Moderating Effects of Manager’s Attitude toward Risk on Relationship between Demand Uncertainty and Fixed Investment Decision and the Effect on Firm Value

Abstract

Investment decision is one of the managerial finance functions. The objectives of this research are to test how to demand uncertainty’s effect on fixed investment (FI) which moderated by manager attitude toward risk and also the direct effect on firm value (FV). Data were obtained from manufacturers industries listed in the Indonesia Stock Exchanges using path analysis. The results show that only FI decision has a direct influence on FV. It also shows that manager’s attitude toward risk is risk neutral which is consistent with the previous research and it is as the moderating effect (homologized moderation). According to capital budgeting expenditures theory it could enhance firms value, the results of hypotheses tested in this study shows in contrary. Results are discussed in relation with implications drawn that in fact manager attitude is not consistent with utility theory.

Keywords: Environmental Uncertainty; Demand Uncertainty; Fixed Investment; Manager’s Attitude Toward Risk; Firm Value; Maximize the Shareholder’s Wealth

Australian Academy of Accounting and Finance Review, vol 3, issue 2, April 2017, pp 72-84