The Effect of Debt-to-Equity Ratio and Return on Assets on Stock Price through Firm Value

Abstract

This study examines the effect of Debt to Equity Ratio (DER) and Return on Assets (ROA) on stock price, with firm value proxied by Price to Book Value (PBV) as a mediating variable. The object of this study is ten conventional commercial banks listed on the Indonesia Stock Exchange during the 2020–2024 period, yielding 50 panel data observations. The sample was selected through purposive sampling. Data were analyzed using Partial Least Squares Structural Equation Modeling (PLS-SEM) with SmartPLS 3 and a bootstrapping procedure of 5,000 resamples. Results show that DER has no significant effect on stock price or firm value. ROA has a significant positive effect on firm value but no direct significant effect on stock price. Firm value has a significant positive effect on stock price and fully mediates the effect of ROA on stock price, but does not mediate the effect of DER. The model explains 63.1 percent of the variance in stock price and 45.2 percent of the variance in firm value. These findings suggest that investors and bank management should prioritize asset efficiency and market valuation over capital structure when assessing bank stock prospects.