THE EFFECT OF LIQUIDITY AND LEVERAGE RATIOS ON FIRM VALUE

Study on Companies in the IDXESGL Index of the Indonesia Stock Exchange for the 2021-2023 Period

Abstract

Capital markets are pivotal engines of economic expansion, and the IDXESGL index exemplifies this by grouping firms recognised for outstanding environmental, social, and governance (ESG) practices. While such firms appeal to sustainability‑minded investors, the financial implications of their ESG commitment warrant closer scrutiny. This study explores how short‑term solvency and capital‑structure indicators affect corporate value, represented by Tobin’s Q, in companies continuously listed on the IDXESGL index. Liquidity is captured through the current, quick, and cash ratios, inventory‑to‑net working‑capital, and cash‑turnover metrics. Leverage is gauged by debt‑to‑asset, debt‑to‑equity, long‑term debt‑to‑equity, interest‑coverage, and fixed‑charge coverage ratios. Panel data from 13 issuers covering 2021–2023 were selected via purposive sampling. Regression results show no statistically significant linkage between Tobin’s Q and the current ratio, quick ratio, cash‑turnover, debt‑to‑asset, interest‑coverage, or fixed‑charge coverage measures. Conversely, the cash ratio and debt‑to‑equity ratio display positive, significant associations with firm value, whereas inventory‑to‑net working‑capital and long‑term debt‑to‑equity ratios exert significant negative effects. Jointly, the liquidity and leverage variables explain 94.4 percent of the variation in Tobin’s Q. These insights advance understanding of how financial fundamentals interact with value creation in ESG‑oriented firms, offering practical guidance for investors and regulators alike.