Determining the Effect of Return on Equity (ROE) on Price Earnings
Ratio (PER) and Price to Book Value (PBV) in LQ45 companies,
Indonesia
JAJANG BADRUZAMAN 1,*, ADIL RIDLO FADILAH 1 , FAUZI ABDURRAHMAN 2
1Accounting Department, Faculty of Economics and Business
Siliwangi University, Tasikmalaya, Jawa Barat,
INDONESIA
2Faculty of Social and Political Sciences, Universitas Malikussaleh,
24351 Kota Lhokseumawe, Aceh Utara
INDONESIA
Abstract: - This research was conducted to determine the effect of Return on Equity (ROE) on Price Earnings
Ratio (PER) and Price to Book Value (PBV) in LQ45 companies listed on the Indonesia Stock Exchange (BEI).
The data studied were financial reports published by 37 companies for four periods, namely 2015 to 2018. The
data processing program uses the Eviews 9 program. The contribution of this article is to support investment
decisions. The processing results show that ROE has a positive and significant effect on PER. and ROE has a
positive and significant effect on PBV. Both are shown by the results of data processing in a positive
correlation coefficient and beta coefficient. This correlation shows that in investors making investment
decisions, ROE is used to make investment decisions. Then ROE will have an impact on company value. The
higher the ROE, the higher the firm value will be. Furthermore, other factors influence PER and PBV, namely
dividend playout ratio, return on assets, profit margin, inflation, interest rates, economic conditions, and
company competition, both similar and different.
Keywords: Return on Equity, Price Earnings Ratio (PER), Price to Book Value
Received: October 27, 2021. Revised: August 5, 2022. Accepted: August 27, 2022. Published: September 9, 2022.
1 Introduction
Return on Equity (ROE) is one of the measuring
tools commonly used by investors to maintain the
sustainability of their investment in a company
(corporation) [1]. The study of Return on Equity
(ROE) analysis is a theme that is currently the
object of discussion by many researchers [2]. The
increasing ROE value will increase the dividend
value for shareholders [3]. Therefore, many
corporations develop business relationship strategies
and policies to increase ROE [4]. The ROE value
that tends to increase impacts the confidence of
potential investors [5]. This trust will then change
the market value of the corporation to be
significantly positive. While investors who have
joined will add value to their investment over a
more extended period, some also sell their shares at
a good value.
PER is used to assess the company and
determine whether the company's value is
overvalued or undervalued [6]. PER is the favoured
approach used by practitioner stock analysis. The
higher the PER value, the more overvalued a stock
is, and vice versa if the PER is low, it means the
stock is undervalued [7]. The size of a company's
stock value can be assessed based on price to book
value [8], a Price to Book Value above one will
have an impact on the high stock price in the market
[9].
PER is used to assess the company and
determine whether the company's value is
overvalued or undervalued [6]. PER is the favoured
approach used by practitioner stock analysis. The
higher the PER value, the more overvalued a stock
is, and vice versa if the PER is low, it means the
stock is undervalued [7]. A company's stock value
can be assessed based on price to book value [8].
The value of PBV above 1,0 will impact the high
stock price in the market, or the stock price will be
the low price if the PBV value is below 1.0 [9].
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E-ISSN: 2224-2899
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As far as literacy that we found, we have not
found an analytical study of how the impact of ROE
on PER and PBV on similar research objects in this
article. Nonetheless, several relevant studies have
brought up the fact that profitability increases return
to a greater extent. Several studies have proven that
ROE has a positive effect on PER [1], [10], [11].
However, several previous studies found that ROE
does not affect the stock price [12]. Research
conducted by [13] introduced the static-growth
expected return (SGER) in a similar study. Blazenko
and Fu, (2013) use a portfolio approach and focus
only on capital gains, thus only assessing
investments, not dividends [14]. Meanwhile, our
research looks for the impact of firm performance
on the ROE variable on the firm value on the PER
and PBV variables. Therefore, ROE studies must
influence PER and PBV.
Sha [15] investigate the effects of price earning
ratio, earning per share, book to market ratio, and
gross domestic product on stock price of the
property and real estate sector listed in Indonesia
Stock Exchange in 2012 to 2014. Also, this research
used t-test and F-test for testing the hypotheses.
They showed that the partially earnings per share,
book to market ratio, and gross domestic products
have significant influence on stock prices. Arslan
and Zaman [16] analyzed the impact of dividend
yield and price earnings ratio on stock returns. Also,
the impact of dividend yield and price earnings ratio
on stock returns was determined by using fixed
effect model. The findings of study reveals that
price earnings ratio and size of firm have significant
positive impact on stock prices.
This article details how ROE affects PER and
how ROE affects PBV based on quantitative
analysis, and how the external factors of PER and
PBV variables are in the test model. The approach
used in this article is a descriptive analysis using
data on the financial statements of companies listed
on the Indonesia Stock Exchange (IDX). The
research object is the financial statements issued by
37 companies listed on the stock exchange by
meeting three criteria in this study, namely 1).
Listed on the Indonesia Stock Exchange (IDX) LQ
member profile index report August 45, 2019; 2).
Listed on the Indonesia Stock Exchange (IDX) at
least ten years back from 2019; 3). Have financial
reports for the last four years from 2015 to 2018.
Data processing is carried out using the program
SPSS version 25.
2 Literature Review
2.1 Return on Equity (ROE) and Stock
Returns
The firm's rate of return for each currency unit
that becomes the company's capital is known as
return on equity (ROE). The term "ROE" refers to
the net ratio of ordinary equity, which evaluates the
rate of return on ordinary shareholder investment,
according to [17]. This Return on Equity Ratio
demonstrates how well own capital is used. Assume
that the larger the ratio, the better and then implies
that the firm's position will be strengthened, and
vice versa. Divide net income by shareholder equity
to calculate return on equity. In this case, the
corporation offers a yearly yield for one currency in
which clients invest [18]. The return on investment
(ROI) is a measure of the profit made by investors
on their investment in a company. The better the
results, the better the stock returns. According to
[19], profitability impacts stock returns, so the
ability of a corporation to create profits utilizing its
capital is measured by its return on equity (ROE).
The growing ROE figure implies that the company's
performance is improving. Old investors will be
enticed to invest their shares, and potential investors
will be enticed to invest in the company if
conditions like this exist [17]. This situation will
drive stock prices to rise; resulting in higher stock
returns [20] concluded that ROE has a favourable
and significant effect on stock returns based on past
research.
2.2 Return On Equity (ROE)
The most important ratio is the ROE, or return on
equity, which is net Income to common
stockholders is divided by total stockholders’ equity
[17]. Return On Equity (ROE) is a ratio to measure
net profit after tax with own capital [21], [22]. This
ratio shows the power to generate returns on
investment based on shareholder book value. The
higher this ratio, the better, means that the position
of the company owner is getting stronger. The most
important ratio is the return on equity, which is the
net income for shareholders divided by total
shareholder equity.
ROE = 󰇡   
  󰇢 x 100% (1)
2.3 Price Earnings Ratio (PER)
Price Earnings Ratio (PER), is the ratio of the
company's stock price to Earnings per share (EPS)
[6]. Some references use to define PER as P/E or
P/E ratio [3]. PER is used to assess the company and
to find out whether the value of the company is too
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high or too low. Price/earnings (P/E) ratio shows
how much investors are willing to pay per dollar of
reported earnings. The PER ratio is higher for
companies with solid growth prospects and
relatively low risk. The allied PER ratio is below
average for other food processors, indicating that the
company is perceived to be somewhat riskier than
most, has poor growth prospects, or both [17]. The
PER approach is the more popular approach used
among practitioners of stock analysis wizards in the
mathematical form shown as (2).
Price earning ratio =     
   (1)
Earning per share = 
   (2)
PER is the ratio or comparison between stock
prices and company earnings. Investors will
calculate the number of times the value of earnings
is reflected in the share price [21]. On the other
hand, the company calculates and analyzes how
long it takes to return funds at the share price level
and the profit received by the company [3].
Investors buy stocks to get a return on their
investment needs indicator for deciding on return.
This return consists of two parts: 1). gain (or loss)
from the sale of shares at a price above (or below)
the purchase price, and 2). dividends. The ratios we
examine in this section help analysts evaluate stock
investments [23].
The Industry decided the standard of PER is
5.21%. So the PER that is above the industry
standard is a company that is classified as good or
healthy. In contrast, the PER, below the industry
average, is classified as bad or unhealthy [11].
Previous research shows that the PER variable has a
positive and significant effect on the share price.
However, some other studies, such as [23], claim
that the PER variable does not affect share price,
while [25] and claim that PER positive affects share
price [26].
2.4 Price to Book Value
The share price depends on the company's ability
to generate cash flow [27]. The ratio of the stock
market price to its book value provides another
indication of how investors view the company [17].
The PBV is formulated as follows:
Market/Book ratio =    
    (3)
The ratio of the stock market price to its book
value provides another indication of how investors
view the company [17]. The book value is
considered not crucial in determining the company's
value because it only reflects the historical
investment made by the company, that is,
investments that are less relevant to the company's
price or current value. Although the historical value
of the previous management of the company does
not produce a satisfactory level of profit, with
healthier management developed in the company,
there is a possibility that the company will achieve
an expected return on profit, thus increasing the
company's market.
Thus, PBV is the division of the company's stock
price by book value per share. PBV can be defined
as the objective of corporate financial management
to maximize shareholder wealth, which means
increasing company value which is an objective
measure of value by the public and is oriented
towards the survival of the company. Our focus
hypothesis is that return on equity affects PER at
LQ45 companies listed on the Indonesia Stock
Exchange for 2015 to 2018. Return on equity affects
Price to Book Value at LQ45 Companies listed on
the Indonesia Stock Exchange 2015 to 2018.
3 Methodology
3.1 Population and Sample
The population that we use are companies that
have been listed on the Indonesia Stock Exchange
(IDX) from 2009 to 2019. We found 45 company
names based on reports from IDX.id, 2021, and then
from those 45 companies, there are only 37
companies that routinely provide financial
statements for four years from 2015-2018. For this
reason, we selected 37 companies as research
objects which are presented in Table I. The details
of the three criteria of our research object are; 1).
Companies listed on the Indonesia Stock Exchange
(IDX) LQ 45 index member profile report issued by
the Indonesia Stock Exchange (IDX) in August
2019. 2). Companies that have been listed on the
Indonesia Stock Exchange (IDX) have been at least
ten years back since 2019. 3). Available research
data for the period 2015 to 2018.
Based on these three criteria, a sample of 37
companies was obtained, as shown in Table I. Each
company has 4 data that publish financial reports
each year from 2015 to 2018. The total number of
observational data from 37 companies multiplied
over four years is 148 data for each. -respectively
ROE, PER, PBV.
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3.2 Research Model
The variables used in this study were to analyze
the effect of ROE on PER and PBV. For
understanding purposes, we propose the framework
of this research can be described as Fig. 1, where the
X is the variable for ROE, and the Y1 is the variable
for PER. And Y2 is the variable for the PBV. The
external factor that is representative for the effects
on the PER is () the other hand, for the external
factor tor the PBV as ().
Based on the research framework as shown in
Fig. 1, we use a descriptive analysis approach and
the Eviews 9 program for data processing and
analysis. The results of data processing using a
mathematical approach with simple linear
regression equations (7) and residual factors, we
using equation (5), where is the non-determining
coefficient (6), Yi is the regression equation (7), a is
the regression constant, is The value of the direction
as a determinant of the forecast, i=1, 2, 3,...n is
representation to the number of cross-section and
time series data, and t=1, 2, 3,..n. t is a
representation of the amount of time series data.
Fig. 1: Research framework.
For a thorough and detailed analysis, the
correlation coefficient information, the coefficient
of determination, the significance value were
analysed using the Eviews 9 program and displayed
in tabular form. Simple Linear Regression shows the
functional relationship between independent and
dependent variables.
Table 1. Research samples
NO
Code
Company Name
Code
Company Name
1 ADRO Adaro Energy Tbk 20 KLBF Kalbe Farma Tbk.
2 AKRA AKR Corporindo Tbk 21 LPPF
Matahari Department Store Tbk.
3 ASII Astra International Tbk 22 MNCN Media Nusantara Citra Tbk.
4 BBCA Bank Central Asia Tbk 23 PGAS Perusahaan Gas Negara Tbk.
5 BBNI Bank Negara Indonesia (Persero) Tbk. 24 PTBA Bukit Asam Tbk
6 BBRI Bank Rakyat Indonesia (Persero) Tbk 25 PTPP PP (Persero) Tbk.
7 BBTN Bank Tabungan Negara (Persero) Tbk 26 PWON Pakuwon Jati Tbk.
8 BMRI Bank Mandiri (Persero) Tbk 27 SCMA Surya Citra Media Tbk
9 BSDE Bumi Serpong Damai Tbk. [S] 28 SMGR Semen Indonesia (Persero) Tbk
10 CPIN Charoen Pokphand Indonesia Tbk 29 SRIL Sri Rejeki Isman Tbk.
11 ERAA Erajaya Swasembada Tbk 30 TKIM
Telekomunikasi Indonesia
(Persero) Tbk.
12 GGRM Gudang Garam Tbk 31 TLKM Pabrik Kertas Tjiwi Kimia Tbk
13 HMSP H.M. Sampoerna Tbk 32 UNTR United Tractors Tbk.
14 ICBP Indofood CBP Sukses Makmur Tbk 33 UNVR Unilever Indonesia Tbk.
15 INDF Indofood Sukses Makmur Tbk. 34 WIKA Wijaya Karya (Persero) Tbk.
16 INKP Indah Kiat Pulp & Paper Tbk. 35 WSKT Waskita Karya (Persero) Tbk
17 INTP Indocement Tunggal Prakarsa Tbk. 36 CTRA Ciputra Development Tbk.
18 ITMG Indo Tambangraya Megah Tbk. 37 JPFA Japfa Comfeed Indonesia Tbk
19 JSMR Jasa Marga (Persero) Tbk.
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The functional relationship between a variable
related to the independent variable is done by simple
linear regression. Many researchers have used this
approach for the same purpose, one of which is by
[28], while multi-regression analysis on the same
method is by [29]
r = (

 )(
 )

(
 )
 
()

 (5)
= (1 r) (4)
Yi = a + βi X + ɛ (5)
3.3 Hypothesis Testing
Hypothesis Testing consists of two perspectives.
First, focus on the effect of ROE on PER, and
second, focus on the effect of ROE on PBV. The
description of the hypothesis is as follows:
ROE effect to PER
• Ho: βY1X = 0 Return on Equity (ROE)
does not affect Price Earnings Ratio (PER) at
LQ45 companies listed on the Indonesia Stock
Exchange 2015 to 2018.
• H1: βY1X ≠ 0 Return on Equity (ROE)
affects Price Earnings Ratio (PER) at LQ45
companies listed on the Indonesia Stock
Exchange 2015 to 2018.
ROE effect on PBV
• Ho: βY2 X = 0 Return on Equity (ROE) does
not affect Price to Book Value at LQ45
Companies listed on the Indonesia Stock
Exchange from 2015 to 2018.
• H1: βY2 X ≠ 0 Return on Equity (ROE)
affects Price to Book Value at LQ45
Companies listed on the Indonesia Stock
Exchange from 2015 to 2018.
The simple form of the statistic hypothesis is
described as Ho=-t(½)α ≤ tcount ≤ t(½)α. The critical
limit value is negative, and the critical limit value is
positive at is 0.025) Ha =H1= -t (½) α> tcount or tcount
>t (½) α (that the critical limit value is negative and
the positive critical limit value at is 0.025). This
analysis uses the rejection criteria Ho if tcount > ttabel.
4. Results
The annual report from IDX LQ45 in August
2019 for the ROE, PER, and PBV values of 37
companies is shown in Table 2, Table 3, and Table
4. The ROE graph of each variable is presented in
Fig. 2. The PER graph is shown in Fig. 3, and the
PBV graph is shown in 4. Fig. 2 shows the 4-year
average ROE of 37 companies. Based on Table 2.
Based on Fig. 2, 37 companies have varying ROE
values. As shown in Table 2, the total analysis data
is 148 data with a total average ROE of 20.92%, a
maximum ROE of 160.99, and a minimum ROE of
0.15. Suppose the applicable interest rate from Bank
Indonesia in 2021 is 6%. In that case, the ROE value
(Table 2) can be concluded as profitable for
investors, meaning that if investors invest using
capital from bank loans with a bank interest rate of
6%, the investment possibilities can be profits for
investors. The distribution of ROE fluctuation data
with a span of 4 years indicates the performance of
each company. Based on the average value of ROE
as shown in Fig. 2, it appears that companies with
codes LPPF and UNVR are companies that have
high ROE values. A more profound observation
from Table 2 and Fig. 2shows the fact that there are
six companies whose performance is above the
average for four years or ROE>Average. Likewise,
we found 31 companies whose performance was
below average or ROE < Average for four years.
Fig. 2: ROE Recapitulation for 2015-2018
Table 3 shows the recapitulation of the annual
report for PER. As explained in the introductory
session, PER is an indicator of the value of a
company. The 37 companies that report PER for
four years show the dynamics of their firm value.
Our observations to find out the average PER value
and general description of PER fluctuations for each
company based on Table 3 are presented in the chart
as shown in Fig. 4. The total average PER is 18.81.
In-depth observations regarding the PER results of
companies with values above the average indicate
that as growth stocks from companies with positive
performance or are overvalued in the future, this
condition becomes the primary consideration for
investors to increase the value of their shares.
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Table 2. Annual report of ROE
No
Code
2015
2016
2017
2018
No
Code
2015
2016
2017
2018
1
ADRO
4.50
9.00
13.11
11.10
20
KLBF
21.74
15.02
15.44
14.76
2
AKRA
14.53
12.97
14.45
16.08
21
LPPF
799.10
160.99
108.86
81.92
3
ASII
12.34
13.08
14.82
15.70
22
MNCN
13.83
8.82
10.41
10.41
4
BBCA
20.12
18.30
17.75
17.04
23
PGAS
25.23
13.32
9.73
4.64
5
BBNI
11.65
12.78
13.65
13.67
24
PTBA
21.93
19.18
32.95
31.49
6
BBRI
22.46
17.86
17.36
8.96
25
PTPP
16.52
10.67
12.10
12.01
7
BBTN
13.35
13.69
13.98
11.78
26
PWON
14.81
16.16
15.83
18.46
8
BMRI
17.70
9.55
12.61
13.98
27
SCMA
44.57
40.78
29.91
23.42
9
BSDE
10.64
8.37
17.77
5.62
28
SMGR
16.49
14.83
6.71
9.43
10
CPIN
14.59
15.72
15.90
23.47
29
SRIL
20.11
17.93
18.22
16.38
11
ERAA
7.11
7.17
7.68
18.43
30
TKIM
24.96
27.64
29.16
23.00
12
GGRM
16.98
16.87
18.38
17.27
31
TLKM
0.15
0.82
2.74
19.89
13
HMSP
32.37
37.34
37.14
38.29
32
UNTR
7.11
11.98
16.14
20.15
14
ICBP
17.84
19.63
17.43
20.52
33
UNVR
121.22
135.85
135.40
120.21
15
INDF
8.60
11.99
11.00
9.94
34
WIKA
12.93
9.18
9.27
9.27
16
INKP
8.49
7.19
12.84
15.60
35
WSKT
17.59
10.8
10.81
18.46
17
INTP
18.25
14.81
7.57
4.12
36
CTRA
14.44
8.19
6.59
7.83
18
ITMG
7.56
14.40
26.37
26.68
37
JPFA
8.58
23.17
11.31
22.06
19
JSMR
10.67
11.04
11.40
11.39
We also recapitulate from Table 3 with the
following details; 1). UNVR code is the company
with the highest PER, which is 47.76. then 2). There
are three largest PBV obtained in companies with
code HMSP=38.95, INTP=39.57, UNVR=47.76.
Then 3) there are three companies with the lowest
PER value, namely ERAA=7.33, INKP=4.17,
SRIL=7.14. Companies with a PER value below the
average indicate that the company is undervalued
because their share price is traded relatively lower
than the standard set by investors; investors consider
this condition for further action.
Fig. 4 shows a dynamic PER bar chart of 37
companies based on data from Table 3. It appears
that three companies have a PER value range in the
top three groups (38.95 to 47.76), namely HMSP,
INTP, UNVR.
Our observations of PBV for 37 companies with
four reporting years are shown in Table 4. As
described in the introduction, PBV is one indication
of company value that impacts the company's stock
price, and we can make a rating classification.
The average PBV value is 4.79 or 5 times the
book value. Six or 16% of the 37 companies have a
PBV above the average, or it can be concluded that
there are six indicating that the company is
overvalued. The companies with a PER value below
the average indicate that the company is
undervalued because their share price is traded
relatively lower than the standard set by investors.
According to this condition, the investor has more
confidence to further action.
Fig. 3: PER recapitulation for 2015-2018
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Table 3. Annual report of PER
No
Code
2015
2016
2017
2018
No
Code
2015
2016
2017
2018
1
ADRO
7.83
14.96
9.09
6.24
20
KLBF*
30.87
31.28
33.39
29.61
2
AKRA*
27.41
22.65
21.17
10.21
21
LPPF
28.84
20.56
15.30
8.19
3
ASII
16.79
22.28
17.80
14.63
22
MNCN
22.34
13.02
12.27
7.47
4
BBCA*
18.02
18.95
23.16
25.72
23
PGAS
12.02
15.61
21.87
11.84
5
BBNI
10.16
10.01
13.56
10.65
24
PTBA
5.12
20.54
6.33
9.45
6
BBRI
10.99
11.40
15.48
14.28
25
PTPP*
25.35
31.26
11.26
9.60
7
BBTN
7.33
8.52
12.49
8.93
26
PWON
18.93
15.55
17.62
12.58
8
BMRI
10.51
16.86
18.09
14.12
27
SCMA*
29.75
26.57
24.87
17.25
9
BSDE
16.19
21.87
6.65
30.24
28
SMGR*
14.96
13.94
29.16
24.51
10
CPIN*
23.21
15.23
19.07
25.59
29
SRIL
9.42
5.50
8.43
5.22
11
ERAA
6.99
6.86
7.18
8.27
30
TKIM*
20.21
20.42
20.21
19.58
12
GGRM*
16.44
20.04
22.32
20.95
31
TLKM*
66.02
10.11
22.49
7.00
13
HMSP*
42.20
36.79
43.42
33.40
32
UNTR
16.41
19.01
17.84
8.43
14
ICBP*
26.18
26.48
27.34
26.23
33
UNVR*
48.24
46.32
60.89
35.57
15
INDF*
15.31
16.11
16.06
16.04
34
WIKA*
25.97
39.54
11.57
12.94
16
INKP
1.70
3.11
5.71
6.15
35
WSKT
21.63
27.78
7.73
4.59
17
INTP*
18.86
13.51
43.45
82.47
36
CTRA*
17.44
23.90
24.59
15.81
18
ITMG
7.43
15.81
6.83
5.76
37
JPFA
14.46
8.04
14.87
11.63
19
JSMR*
24.51
18.04
23.37
15.48
Notes: *) is a company with a PER value above 18.81
We also recapitulate from Table 4 with the
following details; 1). UNVR code is the company
with the highest PBV, which is 56.66. 2). There are
three largest PBV obtained in companies with code
HMSP=14.51, LPPF=23.89, UNVR=56.55, then 3).
there are three companies with the lowest PER
value, namely ERAA = 0.79, INKP = 0.54, TLKM
= 0.70. Companies with PBV values below the
average indicate that the company is undervalued
because their share prices are traded relatively lower
than the standard set by investors; investors consider
this condition for further action.
Fig. 4: PBV recapitulation for 2015-2018
The results of in-depth observations based on the
data in Table 2, Table 3, and Table 4, we can draw
preliminary conclusions to provide a broader
perspective regarding ROE, PER, and PBV. We find
the three companies that have above-average scores
of ROE, PER, and PBV consistently. As shown in
Table 5, There are three companies are companies
that have extended experience and have high
financial capabilities. HMSP is H.M. Sampoerna
Tbk. HMSP is a tobacco company that has been
operating since 1913. HMSP has assets of 45,919
trillion, and in 2021 it will achieve a net profit of
2.58 trillion in 2021[30]. SCMA is solar image
media tbk. SCMA is a company engaged in the
content-based media industry and has been
operating since 1999. Based on the 2021 financial
report, SCMA's revenue reached 4,524 trillion with
a net profit of 2,003 trillion [31]. UNVR is PT.
Unilever Indonesia Tbk. UNVR is engaged in
manufacturing materials and household aids and has
operated since 1933. Income reached 10,282 trillion,
with profits reaching 1,698 trillion in 2021[32].
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Table 4. Annual report of PBV
No
Code
2015
2016
2017
2018
No
Code
2015
2016
2017
2018
1
ADRO
0.36
1.18
1.07
0.6
20
KLBF*
5.66
6.01
5.97
4.89
2
AKRA
3.89
3.06
2.82
1.8
21
LPPF
46.43
30.03
12.53
6.57
3
ASII
1.92
2.54
2.15
1.98
22
MNCN*
2.77
2.57
1.9
0.94
4
BBCA
3.66
3.49
4.11
4.46
23
PGAS
1.6
1.62
0.98
1.04
5
BBNI
1.19
1.19
1.83
1.58
24
PTBA
1.12
3
2.05
3.32
6
BBRI
2.49
2.04
2.68
2.57
25
PTPP
3.67
4.12
1.15
0.73
7
BBTN
0.99
1.02
1.75
1.16
26
PWON
2.53
2.56
2.58
2.06
8
BMRI
1.81
1.77
2.2
1.95
27
SCMA*
13.28
9.8
7.76
5.38
9
BSDE
1.57
1.44
1.12
0.81
28
SMGR
2.46
1.91
1.93
2.15
10
CPIN
3.39
3.47
3.24
6.5
29
SRIL
1.89
1.07
1.3
0.98
11
ERAA
0.49
0.52
0.6
1.55
30
TKIM
3.35
4.23
3.99
3.5
12
GGRM
2.78
3.27
4.04
3.75
31
TLKM
0.1
0.16
0.68
1.87
13
HMSP*
13.66
14.51
16.13
13.74
32
UNTR
1.61
1.97
2.78
1.87
14
ICBP*
4.79
5.61
5.11
5.56
33
UNVR*
58.48
46.67
82.44
38.62
15
INDF
1.05
1.55
1.43
1.35
34
WIKA
2.99
3.71
0.95
0.96
16
INKP
0.14
0.15
0.71
1.15
35
WSKT
2.34
2.34
1.32
0.84
17
INTP
3.44
2.23
3.29
3.01
36
CTRA
1.72
1.52
1.47
1.17
18
ITMG
0.56
1.67
1.8
1.53
37
JPFA
1.11
2.21
1.51
2.61
19
JSMR
2.87
2.26
1.65
1.04
Notes: *) is a company with a PER value above 4.79
Table 5. Companies with above average ROE,
PER, PBV
No
Code
ROE
PER
PBV
1
HMSP
36.29
38.95
14.51
2
SCMA
34.67
24.61
9.06
3
UNVR
128.17
47.76
56.55
5 Discussion
5.1 Analysis of ROE effect on PER
Analysis of the impact of ROE(X) and PER(Y) is
presented in Table 6. The processing results are
calculated using the Eviews 9 program with row
material data as in Table 2 and Table 3, thus
showing the effect of ROE on PER. The results of
the analysis are presented in the Model Summary
table (Table 6).
Table 6 shows a summary model of data
processing. It appears that the value of the
coefficient of determination is 0.044, and the level
value of Sig. 0.010. This value indicates that ROE
has a significant positive effect on PER, and the
higher the ROE obtained, the PER value will
increase so that the impact on the company value
will increase. This fact is following the stated in
[17] [32] and research results [25],[33].
Tabel 6. Analysis of ROE effect on PER
The mathematical approach in the form of a
linear regression equation of the effect of ROE on
PER is formulated as in equation :
Y1 = 16.098 + 0.129X (6)
Dependent Variable: Y1
Method: Panel EGLS (Cross-section random effects)
Date: 09/02/21 Time: 11:21
Sample: 2015 2018
Periods included: 4
Cross-sections included: 37
Total panel (balanced) observations: 148
Swamy and Arora estimator of component variances
Variable Coefficient Std. Error t-Statis tic Prob.
C16.09856 1.714081 9.391945 0.0000
X0.129568 0.049637 2.610314 0.0100
Effects Specification
S.D. Rho
Cross-section random 7.009868 0.3842
Idiosyncratic random 8.873744 0.6158
Weighted Statistics
Root MSE 8.870856 R-squared 0.044040
Mean dependent var 10.05926 Adjusted R-squared 0.037492
S.D. dependent var 9.103698 S.E. of regression 8.931408
Sum squared resid 11646.43 F-s tatistic 6.726042
Durbin-Watson stat 1.415412 Prob(F-statistic) 0.010469
Unweighted Statistics
R-squared 0.109486 Mean dependent var 18.80872
Sum squared resid 18672.39 Durbin-Watson stat 0.882827
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Y1 is PER and X is ROE. The positive beta
coefficient of the regression equation is shown in
equation (8). Shareholders or investors have an
upbeat assessment of the company. Thus, the
investors can conclude that they have hope in the
future to make a better contribution.
The influence of other factors outside the effect
of ROE which we express as 1. The value of 1 is
calculated using equation (6) where r= 0.044. The
external factor (ε1) shows a fairly high value,
namely 0.982. Many things can contribute to
external factors, including dividend payout ratios,
community economic conditions, inflation and
competition from similar companies, the rupiah's
exchange rate against the dollar, bank interest rates,
and time deposits.
Table 6 These results provide information that
ROE has a positive effect on PER, and this means
that an increase in the ROE value will impact
increasing the PER value in this case. Furthermore,
that PER, which is formulated by the closing price
of shares per share compared to net income per
share following the opinion of [34], earnings per
share can be formulated by net income compared to
the number of shares outstanding. Thus,
shareholders as investors assess the company's
performance through the return on investment based
on the value of ROE.
5.2 Analysis of ROE effect on PBV
Analysis of the impact of ROE and PBV is
presented in the Model Summary (Table 7). The
impact analysis results are presented in Table 2 and
Table 4, thus showing the effect of ROE(X) on
PBV(Y2). Based on Table 7, data processing results
show that Return On Equity (ROE) on Price to
Book Value (PBV) in LQ 45 category companies
listed on the IDX 2015–2018, the coefficient of
determination is 0.727. So we can conclude that the
ROE has a significant positive effect on PBV; this
shows that the higher the ROE obtained, the higher
the Price to Book Value (PBV) so that the
company's value will increase. This result is
following what was stated [17], [31] and research
results [25] [32]. This result is indicated by the beta
coefficient value of the regression equation model
(β=0.091). In mathematical form, it can be
formulated as in equation (9).
Y2 = -2.993+ 0,372X ( 7)
Table 7. Analysis the impact of ROE and PBV
The influence of other factors outside the
correlation between ROE on PBV or we express as
2. The value of 2 is calculated using equation (6)
where r = 0.727. External factor (ε2) shows a
fairly low value namely 0.522, and this means that
there are a few factors that contribute as factors
outside the influence of ROE, these factors are
thought to be in the form of return on assets,
dividend payout, earnings per share, stock split and
treasury stock.
Table 7 These results provide information that
ROE has a positive effect on PBV. In this case, an
increase in the ROE value will impact increasing the
PBV value. Furthermore, that the PBV, which is
formulated by the closing price of shares per share
compared to the book value per share, is following
the opinion of [35], net income per share can be
formulated by net income compared to the number
of shares. Outstanding. Thus, shareholders as
investors assess the company's performance through
the return on investment based on the value of ROE
[36].
6 Conclusion
The analysis of the effect of ROE on PER and
PBV has been carried out thoroughly. Financial
reports were spanning 2015-2018 from 37
companies listed on the Indonesia Stock Exchange
on the LQ45 list. In the annual report recapitulation,
Dependent Variable: Y2
Method: Panel EGLS (Cross-section random effects)
Date: 09/02/21 Time: 11:26
Sample: 2015 2018
Periods included: 4
Cross-sections included: 37
Total panel (balanced) observations: 148
Swamy and Arora estimator of component variances
Variable Coefficient Std. Error t-Statis tic Prob.
C-2.993398 0.652730 -4.585964 0.0000
X0.372214 0.018852 19.74413 0.0000
Effects Specification
S.D. Rho
Cross-section random 2.690402 0.3949
Idiosyncratic random 3.330288 0.6051
Weighted Statistics
Root MSE 3.310423 R-squared 0.727201
Mean dependent var 2.522001 Adjusted R-squared 0.725332
S.D. dependent var 6.359662 S.E. of regression 3.333020
Sum squared resid 1621.917 F-s tatistic 389.1920
Durbin-Watson stat 2.842126 Prob(F-statistic) 0.000000
Unweighted Statistics
R-squared 0.833101 Mean dependent var 4.792162
Sum squared resid 2644.716 Durbin-Watson stat 1.742982
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three companies consistently have above-average
ROE, PER, PBV values.
The analysis results show that ROE has a
positive and significant effect on PER; besides that,
ROE also has a positive and significant effect on
PBV. External factors outside the influence of ROE
on PER are pretty high; the value of 0.982 indicates
this, which means that many external factors
contribute to the influence of ROE on PER. The
influence can be in the form of dividend payout
ratio, community economic conditions, inflation and
competition from similar companies, and the
rupiah's exchange rate against the dollar and interest
rates of banks and deposits. In comparison, the
analysis of external factors outside the influence of
ROE on PBV is not expected to be much. We find
that 0.522. This result is indicated the factor that
contributes to the influence of ROE on PBV, and the
majority is from the PBV variable itself.
Acknowledgments:
This research is intended to prepare for the level
of professor of accounting economics. These works
have been successfully written. The author would
like thanks to the research department of Siliwangi
University and the faculty of economics and
business at the University of Siliwangi for their
support.
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