The effect of return on equity (ROE) and debt to equity ratio (DER) on stock prices with inflation as mediation variables: Case study on banking companies listed on the Indonesia stock exchange 2014-2020 period

Abstract

This study aims to prove whether or not Return on Equity (ROE) and Debt to Equity (DER) affect stock prices with inflation as an intervening variable. Case studies on banking companies listed on the Indonesia Stock Exchange from 2014 to 2020. This study applies a comparative casual method with a quantitative approach. The data analysis technique applied in this study uses library research methods related to the application of secondary data. The population is 45 issuers of the sectoral banking index. Meanwhile, the research sample consisted of 5 issuers of the sectoral banking index obtained by applying the purposive sampling method. The data analysis technique applied in this study uses multiple regression analysis and path analysis. The study results concluded that there was a positive and significant effect of Return On Equity and Debt To Equity Ratio on Inflation. There is a negative and significant effect of Return On Equity on Stock Prices. Debt To Equity Ratio has a positive and insignificant effect on stock prices. However, there is a negative and significant effect of inflation on stock prices. For example, inflation can mediate Return On Equity on stock prices, which means that an increase in the profitability (ROE) aspect of the banking sector issuer index will increase the inflation rate, which impacts the decline in stock prices in the capital market. Inflation is not able to mediate the effect of the Debt to Equity Ratio on the price aspect, which indicates that with an increase in the number of problematic banking sector indexes in terms of the efficiency of company assets, ultimately, investors tend to consider more considering the fundamental aspects of other companies which not only show how much the company obtains total net sales.