Peer-Reviewed Article

Jurnal Keuangan dan Perbankan

Volume 26, Issue 1, January 2022, page. 75-90
ISSN: 1410-8089 (Print), 2443-2687 (Online)
DOI: 10.26905/jkdp.v26i1.6882

The Mediating Effect of Debt Equity Ratio on The

Effect of Current Ratio, Return on Equity and Total
Asset Turnover on Price to Book Value
Fredella Colline*
Management Program, Krida Wacana Christian University
Center of Innovation in Applied Management and Behavioral Economy (CIAMBE), Indonesia.
*Corresponding Author: [email protected]

Abstract
The research conducted here has two aims: firstly, it endeavors to examine the impacts of
liquidity, Profitability, and activity ratio on capital structure as well as the firm value; and,
secondly, it attempts to examine the role of capital structure as a mediator. We conduct the
test with multiple regression and path analysis over 2020 – 2021 quarterly, with Eviews 8
software. Some companies in the technology sector are taken as samples. Besides, we also
analyze financial statement data from Indonesia Stock Exchange. The result indicates
Current Ratio, Return on Equity, Debt Equity Ratio significantly affect the Price Book
Value, while Total Asset Turnover does not. The Current Ratio does not significantly affect
the Debt Equity Ratio, while Total Asset Turnover and Return on Equity have significant
negative effects. Path Analysis has confirmed that the Debt Equity Ratio cannot mediate
the effect of the Current Ratio and Return on Equity on Price Book Value. However, it fully
mediates the effect of Total Asset Turnover on Price Book Value. This finding of the present
study supports the pecking order and static theory. The novelty of this research is that there
is still little research on debt equity ratio as a mediator. There is no research especially on
the technology sector, using those factors to determine the firm value. This research also
uses the latest data of financial statements.

Keywords : Current Ratio; Price to Book Value; Return on Equity; Technology

Sector; Total Asset Turnover
JEL Classification : G32, L25

This is an open-access article under the CC–BY-SA license.

1. INTRODUCTION
The Covid-19 Pandemic has hit Indonesia for almost two years since March 2020.
Industrial sectors were mostly affected, production was significantly reduced, many
employees lost their jobs (Coker-Farrell et al., 2021). The COVID-19 will affect the economic
environment and investor sentiment as a consequence of stock price changes (He et al.,
2020). The lowest Jakarta Composite Index (JCI) was 3,937.63 on March 24, 2020. That

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means it was declined by 37% from early 2020 before the pandemic. Despite the soaring
cases of Covid-19, the bleak economic condition, and the inevitable financial problems in
2020 and 2021, the Indonesian Stock Market is still holding up. In July 2021, COVID-19
cases in Indonesia reached their peak: 56,757 cases were recorded on July 15, and 2,069
deaths were reported on July 27. It was even higher than the high record in January 2021.
Therefore, the government decided to enforce a restriction on community activities from
July 3, 2021.

Figure 1. The comparison between Average New Covid-19 Cases and Monthly Jakarta Composite
Index in Indonesia.

Table 1 shows that although the average of new Covid-19 cases rises sharply in June
and July 2021, the Jakarta Composite Index can still hold on. It could be because of some
stocks' rising prices, which can cover the declined price of some other stocks. Hence, we
can understand better if we take a deeper look at each category of stocks in the Indonesia
Stock Exchange (IDX). There are 11 sectors in IDX: (1) Basic Materials, (2) Consumer
Cyclicals, (3) Consumer Non-Cyclicals, (4) Energy, (5) Financials, (6) Healthcare, (7)
Industrials, (8) Infrastructures, (9) Property & Real Estate, (10) Technology, (11)
Transportation & Logistic.
The data above tells us that from 11 sectors mentioned previously, it turns out that
the most contributed sector is Technology with the growth of almost 1 thousand percent
(951.36%) in a year. Concludingly, the rising of the Covid-19 cases in Indonesia was
followed by the rising of the stock price in the Technology sector.
Investors must know whether the rising of the stock price is really supported by the
firm's value or just due to the market trend. Further investigation of the fundamental
analysis of those companies in the Technology Sector is needed. A firm's value is an
indicator of assessment to be used by the investor in assessing whether companies are
worthy of being invested or not. The firm value can be measured by a stock price or using

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ratios like Price to Book Value, Tobin's Q, and Price Earnings Ratio. Some researchers have
found that some factors affect the firm value; those are the Liquidity Ratio (Nurwulandari
et al., 2021; Suhendry, 2021), Profitability Ratio (Nurwulandari et al., 2021), Activity Ratio,
and also Leverage Ratio (Bahraini et al., 2021). We can employ all the factors as
determinants of firm value, and especially for the leverage ratio, which can be proxied by
Debt Equity Ratio can also be used to mediate the Effect of Profitability, Liquidity, and
Activity Ratios on Stock Prices (Lumbantobing & Salim, 2021).

AVERAGE NEW COVID-19 CASES AND

MONTHLY JAKARTA COMPOSITE INDEX
45.000
40.000
35.000
30.000
25.000
20.000
15.000
10.000
5.000
-
Jan-21 Feb-21 Mar-21 Apr-21 May-21 Jun-21 Jul-21 Aug-21 Sep-21 Oct-21
Average New Cases 10.810 9.154 5.712 5.222 4.946 11.886 39.722 21.940 4.177 944
Monthly JCI 5.862 6.242 5.986 5.996 5.947 5.985 6.070 6.150 6.287 6.591

Figure 2. Jakarta Composite Index and IDX Industrial Classification (IDX-IC)

Source: www.idx.co.id

A common expression about leverage(debt) has become the philosophy of modern

financial Management. Regarding the capital structure, it is said:" borrow as much as you
can get and don't spread your earnings but spread your risk." It suggests that investors or
companies should be prudent in determining the composition of the capital structure. As a
source of external funding, debt has become a more attractive means for companies to
restructure and develop business operations than their capital. In a management context,
debt financing is beneficial because it provides financial leverage to increase earnings per
share.
Nevertheless, the debt will increase the financial risk and cause financial distress; if
it is too high, the company can afford to pay. Based on these two philosophies, companies
must consider the benefits and costs of the selected source of funds in making a funding
decision, which indicates the proportion of debt and equity of the company. The static
theory asserts that the higher the proportion of debt, the company value as reflected by the
share price will increase, however to a certain point, an increase in the proportion of debt
will decrease corporate value (Modigliani & Miller, 1958).
There are two theories underlying the decision regarding funding sources: theory
static (trade-off/balancing theory) and pecking order theory (POT). According to static
theory, funding is based on the optimal capital structure, namely the structured capital, by

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balancing the benefits of tax shields on usage debt against the cost of bankruptcy. The goal
of theory Static is balancing own capital with outside capital. As long as the benefits of the
use of debt are still larger than the cost, the debt can be increased, but if the sacrifice of
using debt is already greater than the benefits, debt is no longer optimal to add. Meanwhile,
the pecking order theory explains that funding is based on the order of funding preference
with the smallest risk: retained earnings, debt, and issuance of equity (Myers, 1983). This
theory prefers internal funding sources to external ones. The previous research has stated
that the average family firms still use POT in Indonesia in the capital structure's application
(Oktavina & Manalu, 2018).
Besides the theory gap mentioned above, some research gaps are underlying this
research. Based on previous research, Profitability has no impact on firm value
(Nurwulandari et al., 2021). Debt to Equity Ratio, managerial ownership, and institutional
ownership has no significant effect on the firm value. In comparison, the Return On Equity
significantly affects the firm value (Trafalgar & Africa, 2019). The debt to equity shows that
Portfolios performed better with lower debt to equity (Berk & Tutarli, 2021). When the debt
ratio is too high, firm performance decreases (Bui et al., 2021). There is a positive
relationship between Profitability and firm value (Akhmadi, 2021). The debt to equity does
not mediate the impact of return on equity on stock prices. Profit produces an increase in
the retained earnings as internal funding, reducing dependence on external funding
(Akhmadi et al., 2021). The liquidity, firm size, and Profitability have negative and
significant effects on capital structure, while liquidity, Profitability, and firm size do not
affect firm value. Capital structure has a negative and significant effect on firm value.
Capital structure mediates the impact of liquidity, firm size, and Profitability on firm value
(Nurwulandari et al., 2021).
Based on the contradictive results of the study earlier, along with the description that
has been described above, the author wants to do the research which is entitled " The Effect
of Current Ratio, Return on Equity and Total Asset Turnover on Price to Book Value
Mediated by Debt Equity Ratio (Case Study in Technology Sector Listed on Indonesia Stock
Exchange in The Period of 2020-2021 Quarterly". The novelty brought about by this
research is that there is still little research on the debt-equity ratio as a mediating variable.
There is no specific research on the technology sector using those factors to determine the
firm's value. In addition, this research also uses the latest data of financial statements.

2. HYPOTHESES DEVELOPMENT
Current Ratio and Price to Book Value
The greater the current ratio, the higher the firm's ability to handle its short-term
liabilities. The current ratio has significantly affected the stock price (Andreas et al., 2021).
Previous research also asserted that liquidity (Current Ratio) had a significant positive
effect on firm value (Jihadi et al., 2021). From the explanation above, hypothesis 1 can be
written as follows:
H1: The current ratio positively affects the price book value.

Return on Equity and Price to Book Value

Investors can use Profitability to determine the ability of the company's performance
to gain profit. Increased Profitability can indicate the company's prospects in the future,
and high Profitability will make it easier to attract investors who will impact the value of a

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company. Previous research confirmed that Profitability positively affected firm value
(Jihadi et al., 2021). Profitability had a significant positive effect on firm value (Setyabudi,
2021). ROE had a positive and significant effect on the firm value (Susanti & Restiana, 2018).
From the explanation above, hypothesis 2 can be written as follows:
H2: The return on equity ratio positively affects the price book value.
Total Asset Turnover and Price to Book Value
The TATO had a positive and significant effect on DER (Lumbantobing & Salim,
2021). TATO had a significant positive effect on PBV (Firdaus, 2020). From the explanation
above, hypothesis 3 can be written as follows:
H3: The total asset turnover positively affects the price book value.
Debt Equity Ratio and Price to Book Value
A debt-equity ratio negatively influences the firm value (FV) (Subing & Susiani,
2019). The capital structure had a significant and negative impact on firm value (Paramitha,
2020). DER negatively affects Tobin's Q (Kartika et al., 2020). From the explanation above,
hypothesis 4 can be written as follows:
H4: The debt-equity ratio negatively affects the price book value.
Current Ratio and Debt Equity Ratio
The current ratio had a negative and significant effect on the solvency ratio
(Lumbantobing & Salim, 2021). Liquidity directly had a significant negative effect on
capital structure (Nurwulandari et al., 2021). From the explanation above, hypothesis 5 can
be written as follows:
H5: The current ratio negatively affects the debt-equity ratio.
Return on Equity and Debt Equity Ratio
Profitability negatively affects the capital structure (Sutomo et al., 2020).
Profitability directly has a significant and negative effect on the capital structure
(Nurwulandari et al., 2021). The Capital Structure has a significant negative relationship
with Profitability (Ahmed & Sabah, 2021). From the explanation above, hypothesis 6 can be
written as follows:
H6: The return on equity ratio negatively affects the debt-equity ratio.
Total Asset Turnover and Debt Equity Ratio
The total asset turnover has a significant positive effect on the debt-equity ratio
(Lumbantobing & Salim, 2021). A high asset turnover can result from purchasing assets
that can be funded by debt, and the impact is the increasing debt ratio. From the
explanation above, hypothesis 7 can be written as follows:
H7: The total asset turnover positively affects the solvency ratio

The Debt Equity Ratio mediates The Effect of Current Ratio on Price to Book Value
Leverage is a variable that mediates liquidity's effect on the firm value (Zuhroh, 2019).
There is no relationship between the current ratio and firm value mediated by a debt-equity
ratio (Kartika et al., 2020). The capital structure mediates the influence of liquidity on firm
value (Nurwulandari et al., 2021). capital structure can mediate the influence of liquidity

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on firm value (Sari, 2020). From the explanation above, hypothesis 8 can be written as
follows:
H8: The debt-equity ratio mediates the effect of the current ratio on price book value.
The Debt Equity Ratio mediates The Effect of Return on Equity on Price to Book
Value
Leverage is a variable that mediates the effect of Profitability on the firm value
(Zuhroh, 2019). The debt-equity ratio is a variable mediating between Profitability and firm
value (Kartika et al., 2020). The capital structure mediates the effect of Profitability on firm
value (Nurwulandari et al., 2021). Capital structure is able to mediate the effect of
Profitability on firm value (Sari, 2020). From the explanation above, hypothesis 9 can be
written as follows:
H9: The debt-equity ratio mediates the effect of return on equity ratio on price book value.
The Debt Equity Ratio mediates The Effect of Total Asset Turnover on Price to
Book Value

Figure 2. Research Model

The solvency ratio can mediate the effect of TATO on share prices (Lumbantobing &
Salim, 2021). The total asset turnover positively affects the debt-equity ratio stated in H7.
The debt-equity has negatively affected the price book value in H4, so from the explanation
above, hypothesis 10 can be written as follows:
H10: debt-equity ratio mediates the effect of total asset turnover on price book value

3. METHOD, DATA, AND ANALYSIS

Operational Variable
In this research, there are three independent variables: Current Ratio (CR), Return on
Equity (ROE), Total Asset Turnover (TATO), one dependent variable: Price to Book Value
(PBV), and one mediating variable: Debt Equity Ratio (DER). All variables are in the Ratio
scale and have formulas and explanations (Ross et al., 2019).
1. CR = Current Assets / Current Liabilities
CR measures the liquidity of the company in the short term.

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2. ROE = Net Income /Total Equity

ROE measures the earnings that are entitled to receive by shareholders.
3. TATO = Sales / Total Assets
TATO measures how many sales can be generated by one amount of assets.
4. PBV (Market-to-book ratio) = Market Value / Book Value (per share)
PBV measures the market value of the firm's investments to their cost.
5. DER = Total Debt / Total Equity
DER measures how much the debt is for each amount of equity.

Population and Sample

In this research, the data come from the annual reports of firms in the technology
sector listed on the Indonesia Stock Exchange for 2020-2021 quarterly. The number of firms
in the technology sector listed on IDX (Indonesia Stock Exchange) is 17 companies. A
research sample consists of 11 companies as following in Table 1.
Table 1. Code & Name of Research Samples
No. Code Company's Name
1 KIOS PT Kioson Komersial Indonesia Tbk.
2 LMAS PT Limas Indonesia Makmur Tbk
3 DMMX PT Digital Mediatama Maxima
4 MCAS PT M Cash Integrasi Tbk
5 PTSN PT Sat Nusapersada Tbk
6 NFCX PT NFC Indonesia
7 DIVA PT Distribusi Voucher Nusantara Tbk.
8 MTDL PT Metrodata Electronics Tbk
9 EMTK PT Elang Mahkota Teknologi Tbk PT
10 GLVA PT Galva technologies Tbk.
11 MLPT PT Multipolar Technology Tbk.

Population and Sample

In this research, the independent variable is the current ratio (CR), return on equity
ratio (ROE), and the total asset turnover ratio (TATO). The dependent variable in this
research is a price to book value ratio (PBV), in which the stock price is proxied by the
adjusted closing price. Meanwhile, the intervening variable is the debt to equity ratio
(DER).

Data Collection Technique

Data collection is secondary data from the Indonesia stock exchange, which provides
the interim financial reports of each company from 2020 to 2021 (2020: Q1, Q2, Q3, Q4, and
2021: Q1, Q2).

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Data Analysis Technique

We do the multiple regression analysis to test the effect of the independent variables
on dependent variable, and also path analysis to examine the mediation effect. The
equation model used is as follows:
(1): Y1 = β1X1 + β2X2 + β3X3 + β4Z + E1
(2): Z = α1X1 + α2X2 + α3X3 + E2
Y1 = PBV, and Z = DER
X1 = CR, X2 = ROE, X3 = TATO
αj = variable path coefficient X1, 2, 3 equation (2)
βj = variable path coefficient X1, 2, 3 equation (1)
E1, E2 = residual of equations (1) and (2)
Path diagram below to check direct and indirect relationships to show the mediation effect
of DER. Table 2 is a Path analysis of the intervening variable.
Table 2. Path analysis of the intervening variable
Effect X1 to Y1 X2 to Y1 X3 to Y1

Direct β1 β2 β3

Indirect α1*β4 α2*β4 α3*β4

Total β1 + α1*β4 β2 + α2*β4 β3 + α2*β4

Suppose the total effect (exclude direction + or -) is greater than the direct effect. In that
case, it means the debt-equity ratio strengthens the current ratio's effect, return to equity
ratio. Total asset turnover ratio on price book value, or if the total effect is lower than the
direct effect, means the debt-equity ratio weakens the effect of current ratio, return to equity
ratio, and total asset turnover ratio on price book value.

4. RESULTS
We use Eviews 8 to conduct the multiple regression analysis and the path analysis.
From table 3, we can see the mean for current ratio (CR) is 3.868030, return on equity (ROE)
is 0.033485 or 3,3485%, total asset turnover (TATO) is 1.675152, debt-equity ratio (DER) is
one, and price-book value (PBV) is 2.008788. We also can see the maximum, minimum,
median, and other descriptive statistical results for CR, ROE, TATO, DER, and PBV in table
3.
Table 3. Descriptive Statistics
CR ROE TATO DER PBV
Mean 3.868030 0.033485 1.675152 1.000000 2.008788
Median 2.410000 0.040000 0.760000 0.650000 1.200000
Maximum 16.53000 0.440000 15.74000 4.920000 15.16000
Minimum 0.030000 -0.840000 0.040000 0.080000 0.020000

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CR ROE TATO DER PBV

Std. Dev. 3.646506 0.139488 2.301846 0.952089 2.474103
Skewness 1.937036 -3.382339 3.772209 1.741999 3.201762
Kurtosis 6.048763 25.50740 22.35145 6.675959 15.10380
Jarque-Bera 66.83433 1518.946 1186.342 70.54003 515.6443
Probability 0.000000 0.000000 0.000000 0.000000 0.000000
Sum 255.2900 2.210000 110.5600 66.00000 132.5800
Sum Sq. Dev. 864.3052 1.264698 344.4020 58.92080 397.8771
Observations 66 66 66 66 66

Table 4. Correlated Cross-Section Random Effects (Hausman Test) for Equation 1, PBV as
dependent variables
Chi-Square Chi-Square
Summary Probability
Statistic d.f.

Cross-section random 1.725760 4 0.7860

The Probability of Cross-section random is 0.7860 > 0.05. It means that we need to use a
random-effect test. Table 4 is a Correlated Cross-Section Random Effects (Hausman Test)
for Equation 1, PBV as dependent variables.

Table 5. Multiple Regression for Equation 1, PBV as dependent variables

Dependent Variable: PBV
Panel EGLS Cross-section random
Sample: 2020Q1 2021Q2
Periods: 6
Cross-sections: 11
Total panel observations: 66
Variables Coefficients Standard Error t statistic Probability
C 0.440783 0.413156 1.066868 0.2902
CR 0.264738 0.055820 4.742734 0.0000
ROE 4.219706 0.848751 4.971669 0.0000
TATO -0.032379 0.105730 -0.306239 0.7605
DER 0.456931 0.087198 5.240163 0.0000

Equation 1 is stated as follows:

Y1 = β1X1 + β2X2 + β3X3 + β4Z + E1 is
PBV = 0.264738CR + 4.219706ROE - 0.032379TATO + 0.456931DER (1)

1. H1: The current ratio positively affects the price book value.
From Table 5, the probability value for CR is 0.0000 < 0.05, so at the alpha 5%, it indicates
that CR has a significant positive effect on PBV.

2. H2: The return on equity ratio positively affects the price book value.
From Table 5, the probability value for the ROA is 0.000 < 0.05, so at the alpha 5%, it
indicates that ROE has a significant positive effect on PBV.

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3. H3: The total asset turnover positively affects the price book value.
From Table 5, the probability value for the TATO is 0.7650 > 0.05, so at the alpha 5%, it
indicates that there is not enough evidence to show TATO has a positive effect on PBV.

4. H4: The debt to equity ratio negatively affects the price book value
From Table 5, the probability value for DER is 0.0000 < 0.05, so the alpha 5% indicates that
DER has a significant and positive effect on price book value. The results show the opposite
effect that DER positively affects the PBV. So we can conclude that the research hypothesis
H4 is inconclusive. Table 6 is a Correlated Cross-Section Random Effects (Hausman Test)
for Equation 2, DER as dependent variables.

Table 6. Correlated Cross-Section Random Effects (Hausman Test) for Equation 2, DER as
dependent variables
Chi-Square
Summary Chi-Square d.f. Probability
Statistic
Cross-section random 4.596449 3 0.2038

The Probability of Cross-section random is 0.2038 > 0.05. It means that we need to use a
random-effect test.

Table 7. Multiple Regression (Cross-section random effects) for Equation 2, DER as dependent
variables
Dependent Variable: DER
Panel EGLS Cross-section random
2020Q1 2021Q2
Periods: 6
Cross-sections: 11
Total panel observations: 66
Variables Coefficients Standard Error t statistic Probability
C 1.154617 0.314635 3.669700 0.0005
CR -0.006687 0.055143 -0.121272 0.9039
ROE -1.552343 0.543834 -2.854440 0.0059
TATO -0.045829 0.011997 -3.819915 0.0003
Equation 2 is stated as follows:
Z = α1X1 + α2X2 + α3X3 + E2 is
DER = -0.006687CR - 1.552343ROE - 0.045829TATO + 0.456931DER (2)
Based on the results of the multiple regression coefficients in Table 7, the independent
variables (CR, ROE, TATO) that affect the dependent variable (DER) are as follows:
5. H5: The current ratio negatively affects the debt-equity ratio.
From Table 7, the probability value for CR = 0.9039 <0.05, so at the alpha 5%, indicates that
the data used in this research is not enough to prove that the CR negatively affects the DER.
6. H6: The return on equity ratio negatively affects the debt-equity ratio.
From Table 7, the probability value for ROA is 0.0059 <0.05, so at the alpha 5%, it indicates
that ROE had a significant negative effect on DER.
7. H7: The total asset turnover positively affects the debt-equity ratio

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From Table 7, the probability value TATO is 0.0003 < 0.05, so at the alpha 5%, it indicates
that TATO has a negative and significant effect on DER. The results show the opposite
effect: TATO has a positive effect on DER. So we can conclude that the research hypothesis
H7 is inconclusive.
Path Analysis
Path analysis determines independent variables' direct or indirect effect (CR, ROE, TATO)
on an independent variable PBV, where DER is a mediator.
Table 8. Path Analysis
Effect CR to PBV ROE to PBV TATO to PBV
Live 0.264738 4.219706 -0.032379
Indirect -0.006687 (0.456931) -1.552343 (0.456931) -0.045829 (0.456931)
Total 0.2617 3.5104 -0.0533

From Table 8, we can explain:

8. H8: The debt-equity ratio mediates the effect of the current ratio on price book value.
From Table 8, we can see the total effect of CR on PBV is 0.2617, smaller than the direct
effect of 0.264738. It means DER weakens the effect of the current ratio on price book value.
This concludes that the DER does not mediate the effect of CR on PBV.
9. H9: The debt-equity ratio mediates the effect of return on equity ratio on price book
value.
From Table 8, we can see the total effect of ROE on PBV is 3.5104, smaller than the direct
effect of 4.219706. It means DER weakens the effect of a return to equity ratio on price book
value. This shows the DER does not mediate the effect of ROE on PBV.
10. H10: debt-equity ratio mediates the effect of total asset turnover on price book value
From Table 8, we can see the total effect of TATO on the PBV is -0.0533, which has a greater
negative value than the direct effect -0.032379. It means DER strengthens the negative effect
of the total asset turnover ratio on price book value. In conclusion, DER mediates the effect
of TATO on PBV.

5. DISCUSSION
The CR has a positive and significant effect on PBV
The result confirms that the higher the current ratio, the higher price to book value.
We can assume that if the company has a higher current ratio means the company has
greater liquidity which means the company has a lower risk, and it can affect the firm value,
which is presented in the higher stock price of the company, as well as price to book value.
This finding supports the research performed by Andreas et al. (2021), Jihadi et al. (2021)
but is contradictory to the study conducted by Sari (2020), Paramitha (2020), Zuhroh (2019).

The ROE has a positive and significant effect on PBV

ROE is one of the indicators of the company's Profitability, and PBV is the indicator
of firm value, so if the ROE positively affects the PBV, the higher the profit, the higher the
firm value. The greater Profitability represents a better operational activity and growth of
the company, so the investors have greater confidence in the company. As a result, the stock
price, as well as the PBV, will increase. This result is consistent with research performed by

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Paramitha (2020), Firms & Akhmadi (2021), Jihadi et al. (2021), but inconsistent with the
study performed by Susanti & Restiana (2018).
The TATO does not have an effect on PBV
TATO can represent the activity of the company. In this research, TATO does not
have an effect on PBV. This result is consistent with research performed by (Saragih &
Hakiman, 2021) but is inconsistent with the study performed by Firdaus (2020).

The DER has a positive and significant effect on PBV

DER represents the capital structure used by the company. The company can choose
whether it will be funded by debt or equity. Companies usually prefer using debt to equity
because debt can give a tax shield to the company, and also cost of capital from debt is
lower than from the equity. This is in accordance with Pecking-order theory that states
funding is based on the order of funding preference that has the smallest risk, those are
from retained earnings, debt, and issuance of equity (Myers, 1983) and also The static
theory, which states that if a proportion of debt becomes higher, the company value as
reflected by the share price will increase (Modigliani & Miller, 1958). This result is in
accordance with research performed by (Saragih & Hakiman, 2021) (Bahraini et al., 2021)
but is not in line with the study performed by Firdaus (2020) Putri (2020).

The CR does not have an effect on DER

CR can represent the liquidity of the company. In this research, CR does not have an
effect on DER. This result is in accordance with research performed by (Saragih & Hakiman,
2021) but is not in line with the study performed by Firdaus (2020).

The ROE has a negative and significant effect on DER

The higher the ROE, the higher the retained earnings. The company creates profit
which can be accumulated retained earnings. If the company has sufficient retained
earnings as a source of funds, then it will decrease the use of debt as the source of capital.
This supports pecking-order theory, where the greater ROE can lead to the lower DER. This
result is in line with research performed by Sutomo et al. (2020), Nurwulandari et al. (2021)
but is not supported by the study performed by Kartika et al. (2020).

The TATO has a negative and significant effect on DER

TATO is Total Revenues divided by Total Asset. TATO will increase if The Total
Asset decreases and/or the Revenues increases. Total Assets will decrease if the company
sells assets or vice versa. If the company sells assets, the company will have a larger cash
inflow so it can reduce the debt, or if the company buys assets, the company needs funds
that can be provided by debt. The companies will issue debt as they have growth
opportunities and high fixed assets because this can be collateral for debt (Ramli et al.,
2019). This result is not in line with the study performed by Lumbantobing & Salim (2021).

The DER ratio cannot mediate the effect of CR on PBV

In this research, DER does not significantly mediate the effect of CR on PBV. This is
not in line with the study performed by Nurwulandari et al. (2021), Lumbantobing & Salim
(2021).
The DER ratio cannot mediate the effect of ROE on PBV
In this research, DER does not mediate the effect of ROE on PBV. This result is in
accordance with research performed by Akhmadi et al. (2021) Kartika et al. (2020); it is

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proved that the effect of return on equity on stock prices cannot be mediated by debt
Nurwulandari et al. (2021).

The DER mediates the effect of TATO on PBV

From previous results in this research, TATO is insignificant on PBV, but after DER
mediates the TATO on PBV, it becomes significant. The DER fully mediates the effect of
TATO on PBV. This result is in accordance with research performed by Lumbantobing &
Salim (2021).
6. CONCLUSION, LIMITATIONS, AND SUGGESTIONS

Conclusion
This research tests the mediating effects of DER on the impact of CR, ROE, and TATO
on PBV. The unit of analysis used is Companies in Technology Sector listed in IDX
(Indonesia Stock Exchange) with the periods of 2020 and 2021 quarterly. Two equations
have been used in multiple regression analysis and path analysis to conduct the analysis.
First, PBV becomes the independent variables with CR, ROE, TATO, and DER. Second,
DER becomes the independent variables with CR, ROE, TATO as independent variables.
The result indicates CR, ROE, DER significantly affect the PBV, while TATO does not. The
CR does not significantly affect DER, while ROE and TATO have significant negative
effects on DER. From Path Analysis, we can interpret that DER cannot mediate the effects
of CR and ROE on PBV but fully mediates the effect of TATO on PBV. This study result
supports the pecking order theory and also static theory. The implication for the investor
is the need to pay attention to liquidity, leverage, and Profitability, which significantly
affect the value of the firm. The Management of technologies company has to keep the
leverage / DER in optimum.
Limitation and suggestions
This research only investigates financial ratios as independent variables towards
mediating and independent variables, and future research can use macroeconomics factors
as moderating or control variables. The unit of analysis of this research is the Technology
sector; for better reliability and generalizability, we can use a broader unit of analysis.
Moreover, this research has small samples, which are only 11 companies with a total of 66
observations, so the next researcher can add the total of the samples to be observed.

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