Profitability Mediating Role in Profit Growth Effects on Firm Value

Abstract

This research examines the mediating role of profitability in profit growth effects on firm value among Indonesian industrial companies. Employing quantitative methodology with structural equation modeling and partial least squares analysis, data was collected from 31 industrial companies spanning 2021–2023 through purposive sampling, yielding 93 observations. Results reveal that profit growth and capital structure have positive and significant direct effects on firm value, while dividend policy shows insignificant influence. Profit growth significantly affects profitability, which subsequently impacts firm value substantially. Mediation analysis shows that profitability completely explains how profit growth affects firm value, detailing how this happens through improved operational efficiency. The model explains 15.0% of firm value variance, confirming profit generation capabilities and capital structure decisions constitute critical value determinants. Findings emphasize integrated profitability enhancement and strategic financial management approaches supporting sustainable value creation.