived by firm value. Thus it is important to increase firm value as it can be used as signal to investors that the company is worthy. Investment opportunity set and financial distress are one of among factors that affect firm value. This study examines: (1) the influence of investment opportunity set on firm value, 2) the influence of financial distress on firm value and, 3) the role of investment opportunity set as a mediating variable on the relationship between financial distress and firm value. Using PLS Program Warp PLS 5.0., financial data gathered from 33 listing companies of real estate and property sector in Indonesia were analyzed. The results show that Investment opportunity set and financial distress affect firm value. Further analysis found that investment opportunity set play as a mediating variable that mediate the relationship between financial distress and firm value.

     

     

  • References

    1. [1] Almeida, H., & Thomas, P. (2007). The Risk-Adjusted Cost of Financial Distress. The Journal of the American Finance Association, 62 (6), 2557-2586.

      [2] Altman, E. (1968). Financial Ratios, Discriminant Analysis, and the Prediction of Corporate Bankruptcy. Journal of Finance.

      [3] Andrade, G., & Kaplan, S. (1998). How Costly is Financial (Not Economic) Distress? Evidence from Highly Leverage Transaction that Become Distressed. Journal of Finance, 53, 1443-1493.

      [4] Asquith, P., Gertne, R., & Scharfstein, D. (1994). Anatomy of Financial Distress: An Examination of Junk Bond Issuers. The Quarterly Journal of Economics, 109 (3), 625-658.

      [5] Baldwin, C. Y., & Scott, M. P. (1983). The Resolution of Claims in Financial Distress the Case of Massey Ferguson. The Journal of Finance, 38 (2), 505-516.

      [6] Bhagat, S., Moyen, N., & Suh, I. (2005). Investment and Internal Funds of Distressed Firms. Journal of Corporate Finance, 11, 449-472.

      [7] Bhattacharjee, A., & Han, J. (2014). Financial Distress of Chinese Firms: Microeconomic, Macroeconomic, and Institutional Influences. China Economic Reveiew, 30, 244-262.

      [8] Chin, W. W. (2010). How to Write Up and Report PLS Analyses. in Esposito Vinzi, V., Chin, W. W., Henseler, J. and Wang, H. (Eds.) Handbook of Partial Least Squares: Concepts, Methods and Applications, Springer, Heidelberg, Dordrecht, London, New York, 655-690.

      [9] Clifford, S. D., & Watts, R. (1986). The Investment Opportunity Set and Corporate Financing, Dividend, and Compensation Policies. Journal of Financial Economics, 32 (3), 263-292.

      [10] DeAngelo, H., & DeAngelo, L. (1990). Dividend Policy and Financial Distress: An Imperical Investigation of Troubled NYSE Firms. The Journal of Finance, 45 (5), 1415-1431.

      [11] Elkamhi, R., Erickson, J., & Parsons, C. (2012). The Cost and Timing of Financial Distress. Journal of Financial Economics, 105 (1), 62-81.

      [12] Elloumi, F., & Gueyie, J.-P. (2001). Financial Distress and Corporate Governance: an Empirical Analysis. Corporate Governance: The International Journal of Business and Society, 1 (1), 15-23.

      [13] Giriarti. (2016). Free Cashflow, Dividend Policy, Investment Opportunity Set, Opportunistic Behavior and Firm’s Value. Social and Behaviorial Sciences, 219, 248-254.

      [14] Gutierrez, C. L., Azofra-Sanfilippo, S., & Torre-Almo, B. (2015). Investment Decisions of Companies in Financial Distress. BRQ Business Research Quarterly, 18 (3), 174-187.

      [15] Hair, Joe, F., Marko, S., Lucas, H., and Volker, G., (2014). Partial least squares structural equation modeling (PLS-SEM): an emerging tool in business research. European Business Review, 26 (2), 106-121.

      [16] Jensen, M. (1989). The Eclipse of the Public Corporation. Harvard Business Review, 67 (5), 61-74.

      [17] Kallapur, S., & Trombley, M. A. (2001). The Investment Opportunity Set: Determinants, Consequents and Measurement. Managerial Finance, 27 (3), 3-15.

      [18] Kock, N (2014). Advanced Mediating Effects Tests, Multi-Group Analyses, and Measurement Model Assessments in PLS-Based SEM. International Journal of e-Collaboration, 10(1), 1-13.

      [19] Liu, C., Uchida, K., & Yang, Y. (2012). Corporate Governance and Firm Value during the Global Financial Crisis: Evidence from China. International Review of Financial Analysis, 21, 70-80.

      [20] Maksimovic, V., & Phillips, G. (1998). Asset Efficiency and Reallocation Decisions of Bankrupt Firms. The Journal of Finance, 3 (5), 1495-1532.

      [21] Martani, Dwi (2008) Hubungan Investment Opportunity Set (IOS) terhadap Value of the firm dengan CSR sebagai moderating variabel, studi kasus BUMN (2003-2006), Seminar Hibah Riset UI

      [22] Mason, S., & Merton, R. (1985). The Role of Contingent Claims Analysis in Corporate Finance. Recents Advances in Corporate Finance, 7-54.

      [23] Mcconnell, J., & Muscarella, C. (1985). Corporate Capital Expenditure Decisions and the Market Value of the Firm. Journal of Finance Economics, 14 (3), 399-422.

      [24] Myers, S. (1977). The Determinants of Corporate Borrowing. Journal of Financial Economics, 5 (2), 147-175.

      [25] Opler, T., & Titman, S. (1994). Financial Distress and Corporate Performance. The Journal of Finance, 49 (3), 1015-1040.

      [26] Ramadhani, L.S. & Hadiprajitno, B. 2012. Pengaruh Corporate Social Responsibility Terhadap Nilai Perusahaan Dengan Prosentase Kepemilikan Manajemen Sebagai Variabel Moderating Pada Perusahaan Manufaktur Yang Terdaftar DiBEI. Jurnal Akuntansi & Auditing Volume 8/No. 2/ Mei 2012: 95-189.

      [27] Ramadhani, A. S., dan N. Lukviarman. 2009. Perbandingan Analisis Prediksi Kebangkrutan Menggunakan Model Altman Pertama, Altman Revisi, dan Altman Modifikasi dengan Ukuran dan Umur Perusahaan sebagai Variabel Penjelas (Studi pada Perusahaan Manufaktur yang Terdaftar di Bursa Efek Indonesia). Jurnal Siasat Bisnis. Volume 13, No.1. (April): hal. 15-28.

      [28] Redouane, E., Ericsson, J., & Parsons, C. (2012). The Cost and Timing of Financial Distress. Journal of Financial Economics , 105 (1), 62-81.

      [29] Rokhayati, I. 2005. Analisis Hubungan IOS dengan Realisasi Pertunbuhan serta Perbedaan Perusahaan yang Tumbuh dan Tidak Tumbuh Terhadap Kebijakan Pendanaan dan Deviden di BEJ. SMART Vol I No. 2 Januari 2005 : (p41-60).

      [30] Smith, C. W., & Watts, R. (1986). The investment opportunity set and corporate policy choices. Mimeographed. Rochester: William E. Simon Graduate School of Business Administration.

      [31] Solihin, M. and Ratmono, D. (2013). Analisis SEM-PLS Dengan WarpPLS 3.0 Untuk Hubungan Nonlinier Dalam Penelitian Sosial Dan Bisnis. Yogyakarta: ANDI.

      [32] Whittaker, R. B. (1999). The Early Stages of Financial Distress. Journal of Economics and Finance, 23 (2), 123-133.

      [33] Wruck, K. H. (1990). Financial Distress, Reorganization, and Organizational Efficiency Journal of Financial Economics, 27 (2), 419-444.

      [34] Link https://www.bps.go.id/ (2017).

  • Downloads

  • How to Cite

    Tri Nanda, S., Zenita, R., Anita, R., & Rasyid Abdillah, M. (2018). The role of investment opportunity set on financially distressed firm’s value. International Journal of Engineering & Technology, 7(3.35), 118-121. https://doi.org/10.14419/ijet.v7i3.35.29277