Investment decisions as mediating of fundamental and technical factors on firm value

Article history: Received: February 27, 2021 Received in revised format: April 29 2021 Accepted: May 6, 2021 Available online: May 6, 2021 This study aims to analyze the impact of fundamental and technical factors on firm value with investment decisions as a mediating variable. The samples were 12 companies at agricultural sector in the Indonesia Stock Exchange. The results show that leverage had a negative and significant effect on investment decisions and firm value. Profitability and trading volume had a positive and significant effect on investment decisions and firm value. Previous stock prices did not have any significant effect on investment decisions but a positive and significant effect on firm value. Investment decisions had a positive and significant effect on firm value. Leverage had a negative and significant effect on firm value through investment decisions. Profitability and stock trading volume had a positive and significant effect on firm value through investment decisions. Previous stock prices did not have any significant effect on firm value through investment decisions. © 2021 by the authors; licensee Growing Science, Canada


Introduction
The agricultural sector plays a very important role in the Indonesian economy. Based on data from the Indonesian Central Bureau of Statistics, the average value of Indonesia's agricultural exports for the 2012-2019 period reached 3.5 billion dollars. The concept and model of approach and agricultural management must consider important aspects. First, technological advances and growth in other sectors, especially in relation to the increasing world demand for food and various derivatives of agricultural products, both horticulture and food. Second, the Asean Economic Community (AEC), which is used as a space to penetrate the cross-Asian market, must maximize its opportunities, namely by making changes to changes in farming and product packaging so that they have added value / high competitiveness with other products in the market (https://setkab.go.id/posisi-pertanian-yang-tetap-strategis-masa-kini-dan-masa-depan/). The role of the agricultural sector in the demand for agricultural commodities on world markets is as shown in the graph in Table 1. The table explains that the role of the agricultural sector is evidenced by the export results of the agricultural sector. The development of exports of agricultural products from time to time shows a fluctuating trend both in terms of weight and value. The growth in the export value of agricultural products in 2014 and 2016 decreased by 6.26 percent and 9.98 percent, respectively. Meanwhile, the growth in the export value of agricultural products in 2015 and 2017 showed positive performance, namely increasing by 10.47 percent and 9.43 percent, respectively. Even so, the export value of agricultural products has again decreased by 6.54 percent in 2018. Finally, it has increased again in 2019 by 5.29 percent. The agricultural sector is one of the important sectors in economic development, both at the national and regional levels. The output of the agricultural sector contributes to various sectors of the economy, including foodstuff providers, feedstuff providers, raw materials for small, medium, and large industries, absorbing labor, and the main source of income for rural households. In addition, the agricultural sector supports the manufacturing sector, which is one of the main sectors supporting the country's economy. In addition, the role of the agricultural sector is also very important, especially for absorption of the agricultural sector. In absolute terms, the creation of added value in the agricultural sector, which in this case is measured by the added value of GDP in the agricultural sector, has a positive effect on labor absorption in the agricultural sector as described in Table 2. During the 2012-2019 period, the agricultural sector was still a sector with a large share of employment, although there was a downward trend. The absorption of labor in the agricultural sector in 2012 was around 36,048 million workers or around 32.53% of the total employment. Then it decreased in 2019, the absorption of labor has decreased to 35,572 million workers or 27.98%. Apart from that, the role of the agricultural sector is also proven by the agricultural sector which is able to survive during the economic crisis. As evidence, in 2008 when the world faced a global financial crisis, the agricultural sector was able to survive compared to other sectors. In 2007, namely the beginning of the financial crisis in the USA, Indonesia's economic growth was at a relatively good rate of 6,3%. (BI Annual Report, 2007) When the crisis spreads throughout the world, Indonesia as an open country cannot avoid the impact of the global economic crisis, although in terms of growth it can still reach 6.1%, lower than before. This indeed shows that at an early stage, the impact of the global economy will not have much effect on economic growth. However, the impact of the global economic impact was greater in 2008, namely 4.5% and in 2009 Indonesia's economic growth was still 5.5%. In the following years (2011)(2012)(2013)(2014), it is predicted that growth will be achieved between 6.5% to 7.5% per year (BI Annual Report, 2007). Based on the role of the agricultural sector described earlier, the agricultural sector has promising business development prospects. But in reality companies in the agricultural sector, especially those that carry out activities on the Indonesia Stock Exchange, have not experienced optimal development. This is evidenced by the development of the agricultural sector index price described in Fig. 1.

Fig. 1. Development of Agricultural Sector Index Prices
Source: PT. Indopremier Sekuritas (2019) Fig. 1 explains that the agricultural sector index price has decreased over time. Data shows that in semester 1 of 2014 it decreased and in semester 2 of 2014 experienced a stable condition (stagnant) but since 2015-2019 it decreased. This is because, in general, companies in the agricultural sector are in the plantation sector, which sell a lot of palm oil production, causing a decline in the stock price index. The decline in the agricultural sector index price is related to developments in the volume of stock trading which also experienced fluctuating developments but tended to decline as shown in Figure 1. The development of stock trading from the agricultural sector. From 2016 to June 2020 there were fluctuating developments but tended to decline. Based on the role of the agricultural sector described earlier, the agricultural sector actually has promising business development prospects. There are several factors that affect the fluctuation of company value, including fundamental factors and technical factors. Fundamental factors based on company financial data, and technical factors based on patterns of stock movements from time to time. This study used two fundamental factors of financial ratios, namely leverage and profitability. Previous studies examining the impact of leverage on firm value have shown mixed results. Chen and Chen (2011), Cheng and Tzeng (2011) (2017) found that Leverage has a negative and significant effect on firm value. Companies that have a high level of profitability will attract investors to their shares. Marsha and Murtaqi (2017), Sabrin et al (2016), Tui (2017) and Rely and Arsjah (2017) found that profitability has a positive and significant effect on firm value.
This study used proxy for the previous stock price and trading volume in the assessment of technical factors. This proxy selection is based on the results of empirical testing in previous research and technical assessments based on stock prices and trading volume as benchmarks for the company's success in increasing firm value. Zaigham (2019), Chandrapala (2011), Yahyazadehfar (2010), Lee et al. (2018), Chipunza (2017) found that technical factors have a significant effect on firm value. Meanwhile, Tapa and Hussin (2016), Drakopoulou (2015) found that technical factors had no significant effect on firm value. Firm value is also influenced by investment. Firm value is the owner's perception of the company's investment success. Reuer and Tong (2017), Lee et al. (2018), Da Silva et al. (2013) found that investment growth increases firm value.
This paper contributes to the existing literature in the following ways: Firstly, the finding of the current paper reconciles the mixed results regarding the impact of leverage on firm value in emerging markets by profitability increases value of firm. Secondly, the paper offers insights into how market conditions affect investment and firm value in the Indonesia stock market where the research in relation to this issue has rarely been executed.

Literature review
The optimal capital structure is expressed as a combination of debt, preference, and equity. Companies that wish to maximize investment will estimate their optimal capital structure. Increased use of debt can suppress excessive free cash flows where there are company cash flows that are not invested profitably. Empirical evidence is shown by Mondosha and Majoni (2016) and Sajid et al. (2016) explained that the leverage ratio has a negative and significant effect on investment decisions. Debt can be used as leverage to increase the company's operating capital to get a profit which will increase the company's value. Debt can reduce tax expenditures, thus increasing company value. However, debt that is too high also makes the company's financial condition unhealthy so that it can reduce the company's value. Empirical evidence with the results of research by Paminto et al. (2016) and Handoko (2017) state that leverage has a negative and significant effect on firm value.

H5:
Leverage has a negative and significant effect on firm value.  Cheung et al. (2015), Drakopoulou (2015), Husna and Satria (2019) and Da Silva et al. (2013) found that profitability has a positive and significant effect on firm value.
H6: Profitability has a positive and significant effect on firm value.
Boumosleh (2012) Chipunza et al. (2017) and Drakopoulou (2015) explain that stock prices can have a positive and significant effect on firm value. Firm value is the owner's perception of the company's success rate which is often associated with the stock price. The high share price makes the company value also high. A high company value will make the market believe not only in the company's current performance but also in the company's future prospects.

H7:
Previous stock price has a positive and significant effect on firm value.
The trading volume of share prices is determined by supply and demand. The higher the trading volume shows that the company's shares are in demand by investors, thereby increasing the company's value. Zulkarnaen et al. 2016), Zaigham et al. 2019), Chandrapala (2011) and Chipunza et al. (2017) found that trading volume has a positive and significant effect on firm value.

H8:
Stock trading volume has a positive and significant effect on firm value.
The decision to allocate capital into investment proposals whose benefits will be realized in the future must be carefully considered. Due to uncertainty in the future, the benefits are uncertain, so that the investment proposal carries risks. Ahmad and Siahaan (2016)

Methods
Data and Sample Selection The data is obtained from the company's annual reports of 12 companies in the agricultural sector which are continuously listed on the Indonesia Stock Exchange in 2012-2018.
Model Specification The hypothesized relationship between the research variables is formulated in the regression model in Eq.
where INV is a company's investment, calculated from the company's assets this year minus the previous year's assets divided by the previous year's assets. LEV is the company's leverage, calculated from total debt divided by equity. Profit is the company's profitability, calculated from net income divided by total assets. PRICE is the previous share price. VOL is the trading volume of the company's shares. VALUE is the company value, calculated from the company's share price divided by earnings per share.

Descriptive Statistics
The average leverage of the company is 6.08%. Leverage value is in the range of -17.31% to 37%. This means that the sample companies have low leverage. Profitability was in the range -45% to 50%, with a mean of 11%.

Results
The path analysis results of equation 1 are shown in Table 2. The four independent variables in model 1 have one regression coefficient that is not significant, namely the PRICE variable, so the third hypothesis which states that the previous stock price has a positive effect on company investment is rejected. The regression coefficients of other variables in model 1 are statistically significant, and with a coefficient sign that matches the research hypothesis, so that the first, second and fourth research hypotheses are accepted. The regression results of Eq.
(2) are shown in Table 3. All independent variables in model 2 are statistically significant, with a coefficient sign in accordance with the research hypothesis. Thus, the fifth to ninth hypotheses are accepted. Leverage has a negative and significant effect on investment decisions. This means that each increase in the level of leverage decreases investment decisions. A company that has high leverage means that the company uses high debt, thereby reducing investment decisions. This is due to the large amount of debt the company has, so it will reduce cash flow because of the interest costs paid. Profitability has a positive and significant effect on investment decisions. Profitability shows the company's ability to manage assets so as to generate high profits. Previous share prices have no significant effect on investment decisions. This indicates that any decrease or increase from the previous share price growth rate will neither decrease nor increase the growth rate of investment decisions. Stock trading volume has a positive and significant effect on investment decisions. A small trading volume indicates low share buying and selling transactions, thus preventing the company from adding sources of funds to invest. Leverage has a negative and significant effect on firm value. In accordance with the pecking order theory (Myers, 1977), companies with low profitability will have relatively few internal funds so that they require more external funding, which mainly comes from debt. Profitability has a positive and significant effect on firm value. The higher the profitability figure listed in the financial statements, the better the company's financial performance, it will reflect the company's greater wealth and the company's prospects in the future are considered more promising. Previous stock prices have a positive and significant effect on firm value. Previous stock prices provide information on whether a stock price data has a tendency to stay on a trend or not. Trading volume has a positive and significant effect on firm value because volume reflects the information received by market players, this information causes a positive relationship between volume and firm value. Investment decisions have a positive and significant effect on firm value. High investment is a signal of the company's future revenue growth.

Conclusion
This study proves and strengthens the results of previous research that investment decisions and firm value are still dominated by fundamental factors such as leverage and profitability and technicality so that in an effort to improve investment decisions and firm value factors such as profitability, leverage, trading volume are still considered in increasing firm value. In general, the findings of the influence of fundamental factors on investment and firm value indicate that high debt limits investment and reduces firm value. Companies use profit as a source of investment funding and ultimately increase company value. The test results show that the company increases its investment following the conditions of the capital market, when the transaction volume is high.

Limitation
There are several limitations to the study, including: a. The research population is only in the agricultural industry group so that the research observations are still not representative of companies listed on the IDX. b. The time span of the research is only six years, from 2013 to 2018, so the results are less accurate and generalized, so there is no comparison with the longer research period. c. The variables in this study only use six variables, namely the variable profitability, leverage, previous stock prices, share trading volume and investment decisions so that the variables that affect investment decisions and firm value are still limited.