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php/ijbe
E-ISSN: 2407-7321 DOI number: 10.17358/IJBE.1.3.177

The Influence of Corporate Financial Performance on Share Return

Ghulam Nurul Huda*)1, Bonar M Sinaga**), and Trias Andati***)

*)
PT Hasnur Citra Terpadu
Jl. Jendral Sudirman Kav.52-53, DKI Jakarta 12110
**)
Department of Economic, Faculty of Economics and Management, Bogor Agricultural University
Jl. Kamper, Wing 4 Level 5, Campus of IPB Darmaga Bogor 16680
***)
PT Adhimix Precast Indonesia
JL. Raya Pasar Minggu, No. 17 A, Pancoran, Jakarta, 12780

ABSTRACT

This study was conducted to examine the effect of financial performances of Economic Value
Added (EVA), Market Value Added (MVA) as well as financial ratios (Fixed Asset Turnover,
Return on Investment, Debt to Equity Ratio, Price to Book Value, Total Asset Turnover)
on Stock Return. This study used the data of six representative palm oil companies which
were listed in Indonesia Stock Exchange. The analysis models that were used included three
multiple regression equations for EVA, MVA and Stock Return. The results indicate that
DER significantly influences EVA and PBV, and TATO significantly influences MVA. Return
Shares are significantly only affected by EVA. The company's fundamentals, especially EVA,
PBV, TATO and DER were used by investors to predict the Stock Return in Indonesia Stock
Exchange in 20092014 period. This study confirmed the previous studies that these variables
are involved on regression model to predict the Stock Return. The results of the analysis of
the company's financial performance with EVA and MVA and financial fundamental variables
provide a better alternative picture on the achievement of the company so that the benefits in
investing in the palm oil business in Indonesia can be maximally managed.

Keywords: Indonesia Stock Exchange, investor, market, multiple regression, stock

ABSTRAK

Penelitian ini dilakukan untuk menguji pengaruh kinerja keuangan Economic Value Added
(EVA) dan Market Value Added (MVA), serta rasio keuangan (Fixed Asset Turnover, Return on
Investment, Debt to Equity Ratio, Price to Book Value, Total Aset Turnover) terhadap Return
Saham. Penelitian ini menggunakan enam sampel perusahaan produsen minyak sawit yang
terdaftar di Bursa Efek Indonesia. Model analisis yang digunakan adalah tiga persamaan
regresi berganda untuk EVA, MVA dan Return Saham. Hasil penelitian menunjukkan bahwa
DER berpengaruh signifikan terhadap EVA. PBV dan TATO berpengaruh signifikan terhadap
MVA. Return Saham hanya dipengaruhi secara signifikan oleh EVA. Faktor fundamental
perusahaan terutama EVA, PBV, TATO dan DER digunakan oleh investor untuk memprediksi
Return Saham di Bursa Efek Indonesia pada periode 20092014. Penelitian ini mempertegas
hasil penelitian sebelumnya yang menyebutkan variabel EVA, PBV, TATO dan DER ke dalam
model regresi untuk memprediksi Return Saham. Hasil analisis kinerja keuangan perusahaan
dengan EVA, MVA, dan Variabel fundamental keuangan memberikan alternatif gambaran
yang lebih baik atas pencapaian yang dilakukan perusahaan sehingga keuntungan yang
diperoleh didalam melakukan investasi pada bisnis kelapa sawit di Indonesia dapat dikelola
dengan maksimal.

Kata kunci: bursa efek Indonesia, investor, pasar, regresi berganda, saham

1
Corresponding author:
Email: ghulamnurulhuda@gmail.com

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INTRODUCTION oil) with a value of US$ 19,35 billion (Agricultural

Development Performance in 20042013, the Ministry
In general, the analysis of financial statements using the of Agriculture).
conventional method of financial ratio analysis is used
by the company to measure its financial performance. The selection of issuers that could provide optimum
In practice, even though financial ratio analysis used return rate for the investors required a good, actual and
has sufficient functionality and usability for the accurate judgment. Investors must select investments
company to make decisions, it does not mean that the that would increase the economic value and market
financial ratio can guarantee its real financial condition value on the investment decision issued. The use of
and position for 100 % (Kashmir, 2010). The use of EVA and MVA methods in analyzing the company's
financial ratio analysis has a major weakness; it does performance is expected to provide an alternative of
not pay attention to the risks faced by the company better picture on the achievement of the company,
at the expense of their cost of capital. One way to especially in this case, the company producers of palm
overcome the weaknesses of financial ratio analysis oil. Therefore, the effect of the financial performance of
is by developing the concept of measuring financial companies on share returns is important for investors in
performance based on value added), namely, economic analyzing the company performance.
value added (EVA) and Market Value Added (MVA).
According to Winarto (2005), both methods of added
values can be used as a better reference for owners of METHODS
capital to consider whether the company will provide
gains or cause losses on invested capital. Data collected in the study were secondary data, both
quantitative and qualitative, i.e. quarterly financial
Based on the strategic data issued by the Central statements and other supporting literature. The data
Statistics Agency (BPS) in 2013, the value of Gross were obtained from Indonesian Share Exchange, the
Domestic Product (GDP) of Indonesia on the basis internet, the Executive Capital Market Agency, and
of a constant price of 2.000 in 2013 amounted to IDR monthly reports of BI (Bank of Indonesia).
2.770,3 trillion, increasing up to IDR151,4 trillion,
compared to that in 2012 (IDR2.618, 9 trillion). When This research was a case study with a descriptive
viewed by the applicable price, GDP in 2013 increased approach. In this study, six companies of palm oil
by IDR854,6 trillion i.e. from IDR8.229,4 trillion in producer listed in Indonesia Share Exchange were
2012 to IDR9.084,0 trillion in 2013. The agricultural chosen. The companies obtaining the highest EV/
and the plantation sectors were among the largest EBITDA in the third quarter of 2014 based on the
contributors to GDP with a total value of IDR1.047,4 IFT Research Department in reference to JP Morgan
billion or 37,8% or increased by 3,5% from the previous included PT PP London Sumatra Tbk, PT Tunas
year. Lampung Baru Lampung Tbk, PT Astra Agro Lestari
Tbk, PT BW Plantation Tbk, and PT Sampoerna Agro
From the distribution of agricultural and plantation Tbk. The data were analyzed using regression.
sectors in Indonesia, the commodities of Crude Palm
Oil (CPO) play a significant role and show a positive Dependent Variable (Shares Return)
growth trend and a promising business expansion. In
2013, trade balance of CPO and its derivatives gave The period referred to in this study was an average
the largest contribution of agriculture and plantations month in the period of 20092014. Share Return was
amounted to US$ 20,52 billion. The average rate of calculated by the following formula:
growth of oil palm area from 20042012 was amounted
to 7,14%, while the production of palm oil increased by Pai=(Pi.t- Pi.t-1)/Pi.t-1
10,97% per year. In 2012, the total area was estimated
to reach 9,07 million hectares with the production In which:
of 23,52 million tons. The export realization of oil Pit = price of share I in quarter t
palm commodity until 2012 had reached a volume Pit-1 = price of share in quarter t-1
of 20,57 million tons (palm oil/CPO and other palm

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Independent Variables

1. Calculation of EVA
6. Price to Book Value (PBV)
EVA calculation by G. Bennett Stewart III (1991) is
formulated as follows: Price to Book Value ratio is one market ratio that can be
EVA = NOPAT - COC used to measure performance against the share market
In which: price book value (Keown, 2000). PBV calculation uses
NOPAT = Net Profit + Interest Expense - Tax the following formulation:
COC = Invested Capital x WACC

2. Calculation of MVA in which:

Ps = Price (share price)
MVA, according to Stern Stewart (1996) is a "cash BVS = Book Value (book value)
difference either debt or equity the investors have in the
company and contributes to the expected cash value" 7.Total Assets Turnover (TATO)
and is formulated as follows:
MVA = Equity Market Value - Equity Book Value TATO is one activity ratio and is measured by:

In which:
EMV = Number of shares x Price/Shares
EBV = Number of shares x Nominal value/ Regression Analysis
Shares
Analysis model used in this study was multiple
3. Fixed Assets Turnover (FATO) regression analysis with the variables of FATO of (X1),
ROI of (X2), DER (X3), TATO of (X4), PBV of (X5),
FATO indicates how effective the management is in EVA of (X6), dan MVA of (X7), share return of (Y).
the use of every dollar of sales of fixed assets (Keown,
2000). FATO calculation formula is as follows: EVAit = a0 + a1 X1it + a2 X2it + a3 X3it + U1it
MVAit = b0 + b1T X4it + b2 X5it + U2it
Retit = c0 + c1 X6it + c2 X7it + U3it

in which:
(Y) = Share Return (%)
4. Return on investment (ROI) (X1) = Fixed Asset Turnover
(X2) = Return on Investment (%)
ROI is the most important ratio among the other
profitability ratios when used to predict the share return. (X3) = Debt Equity Ratio
(Ang, 1997). ROI is the ratio between profit after tax (X4) = Total Asset Turnover
and total assets in the same period. Formulation of ROI (X5) = Price to Book Value
calculation is as follows: (X6) = Economic Value Added (USD)
(X7) = Market Value Added (USD)
a, b, c = coefficient of regression of each variable
U = disturbance error
5. Debt to Equity Ratio (DER)
i = oil palm plantation company data
observed
Debt to Equity Ratio (DER) is a group solvency ratio
used in this study. Debt to Equity Ratio is a ratio that
t = time series data showing the length of
time taken
compares the amount of debt to equity of the company
(Keown, 2000). Formulation of DER calculation is as
follows:
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Based on the formulation of the problem and the scope rise by 6,4% to 25 million tons, equal to IDR225 trillion
of the study, the following theoretical framework was at a price of US$ 1.000/ton. Of the total production,
presented as outlined in the research model as shown in the export volume of crude oil or Indonesian CPO and
Figure 1 used as a basis to formulate hypotheses. The its derivative products would reach 19,5 to 21 million
hypotheses in this study were as follows: tones, increased from the total export in 2013 from 1,5
to 2 million tons.
H1: Fixed Asset Turn Over has a positive effect on
share returns Financial Performance Analysis
H2: Return on investment has a positive effect on share
returns The financial performance of the company may be based
H3: Debt to Equity Ratio has a negative effect on share on aspects of added value (Value added), i.e. economic
returns value added (EVA) and Market Value Added (MVA).
H4: Total Assets Turnover has a positive effect on share Based on the research results by Panigrahi, (2014) both
returns calculations of this added value can be used as a better
H5: Price to Book Value has a positive effect on share reference for owners of capital to consider the cost of
returns capital to generate profits.
H6: Economic Value Added has a positive effect on
share returns 1. EVA Calculation Results
H7: Market Value Added has a positive effect on share
returns The development of EVA of oil palm producers in the
period of 20092014 seemed to be able to create an
additional economic value as can be seen in Figure 2.
RESULTS Based on the graph of the development of EVA of palm
oil producer in the period 20092014, they have been
Descriptive Analysis able to create an additional economic value. One of the
main factors in the creation of economic value added
Indonesia has a competitive advantage in the palm oil is the high value of the adjusted NOPAT (NOPAT and
industry because it is supported by natural resources, in EVA calculation) of the company accompanied by
the form of large tracts of land distribution and tropical higher CPO sales and a decline in operating expenses
climate which are ideal to oil palm tree growth. Based of the company. On the average, the company recorded
on the data of Ministry of Agriculture, Indonesia is positive EVA issuers over the period 20092014.
currently the largest producer and exporter of palm From the six companies listed as oil palm plantation
oil in the world with 44,5% dominating the world companies, PT Tunas Baru Lampung Tbk was the
oil market (in 2013) followed by Malaysia (41,3%), highest economic value creator with an average EVA
Thailand (2,7%), Nigeria (2%) and Colombia (1,9%). creation of IDR622.084 million dollars annually.
The lowest of EVA value creation was obtained by
In 2014, based on predictions of the Indonesian Palm PT Sampoerna Agro Tbk amounting to IDR142.737
Oil Association (GAPKI), the total production would million.

Capital market (bei)

Oil palm companies group in BEI

Company financial performance

FATO ROI DER PBV TATO

EVA Share return MVA

Managerial implication

Figure 1. Research Framework

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PT Tunas Baru Lampung Tbk became the most Based on the results of MVA comparison of the 6
dominant issuer in the creation of EVA due to the issuers of oil producers, it can be seem that PT Astra
company's success in increasing sales by 3040%, Agro Lestari had a higher MVA value when compared
so that the company's net profit after tax was high. In to other issuers whose annual average was IDR30,7
addition, the burden of the company's operations could trillion. This figure shows that the market response to
be suppressed. Thus, the EVA value would be higher. the company's share performance is good, while the
smallest MVA of the six companies was obtained by PT
2. Calculation of MVA results Tunas Baru Lampung with an annual average of MVA
value of IDR1,07 trillion.
MVA calculation results of the listed palm oil producers
for the period 20092014 had succeeded in creating The Effect of Financial Performance return on
an additional value for the market. The calculation Shares
result can be seen in graph form in Figure 3 MVA
development. 1. Descriptive data

Based on the graph of the MVA development of the Based on the raw data obtained from Indonesia Share
palm oil producer issuers in the period of 20092014, it Exchange (ISE), the financial ratios used in this study
can be seen that they had already succeeded in creating could be calculated. Furthermore, the average value
an additional value for the market. Companies that have (mean) and standard deviation () of each of the
a positive MVA tend to produce a positive share return. variables can be seen in Table 1.
This is in response to the performance of share market
companies that has a market value of equity higher than
the book value.

Figure 2. Graph calculation of EVA of 6 issuers of oil manufacturer (company's quarterly financial statements,
processed

Figure 3. Graph of the result of MVA calculation on the 6 issuers of oil manufacturers (company's quarterly
financial statements, processed

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Table 1. Descriptive statistics 4. Autocorrelation test results

Mean Std. deviation N
RETURN 0,0169 0,100158 138 Regression results show the level of significance of 0:05
EVA 276107 421540,1109 138 ( = 0,05), with a number of independent variables (k
MVA 883581 9543243,801 138 = 5) and the number of data (n = 29). Result of Durbin
CR 3,0249 1,751395 138 Watson calculation was 1,998; whereas in the DW
ROI 0,1265 0,101050 138 table for "k" = 5 and N = 132, the amount of DW-table
DER 0,5257 0,626479 138 of dl (outer boundary) = 1,52; of du (limits in) = 1,77;
TATO 0,5489 0,761460 138 4 - du = 2,23; and 4 - dl = 2,486, therefore, it could be
PBV 2,7694 1,150804 138 concluded that the calculation of DW-test was located
in the test area.
Source: Secondary Data, 2014 BEI processed

Regression Analysis
Based on the results of the calculations in Table
1, it appeared that from the 6 companies with 138
Results of testing of the hypotheses could explain the
observations, the average share return during the
following:
observation period (20012003) was 0,01699 with a
standard deviation (SD) of 0.100158.
1. Financial performance with EVA
1. Data normality
EVA equation is the model used in this study to test
the effect of independent variable on Ln FATO, ROI
This classic assumption data test is to determine the
Ln, Ln Der to Ln EVA with a level of = 0,10 or 10%
normality of the data by using the Kolmogorov-Smirnov
as shown in Table 2. Based on the estimation equation
test showing significances of 0,000; 0,000, 0,000,
of Economic Value Added (EVA), it was found that
0,0084, 0,019, 0,000, 0,000 and 0,007. Since there were
DER significantly affected the EVA. The regression
seven variables that were not normally distributed, the
coefficient of -0,255 X 3 implied that each addition of
technique to normalize the distribution of the data was
1% of DER would reduce the EVA by 0,255%.
performed in the form of transform-Ln as follows:
Ln.Return (0,17), Ln.EVA (0,114), Ln.MVA (0,122)
The estimation result in the calculation was in
Ln.FATO (0,231), Ln.ROI (0,192); Ln.DER (0,061),
accordance with the research of James and Shimin
Ln.TATO (0,122), and Ln.PBV (0,213). This indicates
(1996) and Natarsyah (2000). The results of this study
that the independent variables used in this study could
indicate that the level of leverage of the company
be used to predict the Share Return oil palm companies
becomes the management performance appraisals
listed in the Share Exchange 20092014.
so that DER becomes the concern of the investors in
making investment decisions.
2. Multicollinearity test results

Multicollinearity Test results of VIF calculation Table 2. Regression analysis of equation I

shows that multicollinearity did not occur in the seven Model Coef T Sig.
independent variables because the VIF value was (Constant) 12,02 34,55 0,00
<5,00. Thus, the seven independent variables (EVA, LNFATO 0,009 0,08 0,93
MVA, CR, ROI, DER, TATO, and PBV) could be used LNROI 0,073 0,56 0,57
to predict share returns during the observation period. LNDER -0,255 -2,64 0,01
F 2,447
3. Heteroskidastity Sig. F 0,068
R2 0,066
Glejser test shows no significant results; therefore, it Adj. R2 0,039
could be concluded that in all independent variables,
the heteroskidastity did not occur in the error variance.

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In the first hypothesis, it shows that Fixed Asset 3. Relations of EVA, MVA with share return
Turnover has a significantly positive effect on share
returns. The results of this study could be concluded that Share return equation is the model used in this study
the higher the company FATO, the lesser risk of failure to test the effect of independent variables of Ln EVA
of the company to meet its short term obligations. and Ln MVA and the control variable of Ln Return.
This equation used the level of = 0,10 or 10% as can
In the second hypothesis, it shows that ROI has a be seen in Table 4. Based on the estimation results of
significant influence on share returns. The positive sign regression analysis, it was found that EVA significantly
of ROI in this study concludes that the higher the ROI affects the Share Return. Regression coefficient of
of a company, the more it affects the increase in its 0,132 X6 states that each addition of 1% EVA will
value of share returns. increase the share return of 0,132%.

In the third hypothesis, it indicates that DER has a The estimation results in the calculation were in
significantly negative effect on share returns. The higher accordance with the same study of EVA conducted
the value of DER, the more it reduces the increase of by Bacidore et al. (1997) that stated that EVA has a
the company's share. significant influence on return shares. This is because
investors consider the economic aspects to see the
2. The financial performance with MVA ability of the company in creating added value.

The financial performance with MVA equations is the The sixth hypothesis shows that EVA has a significantly
model used in this study to test the effect of independent positive effect on share returns. The result of this study
variables, namely, Ln DER, Ln PBV to Ln MVA with concludes that higher EVA of a company means that
a level of = 0,10 or 10% as can be seen in Table 3. the company is able to create added economic value
From the estimation results of regression analysis, it which then affects the increase in the value of share
shows that TATO and PBV significantly affect MVA. returns, as well as the return on investment in shares.
Regression coefficient of 0,281 X4 states that each
addition of 1% of TATO will increase MVA by 0,281%.
Regression coefficient of 0,226 X5 states that any Table 3. Regression analysis of equation II
addition of 1% of PBV will increase MVA by 0,226%. Model Coef T Sig.
(Constant) 13,543 63,80 0,00
The estimation results in the calculation was in LNTATO 0,281 4,05 0,00
accordance with the research by Subekti (2006) and LNPBV 2,279 12,10 0,00
Tuasikal (2002) who stated that there was a significant F 84,481 -2,64 0,01
relationship between TATO and PBV, and they were Sig. F 0,000
directly influential to MVA. This is because TATO R2 0,565
and PBV indicate the company's success in affecting Adj. R2 0,558
the sales of assets in activities that cause investors Adj. R2 0,039
interested in investing in the long-term investments.
Table 3. Regression analysis of equation III
The fourth hypothesis indicates that TATO has a
Model Coef T Sig.
significantly positive effect on share returns. TATO high
(Constant) -5,99 -4,07 0,00
value describes the influential degree of the increase of
LNEVA 0,13 1,86 0,06
shares sales. The fifth hypothesis indicates that PBV
LNMVA 0,07 1,15 0,24
has a significantly positive effect on share returns. High
F 2,09
PBV values will increase the price of the stocks and
Sig. F 0,12
guarantee for the investors in investing their funds.
R2 0,06
Adj. R2 0,03

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The seventh hypothesis shows that MVA has a which affect the EVA. In the equation of MVA, TATO
significantly positive effect on share returns. The result and PBV variables significantly influence the MVA.
of this study concludes that higher MVA of a company On shares Return equation, EVA variable significantly
will affect the increase in the value of share returns. In affects the Share Return.
other words, the change of company MVA shows good
capital market ratings. Recommendations

Kumianny et al. (2002) state that the independent Based on the conclusion, there are some suggestions
variables have a significant effect on the dependent that can be useful for other parties: For investors,
variable. The research conducted by Sunardi (2010) they should pay attention not only to the fundamental
also stated that EVA and MVA become a benchmark of factors in investing in the share market but also to the
financial performance in generating profits from palm economic condition of the company.
oil business in Indonesia.
The rates of shares return are affected by EVA and MVA
Managerial Implications as a measure of a company's financial performance.
Therefore, to obtain adequate investors with high
The managerial implications of the study results will share returns, the company needs to improve the
provide views to investors to consider the information financial performance, especially its EVA and MVA
issued by the company, and such information includes by considering the cost of capital because it becomes a
EVA, MVA, and DER because this information is consideration in maximizing the value of the company
influential the share returns and help investors to take and in taking the right decision to invest.
the right decision in investing the shares on the Stock
Exchange. Besides, the investors should also consider For further similar researches, the research should be
other factors beyond the company's policy, market conducted by adding a measure of financial performance
conditions and external factors because they will other than EVA, MVA and Systematic Risk. The
indirectly affect profits in investment. researches are conducted not only in the company of
plantation sector, and they also should pay attention to
the size of the company.
CONCLUSIONS AND RECOMMENDATIONS

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