Moderation Effect of Exchange Rate to Signaling Theory Validity in Indonesia Stock Exchange

Abstract

Asymmetric information occurs between management and stakeholders and it is especially important for investors to push the company to provide a credible signal, which will differentiate it from other companies that are not performing well. In a previous study that examined the relationship between the variables of capital structure, the company's growth and profitability of the enterprise value, it has been concluded that these three variables have a positive relationship and are credible signals related to the value of any company's future. The conclusions of many similar studies support and are consistent with the signaling theory. It is hypothesised that macroeconomic conditions in which the company operates would moderate the relationship that already exists, so that capital structure, asset growth and profitability are no longer considered by investors as a credible signal on the value of the company's future.

The purpose of this study was to determine the effect of the exchange rate as a moderating variable on the validity of signaling theory in the Indonesia Stock Exchange.

The research was designed as a descriptive study and verification by using secondary data. The research was carried out on non-financial industry issuers listed on the Indonesia Stock Exchange (BEI) covering observation period from 2009 to 2013 year. The members of the sample have been selected using stratified random sampling. Data were analyzed using panel data regression.

Based on the analysis of regression panel data, we concluded that the exchange rate variable proved to have a quasi moderating influence on the pre-existing relationship between the variables of capital structure, the company's growth and profitability of the enterprise value. The moderating effects of exchange rate variable causes in particular the variables capital structure and profitability to be no longer a credible signal to the value of the company's future.