Justification Of The Common Effects Model In Panel Data For Explaining Firm Value

Abstract

This research aims to analyze combined cross-sectional and time series data on companies listed on the Indonesia Stock Exchange in the food, beverage, and tobacco industry. The observation period is from 2017 to 2021. The observed variables include profitability, dividend policy, and asset growth, which will be examined to justify their impact on firm value. This study compares the results of the analysis, justifying the panel data as a common effect model, and tests for the most appropriate model for the panel data. It was found that the appropriate model is the random effect model. However, the results of the regression analysis for both models yielded similar results. Firm value is affected by profitability and asset growth. Note that panel data analysis results in better and more in-depth insights compared to merely assuming it is a common effect model.