REVEALING THE INTERACTION BETWEEN FINANCIAL PERFORMANCE AND AUDIT OVERSIGHT IN DETERMINING CORPORATE VALUE

Abstract

Understanding the determinants of firm value remains a critical issue in corporate finance, especially in the context of emerging markets where governance frameworks, financial transparency, and operational efficiency often differ significantly from those in developed economies. This study seeks to investigate the effects of Gross Profit Margin (GPM), Return on Investment (ROI), and audit committee size on firm value, as proxied by Tobin’s Q. Panel data regression analysis is conducted using a sample of 70 mining company observations over the period 2021–2022 on the Indonesian stock exchange. To determine the appropriate testing model, a series of specification tests are conducted, including the Chow test, the Hausman test, and the Breusch-Pagan test. Based on these tests, the Random Effects Model (REM) is identified as the most appropriate to estimate the significant relationship between the variables. The empirical findings show that GPM has a statistically significant negative effect on Tobin’s Q. This counterintuitive result suggests that higher gross profitability, if not accompanied by strategic positioning or operational depth, may be undervalued by the market, especially in environments lacking market trust and transparency. In contrast, ROI and audit committee size do not show a statistically significant effect on firm value, implying that mere financial returns or the presence of numerical governance may not be sufficient indicators of value. These findings highlight the complexity of value creation in emerging markets and underscore the need for firms to not only achieve profitability but also strengthen the qualitative aspects of governance and strategic execution to enhance perceived and actual firm value.