Firm Value as An Intervening Variable in The Relationship Between Return on Equity and Stock Price: Evidence from Cosmetics and Household Goods Companies

I Komang Ariyasa; Agus Wahyudi Salasa Gama; Ni Putu Yeni Astiti

doi:10.36733/emas.v7i8.14532

Authors

I Komang Ariyasa Universitas Mahasaraswati Denpasar, Indonesia
Agus Wahyudi Salasa Gama Universitas Mahasaraswati Denpasar, Indonesia
Ni Putu Yeni Astiti Universitas Mahasaraswati Denpasar, Indonesia

DOI:

https://doi.org/10.36733/emas.v7i8.14532

Keywords:

return on equity, stock price, firm value, price-to-book ratio, path analysis

Abstract

Fluctuating stock prices encourage investors to rely on fundamental analysis, particularly profitability indicators such as Return on Equity (ROE), in making investment decisions. ROE reflects a company’s ability to generate profit from shareholders’ equity and may influence firm value, commonly proxied by Price-to-Book Value (PBV). Prior studies have reported inconsistent findings regarding the effects of ROE and PBV on stock prices, highlighting the need to examine firm value as an intervening variable. This study analyzes the effect of ROE on stock prices through firm value in cosmetics and household goods sub-sector companies listed on the Indonesia Stock Exchange during 2021–2024. A quantitative approach was applied using secondary data from financial reports and stock prices. The population consisted of 11 companies, while 9 companies were selected through purposive sampling, producing 27 observations. Data were analyzed using descriptive statistics, classical assumption tests, path analysis, and Sobel test. Results show that ROE significantly affects stock prices and firm value, while firm value positively and significantly affects stock prices. Furthermore, firm value mediates the relationship between ROE and stock prices. These findings indicate that profitability enhances stock prices directly and indirectly through firm value.

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