The effect of R&D expenditures on firm value with firm size moderation in an Indonesia palm oil company

Abstract

This study aims to ascertain the direct impact of Research and Development (R&D) spending on the value of a company, specifically in the palm oil industry. Additionally, the study examines how the company’s size influences its value concerning R&D expenditures. The inquiry examines the impact of control elements on important characteristics such as current ratio (CR), debt to assets ratio (DAR), return on assets (ROA), and total assets turnover (TAT) in connection to the company’s value. This study utilizes secondary data from financial statements and applies panel data analysis over three years with quarterly intervals. The purposive selection technique chose the sample from a population of agricultural companies listed on the IDX. The literature on palm oil companies still needs to adequately investigate the influence of R&D on firm value. This study investigates the impact of R&D on augmenting the value of palm oil enterprises. It specifically focuses on the function of company size as a moderate factor and the effective management of key financial issues. The data analysis and hypothesis testing were conducted using Moderated Regression Analysis (MRA) with process method (Andrew Hayes) on 179 quarterly data samples from palm oil firms listed on IDX 2019–2022. The findings of this study indicate that allocating resources toward R&D has a positive and significant effect on enhancing the overall worth of a corporation. In addition to that, the dimension of the business has an impact on the connection between the two. The elements that affect company value achievement include CR, DAR, and ROA, except for TAT. In addition to complementing previous empirical studies, this research offers two noteworthy contributions.

Keywords:

• Technology innovation
• research and development
• firm value
• firm size
• palm oil
• financial ratios

REVIWING EDITOR:

• Ricardo Martinez-Canas, University of Castilla-La Mancha: Universidad de Castilla-La Mancha, Spain

JEL CLASSIFICATION:

• M00; M20; M41; M48; M49; N21; O16; O30; O32; O36; Q14; Q55

Introduction

Technological innovation will allow businesses to overcome environmental uncertainties and gain a commercial edge (Hagedoorn, 1996). Firms can gain significant competitive advantages and boost their value through technical innovation (Belenzon & Patacconi, 2013). Spending a lot of money on technological innovation by imposing R&D costs is one of the most essential competitive features that will provide technological advances, the efficiency of design and implementation, and new goods in the future. Because of their enormous market expansion, sectors, particularly those based on technology, face intense competition. Companies gain a competitive superiority when their R&D investments are productive but suffer significant consequences when their R&D expenditures fail, halting the company’s operational activities. In this propellent and competitory corporate climate, boosting R&D spending as an investment increasingly attracts organizations. R&D spending has expanded tremendously globally in the indecent period, and it’s worth may be demonstrated by the reason that the value of R&D arbitrage in many high-tech firm might evergrow their profits (Duqi et al., 2011). A competitive market drives businesses to experiment with new tactics for producing new items downstream to pursue expansion prospects, profitable, efficient business endeavors, and so on (Ehie & Olibe, 2010).

As the foremost palm oil corporation in Indonesia, they must dedicate themselves to manufacturing superior planting materials for both domestic and global clientele. In order to achieve this, a robust R&D program is necessary to guarantee the production of superior planting materials. The execution of research and development endeavors is undoubtedly facilitated by sufficient human resources, encompassing both high-quality and sufficient quantity of technicians possessing competence in many domains such as agronomy, soil science, pest and disease management, breeding, biotechnology, and tissue culture. A targeted endeavor in research and development involves doing conventional oil palm plant breeding through field trials in diverse regions with varying agro-climatic conditions. The seed production facility exclusively produces verified and validated planting supplies. Implement fertilizer and agronomy experiments in multiple sites to attain the maximum yields specific to each area and the cultivated plant varieties. Next, there will be a comprehensive pest and disease laboratory that is fully integrated. This laboratory will focus on developing technologies for integrated pest management, which will then be implemented and distributed on traditional agricultural land.

Until 2022, numerous palm oil firms have dedicated significant resources to research and development. The upstream endeavors continue to be motivated by technological advancements in order to optimize the amount of oil produced per unit of land, regulate the flow of nutrients, maintain soil fertility, control pests and diseases, and preserve ecological functions. Specifically, efforts are being made to enhance the oil palm gene pool by broadening the range of planting materials. The ongoing issue of labor shortages is driving the adoption of sensor and vision-based mechanization technology in fruit bunch picking. The crucial factor for broader implementation in the field of biomass and bioenergy is in the synergistic integration of supply chains to overcome logistical challenges. The incorporation of engineered nanomaterials, carbon coatings with different orientations, and specialty chemicals derived from biowaste/byproducts into current palm oil processing can serve two purposes. Firstly, it can guarantee the industry’s continued significance in the global value chain for food, feed, fiber, fuels, and chemicals. Secondly, it can demonstrate diverse industrial symbiotic strategies. In addition, there is a strong focus on enhancing business operations and improving the performance of industries that rely on oils, such as lubricants and nutritional research, to ensure high standards of quality and contamination control. This is done with the aim of promoting a circular economy (Parveez et al., 2023).

Palm oil plantations face important challenges in balancing agricultural productivity and environmental sustainability, so R&D activities are a very important effort to maintain sustainability in the long term. This has also been done by national palm oil companies located in Indonesia, Malaysia, Latin America and Mexico (Lagunes-Espinoza et al., 2022). Several prior research that linked technological innovation represented R&D to corporate value yielded inconclusive outcomes. The majority of studies undertaken in industrialized countries (such as the United States, European Union, and G7) revealed mixed outcomes (Tahinakis & Samarinas, 2012; Vithessonthi & Racela, 2016; Leung & Sharma, 2021; Rahman & Howlader, 2022). More evidence is needed in the changing economic environment context to identify where outputs may have distinct results (Rahman & Howlader, 2022).

Respective studies have analyzed the influence of R&D investing on corporate worth, and the existing literature shows varied results. The short-range and long-range impacts of group action and R&D intensity on firm value were unfavorable for US corporations listed on stock markets studied by Vithessonthi and Racela (2016). Similarly, (Rahman & Howlader, 2022) demonstrate the same by bolstering the unsupportive association amongst R&D spending and company value in the near term while discovering a favorable relationship in the long range. Furthermore, when R&D is negatively associated with business value, the impact is exacerbated for small firms. To put it another way, small businesses suffer from the unsupportive consequences of R&D spending on the firm value (Ibhagui, 2019).

Firm size, on the other hand, is critical for all businesses in supporting their operational activities. Furthermore, the size of the corporation will determine the potential capital collected from outside the company. According to the findings, more research on the partnership between size and value is needed because company size is a crucial controlling element (Owusu-Sekyere & Kotey, 2019). Business size is crucial to survival and profit performance, according to economies of scale and scope, and can drive or obstruct business success and value. The contrivance of this analysis is consistent with the findings of (Nuraina, 2012; Sujoko & Soebiantoro, 2007; Iswajuni et al., 2018), which show that firm size has a strong positive effect on the value of the firm.

The detection also indicates that the firm size is directly proportional to the liven up in firm value; the larger the company, the more capable it is of controlling market shape and facing economic rivalry, which can shave the company falteringly and determine the level of investor confidence. Compared to smaller organizations, larger companies will have greater flexibility and accessibility to capital market funding. Investors regard this as a positive indicator because larger organizations have better business prospects (Hendri Faktor-Faktor Yang & Hendri Gusaptono, 2010), hence the company’s size is an important factor in investors evaluation of their investment, which can eventually improve the company’s worth.

The topic of research development, which affects firm value or performance, is an exciting one to raise in research. Few studies address this, and one of them is undertaken by Choi and Yoo (2022), demonstrating innovative technology’s impact on corporate value. Similarly, studies by (Agustia et al., 2022; Li et al., 2023) demonstrate that capabilities technology can influence firm performance, which defines the company’s hereafter worthy. This is also consistent with studies (Annavarjula & Mohan, 2009), which suggest that the importance of R&D expenditure in molding a firm’s ability to innovate significantly influences firm value. Previous research used manufacturing enterprises in the biotechnology, chemical, electronics, and semiconductor sectors as their objects, and used simple models to go from R&D to corporate value.

Most previous research in this area has conceptualized innovation in terms of one or more dimensions of a firm’s innovative capabilities using only research and development. Measurement of the construct reflects this restrictive definition, with the most widely used proxy being a single standard of research and development expenditures. Sometimes, a broader definition of organizational regeneration capabilities is used, which includes the development, deployment, and strength of creative activity within an enterprise. On the other hand, this research expands the study with the mediating role of company size and key fundamental financial factors as controls in estimating the impact of research and development on business value.

Below is a visual presentation on research and development expenditures and company value in an oil palm company (panel data source):

Table 1 above shows a comparison of the R&D value of palm oil companies on the Indonesia Stock Exchange with the company value as measured by Tobin’s Q in the 2019–2022 period. These results show that there were fluctuations in R&D expenditure and company value in the 2019–2022 period. It also shows that the higher the R&D expenditure, the smaller the value of the company in this case, when the value of Tobin’s Q = 1 indicates the company’s market value is fair, then if the value of Tobin’s Q < 1 then the company is classified as overvalued or the book value is higher than the market value. Moreover, Tobin’s Q > 1 means the company is considered expensive (Smithers & Wright, 2007). From the results of the panel data, it was concluded that the higher the R&D expenditure, the closer the company value was to fair value.

Table 1. A visual presentation of R&D expenditure and company value of palm oil company.

	R&D expenses (Billion Rupiahs)	Company value (Tobin’s Q) (Tobin’s Q = 1 = Fair Value; >1 = Overvalue; <1 = Undervalue)	Deviding of (B) to (A)(%)
Year	(A)	(B)	(C)
2022	182,696	1.040	0.000569
2021	178,959	1.070	0.000598
2020	136,651	1.000	0.000732
2019	150,124	1.090	0.000726

Palm oil (crude palm oil/CPO) is a commodity that is widely used for various daily necessities, from cakes and consumer raw materials to cosmetics. Palm oil comes from oil palm plants that grow in humid tropical conditions. Palm oil was originally discovered in West Africa but is now widely cultivated in Asia, Africa, and Latin America. That is why there are many palm oil-producing countries on these three continents (https://koran.tempo.co/accessed, on 2023). The data presented in Table 1 indicates an inverse relationship between the actual amount spent on research and development (R&D) and Tobin’s Q, which represents the worth of a company. A higher R&D expenditure leads to a lower Tobin’s Q, suggesting that the company’s value is more fair or closer to 1. Conversely, a Tobin’s Q value greater than 1 indicates an overvaluation of the company. Consequently, it appeals to individuals or organizations who seek to replicate the company’s business strategy with the intention of generating their own financial gain.

This study requires further investigation, which further extends research and development modeling on firm value with Tobin’s Q in assessing values built on market views represent investors’ prospects (Lin et al., 2012; Iswajuni et al., 2018), which is regulated by the impact of firm size and the addition of control variables CR, DAR, ROA, and TAT on research objects in palm oil companies, which is a new research model that has never been done previously, particularly in the palm oil company. In conditions where primary fundamental financial determinants (CR, DAR, and ROA) also have a large influence, the R&D factor, company size, significantly influence on firm value. Conversely, TAT had no significant effect and was the same as in earlier experiments.

Hence, the objective of this study is to add to the literature on technological innovation with R&D expenditures support, firm size, and firm value by contributing experiential evidence on the linear relationship between technological innovation, size, and firm value using data from quarterly financial reports of palm oil firms registered on the Indonesian stock exchange (IDX). This study consists of the following sections: an overview, a theoretical review, an empirical review and hypothesis expansion, a conceptual framework, findings and discussion, conclusions and recommendations, and references.

Theoretical review

Signaling theory

The generic examples aid in the understanding of the basic signaling construct. Like most signaling instances, the author distinguishes between two entities: a high-level firm and a low-level firm. Outsiders (e.g., investors, consumers) need to learn the genuine qualities of the companies in this case, hence, there is an information asymmetry (Kirmani & Rao, 2000).

Field (Spence, 1973) first introduced the signaling theory, which discussed signals and what these signals convey, and his research in government markets was connected to economic indicators. Furthermore (Leland & Pyle, 1977) discusses it for the financial sector, which states that the businessman holds his shares. Likewise, (Allen & Faulhaber, 1989; Grinblatt & Hwang, 1989) discuss signals on underpricing in the IPO market. The incentive signals Field also determine capital structure (Ross, 1977). As a result, when high-quality corporations signal for a review of pooling and splitting balances, each company can indicate or fail to convey its authentic quality to external observers (Cadsby et al., 1990).

Financial economists have constructed various examples to highlight this general link. They have claimed, for example, that the debt of corporations is unsustainable (Ross, 1977) and dividends (Bhattacharya & Dittmar, 2004) are gauges of corporate quality. According to this approach, only high-quality enterprises can pay long-term interest and dividends. On the other hand, low-quality businesses will only be able to shore up these compensations. As a result, such signals impact the judgments of outside observers, such as lenders and investors, concerning the quality of organizations. Because of these conditions, many core concepts and signaling theory constructs have emerged from the financial and economics literature (Riley, 1975).

R&D expenditures

Development and Research realized on technological innovation is an effort to create or develop new technologies that are better, more effective, and more efficient in supporting management policies to maintain business continuity. Many people use the phrases ‘invention’ and ‘innovation’ interchangeably or with various degrees of accuracy when referring to technological innovation. In the extreme, and this situation, the term ‘invention’ to describe technological innovation as bringing novelty to the market (Gorman & Wiener, 1994). Technological innovation also has an impact on corporate value since it allows organizations to generate previously unavailable products or services or improve existing products or services (Kogabayev & Maziliauskas, 2017). According to Schumpeter, technical innovation is critical aspects that can help the economy grow indefinitely. Despite the significant investment required, technological innovation is being emphasized as a critical competitive strategy for achieving strategic competitiveness and long-term goals with the emergence of a knowledge-based economy. Technological innovation is critical for businesses, particularly when they want to enter new markets or create barriers for competitors to enter the industry in which they operate (Hagedoorn, 1996).

R&D is a function of DuPont research as a manifestation of technological innovation, which was started in 1902 by several researchers and supported by several adequate budgets and grew in 1980. There is the extent to which R & D can be directed as part of a corporate strategy by a high awareness (Davenport-Hines et al., 1990). Thus, technological innovation enables the company to get a stable profit in the long term (Howells, 2005). Nevertheless, the elevated cost of CPO in the palm oil industry is mostly attributed to the surge in demand for palm oil and palm products and the substantial volumes of CPO production and sales. Only through continuous research and development efforts throughout the whole palm oil supply chain, encompassing the upstream, midstream, and downstream sectors, and by enacting suitable laws can we achieve a state where palm oil is sustainable, safe, and competitive. Thus, R&D efforts should focus on boosting oil palm output per hectare using precision farming, headmost biotechnology, and propagation oncoming to deliver high-yielding cultivated material. These cultivation materials are designed to possess resistance against pests, diseases, and climate change. Additionally, they aim to enhance the usability of agricultural machines to tackle production issues arising from a scarcity of harvesters (Ahmad Parveez et al., 2022).

Research and development and palm oil industry in global context

Indonesia’s palm oil business has a long history dating back to 1848. Oil palm trees grow in Indonesia because the country’s natural conditions are ideal for them. Many challenges and developments have occurred in the palm oil industry (Baudoin et al., 2017). The issues in the palm oil business are tied to severe environmental and health implications, which are also a global concern, whereas oil palm development can be seen particularly in the processing sector. As a result, the proper technology and method are required to maintain the beneficial content of palm oil and turn it into an additional value for palm oil.

Palm oil is useful as a cooking oil and alternative fuel, and it may also be used to make cosmetics, perfumes, detergents, paints, and even pharmaceutical items. The significance of converting palm oil into items that can be used in a variety of fields and by-products. Because the item’s worth increases as more operations are completed. The more technology development, product innovation, and applications are carried out, the higher the added value can be. There is still much untapped potential for palm oil from upstream to downstream. Research on sustainability in innovation and technology models should also examine the interplay between the three levels of sustainability components, precisely economic, social, and environmental issues, as previously described by (Mukherjee & Sovacool, 2014; Markevičius et al., 2010; Hayashi et al., 2014; Mikkilä et al., 2009; Chong et al., 2016).

Oil palm plants, extraction, and crude palm oil production a large amount of residual waste and byproducts that must be managed properly. Only 23% of agro-industrial waste and byproducts were repurposed in the manufacturing process, with the rest dumped on the site (Bejarano et al., 2022). This is one of the triggers for technological innovation’s importance in optimizing product diversification for long-term business development and sustainability. Oil palm plantations are common in Asia, with the advantage of being less dependent on fertilizers and pesticides. Oil palm plantations also require nine times less water than other oil crops (Kaniapan et al., 2021). Even (Begum et al., 2019) claims that palm oil has a lower production cost per unit than other oils. Nevertheless, the European Union’s campaign against palm oil and the non-tariff barriers imposed by the governments of the United States and the European Union has significantly impacted the sustainability of the palm oil supply chain (Kristanti et al., 2021; Hamzah et al., 2019; Mat Yasin et al., 2017). There is a strong motivation for technological innovation’s importance in supporting new product diversification to guarantee going concern and increase firm value.

Firm size

The company’s capacity is a measure that can be used to categorize a corporation’s size in various ways, such as revenue size, total assets, and total capital. The greater the magnitude of income, total assets, and total capital, the more solid the company’s situation (Kotey et al., 2021). The theory of scale and scope of economics and diseconomies states that company size is essential for long-term sustainability and can inspire or discourage performance (Jaisinghani & Kanjilal, 2017). Firm size is a scale that categorizes the size of a firm in numerous ways (total assets, log size, market value of shares, and so on). The firm size is only split into three categories: major corporations, medium firms, and tiny companies. The total assets of a company are used to assess its size (Machfoedz, 1994). Moreover, it was stated that the company size is the average net sales for the year in question over a number of years. In this case, sales exceed variable and fixed costs, resulting in income before taxes. In contrast, if revenues fall short of variable and fixed costs, the organization will lose money (Eugene & Brigham, 2001).

Firm value

Overall, the company’s objective is to enhance its worth by enhancing the welfare of its proprietors and investors. The number of prices that investors are willing to pay is also described as firm value (Fitri Prasetyorini, 2013). This situation also illustrates that the company’s manager, whom the owner has trusted, performs in accordance with the owner’s expectations to promote the welfare. An increase in market share can demonstrate this. The Tobin’s Q is a measure used to determine the market value of a company by considering the expected future returns on investments as judged by external parties rather than the company and its investors. Based on past studies Barontini and Caprio (2006); Smith et al. (2009), Tobin’s Q (TBQ) was employed as a proxy for company value in this study. The TBQ figure is derived by summing the market value of shareholder equity with the book value of debt and then dividing this sum by the book values of all properties (Usman et al., 2018; Pramod et al., 2012; Ibhagui, 2019; Chung et al., 2019; Suhadak et al., 2019). The company’s value is also represented by the market ratio, in which the performance of the company’s shares is defined in stock trading to generate high returns with the slightest risk. Market ratios and factors that influence the stock market are important factors that investors must consider to support investment decisions on company shares (Prayogi, 2021). Market value is the prevailing market price of a security. Market value is one of the most accessible stock values to determine. Hisense’s market value shows how market participants assess a stock’s value (Gitman & Zutter, 2015). In this case, the market ratio positively and significantly affect market prices (Bustani et al., 2021; Cahyaningrum & Antikasari, 2017).

The prime of fundamental financial ratios as control variable

Fundamental financial ratios (CR, DAR, ROA, and TAT) are the major financial ratios are utilized to assess a company’s financial success throughout a specific timeframe. In this case, the data used to measure fundamental financial ratios is data that makes sense and comes from various sources (Walsh, 2008). Investors must be aware of the financial or internal state of the firm whose stock they are purchasing. Analysis to determine the company’s situation is commonly known as fundamental analysis, where various things related to an issuer’s essential condition or financial fundamentals will be studied, especially quantitative financial data. The superior method in investment appraisal is based on fundamental analysis and filtering firm shares based on many key ratios and financial factors deemed most relevant in studying companies (Wirawan & Sumirat, 2021). The financial performance appraisal ratio will be able to find the appropriate fundamental valuation ratio if the valuation is carried out based on the same matrix as the denominator of the valuation ratio (Lai, 2020). Fundamental financial ratios related to activity ratios positively and significantly affect stock returns (Dimitropoulos & Asteriou, 2009).

Model and method of research

Research framework

The effect of development and research on firm value

Technology innovation and research and development realization affect Korean manufacturing firms’ value (Choi & Yoo, 2022). The culmination of technological innovation activities with R&D expenses proxy increases value for the business to develop brand equity by delivering distinctive competitive advantages manifest as novel products and processes that prove formidable for competitors to imitate (Basgoze & Sayin, 2013). The corporation must effectively leverage its inconceivable assets in advanced products and services by undertaking lucrative research and development initiatives, thereby setting itself apart from rivals. Despite the major economic downturn, R&D investments increased manufacturing and service company’s financial and operational results. Furthermore, after controlling for leverage, company scale and sector focus, R&D expense had a favorable effect on company performance, with R&D expenditure, specifically within the manufacturing industry, contributing more to a company’s value of a product or asset in the marketplace before 9/11. Conversely, the direction reversed following the 9/11 crisis (Ehie & Olibe, 2010). Additionally, research and development expenditures contribute substantially to the market success of a business. in Pakistan’s non-financial sector, and the negative impact of terrorism moderates the association between R&D and firm market performance (Usman et al., 2018) firms in Ethiopia (Tsegaye, 2023). Furthermore, (Yıldırım, 2020) identified a U-shaped correlation between firm value and R&D intensity as demonstrated that research and development expense favorably enhances the market capitalization of the company, but after reaching the optimal stage, this spending diminishes the firm value.

Hypothesis 1: Research and development has a positive impact on firm value

The impact of firm size on firm value

One of the most crucial criteria in assessing a company’s future worth is its size. According to Salim and Yadav (2012), size has a detrimental impact on Tobin’s Q in the property sector. The research carried out by Iswajuni et al. (2018) this example illustrates that the size of a corporation is quantified by taking the natural logarithm of its total assets, which is represented as "SIZE". This variable has a significant and positive effect on the company’s value, which is measured by Tobin’s Q. A study carried out by Nuraina (2012), Sujoko and Soebiantoro (2007) they also claim that the proportion of a corporation has a considerable beneficial impact on firm value. These findings suggest that the larger the company, the greater the possibility of raising firm value. The presence of larger firms can be attributed to their enhanced ability to adapt to market conditions and navigate economic and business competition, reducing the firm risk and uncertainty in the future while instilling confidence in investors.

Hypothesis 2: Firm size has a positive impact on firm value

The effect of interaction SIZE on research and development

In general, gradual business development and an increase in total sales can secure the company’s capacity for enhancement performance through innovation. The illustration of potential business losses that may arise in the absence of innovation underscores the imperative of implementing innovation to enhance corporate success. Innovation can potentially increase the worth of a company’s intangible assets and create opportunities for generating profits. It will be more assertive in boosting the firm’s worth with increased asset support (Meles et al., 2023). According to Ma et al. (2022), large organizations will generate more patents as a result of research and development operations, making them more appealing as collateral for borrowing cash. This suggests that the company’s performance is enhancing, and as a result, the company’s worth will increase in correlation with the confidence of the lending institution.

The data indicate that R&D expenditure positively impacts the corporate value (Yıldırım, 2020). Although there is a positive impact of research and development (R&D) spending on companies who invest heavily in R&D, there is no significant correlation seen for companies with low levels of R&D expenditure. Furthermore, the study findings reveal that R&D investment in small businesses has a favorable influence on firm value while it has a negative effect on large businesses. Another study finding is that R&D investment in entities with a low level of risk increases firm value. According to Shiva (2019), the size of a company has a significant impact on the relationship between research and development (R&D) activities and the value of the firm. This study primarily examines the impact of research and development (R&D) spending on the value of a company, specifically focusing on the amount, scale, and risk level of R&D expenditure. The relationship between research and development (R&D) expenditure and the value of a company will become more robust as the company expands in scale.

Hypothesis 3: The firm size to moderate between research and development and firm value

The impact of liquidity on firm value

Chia et al. (2020) investigate the correlation amidst liquidity and firm value in Malaysia’s expanding stock market. From 2000 to 2015, non-financial corporations were traded on the Malaysian Stock Exchange. The examination of the basic square model reveals that equities must be traded at a greater degree of liquidity than the threshold level before benefiting from a higher market capitalization. The outcome of this analysis represents that there is a cause-and-effect relationship between liquidity and firm value. This was demonstrated by examining the drop in the optimal candidate lot size for Malaysian equities in May 2003, which served as an external shock to liquidity. According to the findings of Tahu and Susilo (2017), financial liquidity is critical in determining a company’s success, with the current ratio has a significant and beneficial impact on Tobin’s Q. It was discovered that the liquidity proxy by liquidity ratio has a favorable and profound impact on the overall worth of the company when combined with the Tobin’s Q proxy (Hapsoro & Falih, 2020).

Hypothesis 4: Liquidity positively impacts company value.

The effect of leverage to firm value

De Miguel et al. (2004) investigated the impact of capital composition on the financial achievement of 135 enterprises across four countries, and the countries mentioned include England, America, Germany, and Japan, it was determined that utilizing DAR as a substitute for capital structure has a beneficial effect on a company’s worth. A study conducted by García-Meca and Sánchez-Ballesta (2011) indicated that the arrangement of a company’s financial resources does not impact its overall worth. According to the empirical findings of Cheng and Tzeng (2011), when both the benefits and drawbacks of debt are taken into account concurrently, leverage exhibits a significant positive correlation with the value of a corporation until it reaches its optimal capital structure. When a company’s financial health is greater or its Z-score is higher, the beneficial. The impact of leverage on company value is more pronounced. It also offers insight into financial decisions concerning many corporate loans to enhance company value. Another study (Larosa, 2019) found that leverage considerably impacts firm value.

Hypothesis 5: leverage has a positive impact on firm value

The effect of profitability on firm value

Profitability is a firm’s capacity to result in future profits and is a crucial determinant of its operational success. Increased profitability incentivizes companies to expand and advance, while the reverse is also true. This rise in profitability positively impacts the company’s financial performance, aligning to maximize the company’s value. Consequently, investors are likely to respond favorably, leading to a surge in demand for shares and potentially driving up share prices. In this scenario, the profitability ratio is represented by the return on assets, which calculates the proportion of the company’s net income to its total assets. It serves as a metric to assess the company’s level of return on assets (Ross et al., 2022). An analysis of the correlation between Return on Assets and firm value, as measured by Tobin’s Q, indicates a significant influence of ROA on firm value (Aydoğmuş et al., 2022; Widnyana et al., 2020; Sudiyatno et al., 2012; Shun-Yu Chen, 2011).

In the field, Ramezani et al. (2002) discovered that corporate profitability as evaluated by ROE, has a favorable impact on company value. From 2005 to 2009, researchers analyzed the impact of financial success, assessed by return on investment, on the value of companies in the Taiwanese electronics industry. The worth of these companies was calculated using Tobin’s Q, and they were listed on the Taiwan stock exchange. Chen’s research indicates that achieving financial success positively impacts the value of a company (Cheng & Tzeng, 2011). Profitability, evaluated by return on equity, positively influences the value of a company (Sudiyatno et al., 2012).

Hypothesis 6: Profitability has a positive and significant affects firm value

The impact of activity on firm value

Bama et al. (2021) determined that the total assets turnover had a positive, if modest, impact on the company’s worth as assessed by PBV. Meanwhile, Ahmad et al. (2023) have found that the turnover of corporate assets has a negative, yet statistically significant impact on the value of a company, as measured by Tobin’s Q. According to the findings of Kristi and Yanto (2020), firm value can be explained in a favorable manner by the activity ratio. Given that the activity ratio has a significant and positive impact on the value of a company, it is expected that managers possess the ability to optimize their asset management.

The activity ratio has a small but beneficial impact on business value. This consequence also illustrates that the higher the firm activity ratio, the less impact it has on the company’s value (Gunadi et al., 2020). According to Lestari and Mustika (2019), Total asset turnover has no substantial effect on Firm Value. According to Field Siregar and Dewi (2019) findings, Total asset turnover had no effect on firm value as measured by stock returns of plantation firm in the agriculture sector listed on the IDX from 2014 to 2017.

Hypothesis 7: Activity has positive and significant affect firm value

Research methods

This study employs a quantitative oncoming that specifically emphasizes hypothesis examine. All the contention in this study occurs of quantifiable variables that originate from hypotheses and theories.

Research variable

The study considers company value, specifically measured by TBQ, as the response variable, whereas R&D is regarded as the independent variable. Concurrently, SIZE functions as a moderator variable. The control variables in this study consist of CR (Current Ratio), DAR (Debt Asset Ratio), ROA (Return on Assets), and TAT (Total Asset Turnover).

Operational definition of variables

The objective of this study is to evaluate the research hypotheses by analyzing the dependent, mediator, and control variables, which are R&D, SIZE, CR, DAR, ROA, and TAT. Furthermore, firm value is investigated utilizing firm size and financial fundamental ratios, where previous literature advises using technological innovation costs, company size, liquidity ratios, leverage, profitability, and activity to compute financial fundamentals, as well as Tobin’s Q to assess firm value. Tobin’s Q (TBQ) is employed as a proxy variable for company value in this study to enhance the hypothesis. The R&D expenses have been regarded as an independent variable, as indicated by two proxy variables, including the Logarithmic Total Intensity of Research and Development Expenditures (R&D). To strengthen the explanation of company value, four entity-specific variables that assess liquidity, leverage, profitability, and activity were used as controlled variables. Table 2 shows the definitions, measurements, and sources of all variables.

Table 2. Definition of variables.

Characteristics of variable	Name of variables	Symbol	Measurement
Firm value	Tobin’s Q	TBQ	Tobin’s Q is computed by dividing the market enterprise value by the total asset replacement value (Times). Tobin’s Q formulation: [(Market Value of Equity (MVE) + Liabilities) / Total Assets]. The ideal Tobin’s Q value is 1.0, which means the market has succeeded in valuing the company fairly (market value of assets = book value of assets). When Tobin’s Q < 1, a company can be classified as cheap (undervalued) because its book value is higher than its market value; this can attract parties interested in buying the company. On the other hand, when Tobin’s Q > 1, a company can be classified as expensive (overvalued), thus attracting parties who want to imitate the company’s business model in order to gain profits too. For example, see Usman et al. (2018), Aydoğmuş et al. (2022), Ibhagui (2019), Chung et al. (2019), Suhadak et al. (2019), Iswajuni et al. (2018).
Technology innovation	Research and development	RND	The natural logarithm of company R&D spending (LNR&D) is used to calculate R&D expenses. Research and development costs are costs incurred for product development, as well as costs for increasing company efficiency, including technology for process development. For example, see Osma and Young (2009), Freimane and Bāliņa (2016), Rahman and Howlader (2022).
Firm characteristics	Firm size	SIZE	SIZE is determined by taking the natural logarithm of the total assets (LNTA). Company size is the size of the company, which can be measured by total assets or the size of the company’s assets using the logarithmic value of total assets. For example, see Walsh (2008), Iswajuni et al. (2018), Kajüter et al. (2019), Bhutto et al. (2015)
Liquidity	Current ratio	CR	The current ratio is calculated by dividing the total value of current assets by the total value of current liabilities (in times). The current ratio is the most commonly used measure to find out how capable a company is of meeting its short-term liabilities. For example, see Walsh (2008), Gurbuz and Aybars (2010), Mohd Zaid et al. (2014)
Leverage	Debt to aset ratio	DAR	The debt to asset ratio is determined by dividing the total liabilities by the total assets (Times). DAR is a debt ratio used to measure the comparison between total debt and total assets. In other words, how much of the company’s assets are financed by debt or how much debt the company has affects asset management. For example, see Modigliani and Miller (1963), Walsh (2008), Gadanakis et al. (2020).
Profitability	Return on assets	ROA	Return on assets is calculated by dividing the net income before interest and taxes by the total assets, expressed as a percentage. Return On Assets is generally a type of profitability ratio, which is usually used to assess a company’s ability to earn profits through assets. For example, see Walsh (2008), Binti Mohamad and Mohd Saad (2010), Ali et al. (2019)
Activity	Total assets turnover	TAT	Total asset turnover is determined by dividing total sales by total assets (in terms of times). Total Assets Turnover is a ratio that describes asset turnover measured by sales volume during a certain period. Total Assets Turnover is influenced by the number of sales and total assets, both current assets and fixed assets. For example, see Walsh (2008), Alarussi and Alhaderi (2018), Chia et al. (2020).

Data type and source

This study utilizes quantitative data, namely ratio data. The study utilized secondary data obtained from quarterly financial statement of palm oil firm listed on the IDX for the period of 2019 to 2022. The financial figures for the corporation were obtained from the IDX website, www.idx.com. Concurrently, the corporate share price information was gathered using historical data sourced from the Jakarta Composite Index (JKSE) on the primary website www.finance.yahoo.com.

Data collection procedures

The data collecting procedure of this study records the necessary information from the company’s quarterly financial reports and stock prices. Subsequently, computations were conducted for each variable, which were then followed by data analysis. This activity showcases a series of procedures involving quantitative analysis documentation, data collection, data selection, and data tabulation. These processes result in the presentation of informative processed data.

Sample

The sample size for this study comprises the palm oil firms that were listed on the Indonesia Stock Exchange throughout the period of 2019 to 2022. The sample approach employed in this investigation was purposive sampling. In order for this research to present the requirements listed in Table 3, the following criteria are brought up:

Table 3. Sample description.

No	Description	Total
1	Palm oil company are listed on the IDX 2019–2022	14
2	The firms have not released the financial quarterly in 2019–2022	(2)
3	Samples number (with complete data)	12
4	Period of the research (Quarterly): 2019–2022	16
5	Initial observation	192
6	Data outlier (abnormal data)	(13)
7	Final observation (N)	179

Technique of analysis

The study employed a Moderated Regression Analysis (MRA) model to examine and validate the hypothesis. Statistical Product and Service Solutions (SPSS) and Andrew Hayes’ process split software were utilized for data analysis. The subsequent equation delineates the research model employed in this study: (1) $$\mathrm{Y}=\mathrm{b}0+\text{b1RND}+\text{b2SIZE}+\text{b3RNDSZE}+\text{b4CR}+\text{b5DAR}+\text{b6ROA}+\text{b7TAT}+\mathrm{e}$$(1)

Explanation: Y = Tobin’s Q (TBQ) firm value; b0 = intercept coefficient; b1-b7 = Coefficient for each independent, moderator variable, and control variable; RND = LN Research & Development; SIZE = Firm size as determined by the Natural Logarithm (LN) of Total Assets; CR = Current Ratio; DAR = Debt to Total Assets; ROA = Return on Assets; TAT = Total Assets Turnover; e = error.

The Moderated Regression Analysis (MRA) technique encompasses various phases supporting descriptive statistics, classical assumption tests, normality tests, autocorrelation tests, multicollinearity, and heteroscedasticity tests. The t-test was employed in this investigation to evaluate the hypothesis, with a significance threshold of 0.05 (α = 0.05).

Result and discussion

Subject and object research descriptive

This study aims to analyze the influence of research and development expenses on the financial worth of oil palm firms listed on the IDX during the period from 2019 to 2022. This study focuses on a palm oil firm that is publicly listed on the Indonesia Stock Exchange (IDX) for the period of 2019–2022. The company’s shares are traded on the IDX Composite (JKSE). There are a total of 179 observations from corporate samples that satisfy the specified criteria.

Descriptive statistical analysis

This study’s descriptive statistical analysis intends to define the variables employed, which are RND, SIZE, CR, DAR, ROA, TAT, and TBQ. The research results show each sample company variable’s minimum, maximum, and average values during 2019–2022 (Table 4).

Table 4. Result of descriptive analysis.

Variables	n	Minimum	Maximum	Mean	SD
TBQ (Times)	179	0.59	1.99	1.05	0.31
RND (LNR&D)	179	17.81	23.42	21.48	1.15
SIZE (LNTA)	179	26.82	31.39	30.10	1.10
CR (Times)	179	0.06	7.20	1.57	1.38
DAR (Times)	179	0.12	1.95	0.63	0.39
ROA (%)	179	−16.00	16.29	3.20	4.89
TAT (Times)	179	0.01	1.76	0.33	0.27
Valid N (listwise)	179

Their mean TBQ is 1.05, with a minimum TBQ of 0.59 and a maximum TBQ of 1.99. Additionally, it demonstrates that the market valuation of assets exceeds the replacement expenses incurred by the organization. Meanwhile, average R&D expenses are R&D 21.48 or 2.1 billion rupiahs, with a minimum of RND 17.81 or 54.30 million rupiahs and a maximum of 23.42 or 14.83 billion rupiahs. At the same time, SIZE as a proxy for firm size has a median value of 30.10 or 11.8 trillion rupiahs, a minimum value of 26.82 or 444.4 billion rupiahs, and a maximum of 31.39 or 42,904 trillion rupiahs. The study also shows that the smallest standard deviation value is 0.27 on TAT, and the highest is 4.89 on ROA.

Correlation matrix

The Pearson correlation matrix is a mathematical representation that measures the linear relationship between pairs of variables utilized in Table 5. The observed results confirm a considerable association between the explanatory variables and the specified variables, with R&D spending (RND) being positively connected to company value (TBQ) in this example. Additionally, increasing R&D spending units will enhance company and firm value. The variable "SIZE" exhibits a significant and favorable correlation with the value of the firm, as measured by TBQ. In addition, except for ROA and TAT, both CR and DAR have a robust and positive correlation with TBQ (Table 5).

Table 5. The Pearson correlation coefficient and variance expansion coefficient (n = 179).

Variables	VIF	TBQ	RND	SIZE	CR	DAR	ROA	TAT
TBQ		1.00
RND	1.03	0.01*	1.00
SIZE	1.05	0.00**	0.20	1.00
CR	1,57	0.02*	0.57	0.36	1.00
DAR	1,52	0.00**	0.31	0.34	0.00**	1.00
ROA	1,23	0.19	0.52	0.30	0.02*	0.22	1.00
TAT	1,25	0.65	0.37	0.02*	0.82	0.13	0.00**	1.00

Note.

* p < 0.05.

** p < 0.01.

MRA models

Moderated regression analysis is employed to investigate the impact of independent and control variables on the dependent variable. The RND effect, size, liquidity (CR), leverage (DAR), profitability (ROA), and activity (TAT) are all assessed by the application of moderated regression analysis (MRA).

Using the MRA calculation from Table 6 above, the regression equation can be determined as follows: (2) $$\widehat{Y}=-19.076+1.016{\mathit{\text{RND}}}_{}+0.628\mathit{\text{SIZE}}-0.033\mathit{\text{RNDSIZE}}+0.069\mathit{\text{CR}}+0.703\mathit{\text{DAR}}+0.007\mathit{\text{ROA}}+0.081\mathit{\text{TAT}}$$(2)

Table 6. Result from a moderated regression analysis.

		Coeff	SE	t	p	Conclusion (+-,$\le 0.05)$
Constant	iY	−19.076	7.2174	−2.643	.009
Research & Development (RND)	b1	1.016	0.337	3.015	.003	Positively significant
Firm Size (SIZE)	b2	0.628	0.238	2.634	.009	Positively significant
Research & development x Firm Size (RNDSIZE)	b3	−0.033	0.011	−2.947	.003	Negatively significant
Liquidity (CR)	b4	0.069	0.013	5.513	<.001	Positively significant
Solvability (DAR)	b5	0.703	0.045	15.651	<.001	Positively significant
Profitability (ROA)	b6	0.007	0.003	2.305	.022	Positively significant
Activity (TAT)	b7	0.081	0.057	1.441	.152	No. effect
R^2 = 0.685, MSE = 0.032
F (7,171) = 49.106, p < .001

A positive coefficient indicates a direct relationship between the independent or control variable and the dependent variable, while a negative coefficient indicates an inverse relationship. The subsequent analysis provides an explanation of the regression coefficient values indicated earlier.

The coefficient of the RND variable is 1.016, indicating that a one-unit increase in RND, while holding the other variables constant, will result in a corresponding increase of 1.016 in TBQ, and vice versa. The positive regression coefficient indicates a unidirectional association between the two categories of variables.

The coefficient of the SIZE variable, which is 0.628, implies that if the SIZE increases by one unit while keeping the other variables constant, the company’s value (TBQ) will increase by 0.628.

The coefficient for the interaction between SIZE and RNDSIZE is -0.033. This indicates that a one-unit increase in RNDSIZE will result in a fall of -0.033 in TBQ and vice versa.

The coefficients of the CR, DAR, ROA, and TAT variables are 0.069, 0.703, 0.007, and 0.081, respectively. This implies that if any of these variables is increased by one unit while the other variables are held at zero, the TBQ will increase by the corresponding coefficient value (0.069, 0.703, 0.007, or 0.081), and vice versa.

The regression test findings in Table 6 indicate that the determination coefficient, also known as R², is 0.685. This suggests that 65.80% of the firm value (TBQ) variations can be attributed to the RND, SIZE, CR, DAR, ROA, and TAT.

Simultaneously, the Mean Square Error (MSE) value, which represents the average of the squared differences between the actual and projected values, is 0.032. Moreover, the combined impact of RND, SIZE, RNDSIZE, CR, DAR, ROA, and TAT on TBQ is statistically significant, with a p-value of 0.001.

Figure 1 illustrates the relationship between the two variables examined to validate the influence of technical innovation and business size on each other, which contradicts hypothesis 2. Figure 1 demonstrates that when there is low or medium technological innovation, the value of a firm is lower when there is also low interaction with firm size. Concurrently, a notable degree of technical advancement leads to an augmentation in the worth of a company, particularly when it interacts with small-scale businesses. Nevertheless, due to the assessment of business size as an absolute value, it is unfeasible to determine if small organizations surpass average or smaller enterprises. The study’s findings indicate that the connection between technical innovation and company value is weakened by the size of the business (Figure 2).

Figure 1. Research model.

Figure 2. Graphical depiction of the influence of company size (SIZE) on the impact of research and development (RND) on firm value (TBQ).

Hypothesis test

The test outcomes for classical assumptions revealed that the data exhibited normal distribution and showed no signs of autocorrelation, multicollinearity, or heteroscedasticity. Hypothesis testing was used to examine the impact of the independent factors and control variables on the dependent variable. The results of the t-test are displayed below.

Table 4 provides an explanation of the influence of each independent variable and control variable:

1. The RND variable for the TBQ has a value of 3.015, which is statistically significant at a level of 0.003. The p-value for this variable is less than 0.05, showing that RND has a significant positive effect on TBQ.

2. The correlation between the SIZE variable and the TBQ is 2.634, with a p-value of 0.009. The statistical significance of this variable is below 5%, and it is evident that the variable SIZE has a substantial positive influence on TBQ.

3. The RNDSIZE variable in the TBQ model has a coefficient of -2.947, which is statistically significant at a level of 0.003. The data suggests that the RNDSIZE variable has a statistically significant adverse impact on TBQ since its significance level is below 5%.

4. The coefficient of determination (control variable) for the relationship between CR and TBQ is 5.513, at a significance level of 0.001. This suggests that CR has a statistically significant and beneficial effect on TBQ.

5. The coefficient of the DAR to TBQ control variable is 15.651, and it has a statistically significant relationship with a p-value of 0.001. This suggests that DAR exerts a robust and favorable influence on TBQ.

6. The R-squared value, which represents the coefficient of determination, for the correlation between ROA and total book value (TBQ) is 2.305. This association is statistically significant at a significance level of 0.022. These findings suggest that ROA has a substantial and favorable influence on TBQ.

7. The coefficient of determination for the relationship between TAT and TBQ is 1.441, with a p-value of 0.152. This suggests that TAT does not have a significant effect on TBQ.

Discussion

The effect of research and development to firm value

The data analysis findings indicate that technical innovation has a favourable impact on firm value, suggesting that the value of technological innovation significantly influences firm value. This conclusion is confirmed by the analysis results, which reveal a statistically significant value of 0.05. The results of this study confirm the proposed hypothesis, H1, which asserts that technological innovation has a beneficial impact on the value of a company.

The findings of this study align with several research studies that demonstrate the influence of research and development (R&D) on the value of a corporation (Basgoze & Sayin, 2013; Choi & Yoo, 2022; Vithessonthi & Racela, 2016; Rahman & Howlader, 2022), with crises period (Ehie & Olibe, 2010), firms in Ethiopia (Tsegaye, 2023). The results showed that the technology innovation proxied to R&D expenses could influence the firm value, especially manufacturing companies. Research and development within the company function to create or provide innovation related to services and products. The costs required to realize these innovations are R&D expenses and are an excellent investment to create innovations and increase product offerings from a company. However, of course, the budget used must consider the company well. In product development, the company must prepare and consider the costs incurred. Research and development (R&D) is a methodical endeavor that integrates both fundamental and advanced research in order to uncover novel solutions or concepts for problem-solving.

Research and development steps for products developed by larger companies tend to have higher success (Danzon et al., 2005). Technological innovation also has an impact on corporate value since it allows organizations to produce previously unavailable products or services or improve existing products or services (Kogabayev & Maziliauskas, 2017). There are many opportunities in palm oil products for technological innovation, and one of them is the low use of palm oil waste, which can be utilized to produce new products (Bejarano et al., 2022).

Although the palm oil companies listed on the IDX are large in scale, the figures indicate that their investment in research and development (R&D) is rather small. Several organizations have yet to acknowledge the significance of allocating funds toward research and development (R&D) as a strategic investment that guarantees the company’s long-term viability, especially in the palm oil industry. The main issue in this scenario is the investor’s evaluation of the value generated by innovation, which can lead to rejuvenation, increased productivity, growth, and enhanced profitability. This value is reflected in the behavior of market investors. This concern is crucial for a nation undergoing economic recovery and expansion.

By examining the research and development expenses of different organizations, both domestically and globally, to enhance corporate profitability, one can derive a compelling conclusion from the findings of this study. R&D expenditure has become the standard operating procedure for enhancing a country’s worldwide competitiveness, both in emerging and developed nations. Specifically, research and development (R&D) expenditure is recognized for its ability to enhance current products, develop novel products, and streamline production processes. These characteristics also enhance the competitiveness of goods and services produced domestically, leading to improved export performance and economic growth in America (Bonitsis, 1995), Asia (Tuna et al., 2015), and the European Union (Pegkas et al., 2019). The findings of the study conducted by Ito and Pucik (1993) provide evidence that a correlation exists between domestic competitive patterns and international competitiveness in Japan. This correlation is established by the allocation of research and development (R&D) funds to manufacturing enterprises, which has a substantial impact on increasing export sales. Research and development (R&D) expenditure significantly influences both internal and international competition for companies operating within a country.

Globalization expedites the transition of trade from a regional scale to a global scale. In the current age of information, it is not enough to acquire knowledge; we must also employ that knowledge efficiently to generate value. This setting enhances the significance of innovation, which refers to the revitalization of scientific and technological advancements that yield economic and societal advantages. The objective of innovation is to bring about favorable transformation to enhance the quality or performance of an individual or entity. Innovation, which drives enhanced productivity, serves as a basic catalyst for augmenting wealth inside the economy. Hence, innovation stands as the key element for nations, guaranteeing the expansion of employment opportunities, sustained economic development, social well-being, and overall quality of life. The significance of Research and Development (R&D) expenditure has been amplified due to global rivalry and ongoing expansion. Research and development are necessary in all countries. Elevating the magnitude of research and development serves as the foundation for fostering innovation. The reference is from Akcali and Sismanoglu (2015) study. Most current economists mostly attribute sustainable growth in industrialized countries to intense research and development operations (Tuna et al., 2015).The findings of this study further validate the Schumpeterian theory of economic growth, which posits that inventive entrepreneurs play a crucial role in driving economic progress. This theory suggests that entrepreneurial investment is influenced by incentives established by economic laws and institutions and those new inventions supplant outdated technologies. In essence, growth entails the process of creative destruction, which consequently leads to a perpetual battle between established entities and emerging competitors (Aghion, 2017). Furthermore, there are ongoing discussions that emphasize the Schumpeterian perspective on middle incomes, secular stagnation, escalating inequality of the top incomes, and corporate dynamics. However, it is important to note that this comprehension does not pertain to the concept of creative destruction or enduring conflict among organizations. Instead, it might be employed to reevaluate strategies for promoting progress. A corporation with two items can only quit the market if two new entrants successfully introduce innovative products. The literature extensively documents the phenomenon that tiny enterprises have a higher frequency of exiting and a faster rate of growth, which are crucial factors for their survival.

This research aligns with the findings of Kartal et al. (2023) in the Journal of Cleaner Production. Their study examines the environmental impact of clean energy research and development in Japan, specifically focusing on load capacity factors. The research highlights the detrimental effects of human actions on the environment and also explores how nature attempts to mitigate the damage. The word ‘the’. The load capacity factor of a country is a crucial measure for attaining sustainable development objectives. The estimation results indicate that investing in research and development of renewable energy, as well as the utilization of nuclear energy with low carbon footprint (LCF), is environmentally beneficial and highly recommended for G7 countries. The study conducted by Pata et al. (2023) in the Journal of Cleaner Production investigates the impact of research and development spending on renewable and nuclear energy in Germany’s pursuit of carbon neutrality by 2045. The EKC hypothesis is applicable to Germany, however the LCC hypothesis is deemed invalid. Expenditures on RRD and NRD do not exert a substantial impact on EF. German authorities can optimize the utilization of research and development expenditures to enhance environmental quality and mitigate ecological footprint. Germany can attain carbon neutrality by the middle of the century through the utilization of RRD infrastructure. Similarly, Pata et al. (2023) stated in the Cleaner of Production Journal that the empirical findings indicate that while energy technology is environmentally sustainable, both linear and non-linear ARDL approach models suggest that RRD is not successful in reducing CO emissions in the United States. This demonstrates that eco-friendly technology does not uphold the principles of sustainable environmental integrity.

Furthermore, Dogan and Pata (2022) found that although environmentally friendly technology should support sustained environmental quality, regrettably this is not the case in the US. Therefore, it is imperative to implement measures to ensure that eco-friendly energy technology effectively enhances environmental quality, thereby promoting sustainable development. This may be achieved through strategic investments and research and development in renewable and nuclear energy, with the aid of information and communication technology, in the United States’ energy transition. Hence, the allocation of resources towards research and development has a significant influence on the financial worth of a company, as well as its impact on the immediate surroundings and the broader society, both at a local and global scale.

The effect of SIZE to firm value

The data analysis findings suggest that the magnitude of a corporation has a substantial influence on its overall worth. The analytical findings, with a significance level of 0.05, offer substantiation for this claim. The results are consistent with the suggested hypothesis, demonstrating that the size of a company has a favorable and significant influence on its value.

The results of this inquiry align with prior studies (Iswajuni et al., 2018; Nuraina, 2012; Sujoko & Soebiantoro, 2007), except (Salim & Yadav, 2012), who discovered that firm size had a strong positive effect on firm value. These findings reveal a proportional influence, with the larger the company, the more impactful the increase in firm value. There is because the larger the company, the more equipped it will be to regulate market conditions and face economic rivalry, which can lessen corporate uncertainty and significantly influence investor confidence. More renowned investors will have greater flexibility and accessibility to capital market money than smaller investors. Investors perceive ease of access to numerous business factors to be a favorable indicator since the company is thought to have high prospects (Hendri Faktor-Faktor Yang & Hendri Gusaptono, 2010). As a result, investors will require and use information regarding company size as part of their investment appraisal, potentially increasing their impression of company worth. Larger organizations will have the chance and ability to manage their assets more optimally than smaller companies, allowing them to create higher returns.

The effect of interaction research and development with firm size on firm value

The data analysis findings suggest that the relationship between technical innovation and company scale significantly affects firm value. The analytical data, with a significance value of 0.05, substantiate this. The study examines how size influences the correlation between technical innovation and business value. Priorly, significant deductions were attained by examining the direct correlation between technological innovation and the worth of a company. However, adding the moderating component to firm size results in a positive and significant effect. From a signaling theory perspective, firm size is a benchmark for investors to evaluate a company’s stock price, even while they are unaware of the ownership structure and the size of individual shareholdings.

This is consistent with research by Yıldırım (2020) that study discovered that the size hierarchy of a company influences the connection between technological advancement and the worth of the firm. In his research, LNTotal Assets (SIZE) serves as an indicator of company size, R&D serves as an indicator of technological innovation, and Tobin’s Q serves as an indicator of firm value. The results of this study further support the findings of Shiva (2019), who observed that the size of a corporation has a significant negative impact on the relationship between R&D and the organization’s value. The findings of this study also corroborate the findings of Shiva (2019), who discovered that business size has a negative but substantial effect on the link between R&D and firm value. Based on the research findings conducted by Ma et al. (2022), Major firms will produce a more significant number of patents due to their investments in research and development, which will make them more attractive as assets to get loans. This illustrates that the corporation’s large size amplifies its capacity to conduct research and development activities, leading to enhanced corporate performance, heightened company worth, and a strong reliance on lending institutions. Conversely, moderating the size of a corporation has a significant and adverse effect on the relationship between technical innovation and the value of the enterprise. This also illustrates that the correlation between technological advancement and the worth of a company is diminished by its scale. Palm oil firms listed on the IDX typically face the necessity of increasing their investment in technical innovation. Consequently, both large and small enterprises allocate a comparable sum of money toward research and development.

The effect of liquidity to firm value

The study of data indicates that liquidity has a significant positive impact on the value of a corporation. The analytical findings, with a significance value of 0.05, provide support for this. These findings support the proposed hypothesis, assuming that the hypothesis, which states that liquidity has a positive impact on corporate value, is adopted. The results of this inquiry align with prior studies (Chia et al., 2020), where liquidity is directly correlated with the worth of non-financial corporations. This finding further validates the study conducted on Tahu and Susilo (2017) the presence of adequate financial liquidity is crucial in determining the success of a company. According to Tobin’s Q, there is a significant and positive relationship between financial liquidity, as measured by the current ratio, and firm value. The findings of this study are consistent with the research conducted by Hapsoro and Falih (2020), which demonstrated a positive and substantial relationship between the current ratio, used as a measure of liquidity, and company value, as measured by Tobin’s Q.

The effect of leverage to firm value

The data analysis findings indicate that leverage positively impacts corporate value. The analytical data, with a significance value of 0.05, substantiate this. The results of this study support the stated hypothesis, which suggests that leverage has a beneficial impact on corporate value, thereby confirming the hypothesis. The results of this study align with the findings of prior investigations (De Miguel et al., 2004), this study shows that the capital structure, as represented by the DAR board, has a positive and significant impact on business value, as measured by Tobin’s Q, in four countries. Likewise, the results of Cheng and Tzeng (2011) and (Larosa, 2019) Research indicates that leverage can significantly and positively influence the value of a corporation. However, the results of this study are in direct opposition to the results of the García-Meca and Sánchez-Ballesta (2011) research. In this scenario, the business value remains unaffected by the capital structure, namely leverage. Enhancing solvency will augment the company’s operational working capital, so elevating its value.

The effect of profitability on firm value

The data analysis findings indicate that the ROA, which measures profitability, impacts the company’s value. This impact is measured using Tobin’s Q as a proxy. The analytical findings, with a significance level of 0.05, support this. The results of this study support the stated hypothesis, which asserts that profitability has a favorable impact on firm value.

The robust profitability of issuers is a vital indicator for investors looking to engage in these companies. The company’s stock price will rise in proportion to the expansion of its investor base, as the stock price indicates the company’s worth.

The results of this study align with those of (Ross et al., 2022; Aydoğmuş et al., 2022; Widnyana et al., 2020) research; this illustrates that the profitability, as assessed by the ROA, has a favorable influence on the value of the company, as evaluated by Tobin’s Q. Derived from the examination of Sudiyatno et al. (2012) was discovered that the profitability, as measured by the ROA, has a positive impact on the firm’s worth, as measured by Tobin’s Q. According to the findings of Shun-Yu Chen’s study in 2011, there is a positive correlation between financial success, measured by ROA), and business value, measured by price-to-earnings ratio (PER).

The effect of activity to firm value

The data analysis findings indicate that activity, serving as a measure of total assets turnover (TAT), does not impact business value. The analytical data, which demonstrated a significance value over 0.05, substantiate this. The discovery contradicts the stated theory, rejecting the hypothesis that asserts a beneficial influence of activity on business value.

The activity ratio is a vital financial measure calculated by dividing total asset turnover to illustrate a company’s ability to generate revenue from its total assets. The total asset turnover ratio quantifies the efficiency with which a corporation employs its assets to create sales revenue. Multiple theoretical and empirical findings indicate that most sales outcomes are very insignificant compared to total assets or companies with substantial assets but low sales volumes.

This aligns with research conducted by Bama et al. (2021) that the company’s asset turnover does not impact its worth. In his study, the author uses TATO and PBV as proxies to measure the activity ratio and business value, respectively. Meanwhile, the outcomes of (Gunadi et al., 2020; Lestari & Mustika, 2019) based on the study show that the activity ratio measured by the TATO proxy does not impact the company’s worth as measured by the PBV. The activities of the TATO proxy company did not influence the firm’s worth, as indicated by the stock return (Siregar & Dewi, 2019). Palm oil companies produce crude palm oil products and their derivatives, which support public consumption in Indonesia and Asia so that their share prices can indicate the value of the company, which is also stable so that the level of sales turnover generated from the assets owned does not have a significant impact on the value of the company.

Conclusion

According to the data analysis and discussion in the previous part, this research demonstrates that palm oil firms listed on the IDX have a significant and beneficial impact on their overall worth, despite their minimal expenditure on research and development. However, it is still possible for organizations in different industries to replicate the utilization of research and development for risk management. The size of a corporation has a notable and favorable impact on its overall value. Moreover, the relationship between research and development (R&D) expenditure and firm value is diminished by the size of the company, as a larger company does not necessarily imply a substantial R&D investment. Liquidity, solvency, and profitability are control variables that positively affect the value of palm oil companies. This means that palm oil companies with strong liquidity, solvency, and profitability factors are more capable of supporting R&D programs that contribute positively to their value. The asset turnover, quantified by the sales volume (TAT), has a favorable impact on firm value, albeit it is not statistically significant. It demonstrates the company’s operational stability from the perspective of investors. This research is limited in that it only focuses on the monetary value of R&D investment, rather than examining how it is specifically utilized for the company’s sustainability, as well as its local and global economic and environmental implications. The study identified a need for more detailed information regarding the distribution of R&D spending among palm oil enterprises. Additional research is required to extensively investigate the allocation of palm oil company’s R&D expenses, focusing on their impact on the company’s sustainability, environmental preservation, and future economic growth. This research will serve as valuable material for future studies in business and environmental analysis, benefiting various entities at local, national, and international levels.

Disclosure statement

The author affirms that they possess no discernible conflicts of interest, financial stakes, or personal affiliations that could have potentially influenced the research presented in this article.

Data availability statement

The palm oil company material data yearly for 2019–2022 that support the findings of this study are openly available in (https://www.idx.co.id/id/perusahaan-tercatat/laporan-keuangan-dan-tahunan) at (https://www.idx.co.id/id). The next on (https://finance.yahoo.com/quote/%5EJKSE/), at shares historical data (https://finance.yahoo.com/quote/%5EJKSE/history?p=%5EJKSE).

Additional information

Funding

The author would like to thank the full financial support provided by the Lembaga Penelitian dan Pengabdian Kepada Masyarakat (LPPM) of Widya Gama Mahakam University Samarinda for this research in the year 2023/2024 budget.

Notes on contributors

Martinus Robert Hutauruk

Martinus Robert Hutauruk was born and raised in a family in Samarinda, Indonesia, and schooled from kindergarten to Doctoral and accounting profession and experienced as a professional accountant in Indonesia and ASEAN in service, trade, manufacturing, and non-profit companies. He is currently focusing as a lecturer, researcher, and book author in accounting and financial management.