The Effect of Corporate Governance and Profitability on the Firm Value of LQ45 Companies

Abstract

This study investigates the effect of corporate governance and profitability on firm value, focusing on companies listed in the LQ45 index on the Indonesia Stock Exchange during the period 2021–2023. Corporate governance variables include the board of commissioners, board of directors, and audit committee, while profitability is proxied using return on assets (ROA). Firm value is measured by the Price Earnings Ratio (PER). Using purposive sampling, 26 companies were selected, and secondary data from their annual reports were analysed using multiple linear regression. The results reveal that profitability and the board of directors have a significant negative effect on firm value. In contrast, the board of commissioners and audit committee do not significantly affect firm value. These findings suggest that increased profitability and board size do not automatically translate into higher firm valuation, possibly due to investor scepticism or inefficiencies in corporate structures. This study provides insights for regulators, investors, and corporate leaders in enhancing governance strategies to sustain firm value in Indonesia's capital market.