Audit Quality as a Mediator in the Relationship between Capital Structure, Firm Size, and Firm Value

Abstract

This study examines the moderating effect of audit quality on the relationship between capital structure, firm size, and firm value. This analysis is based on a sample of 70 manufacturing companies listed on the Indonesia Stock Exchange for the 2018–2024 period, resulting in a total of 490 data points. To achieve the research objectives, an explanatory research design was employed. The data analysis involved financial ratio measurement, descriptive evaluation, and inferential statistics, with the latter conducted using Warp Partial Least Squares (WarpPLS). The results indicate that both capital structure and firm size have a significant impact on audit quality. In addition, firm size and audit quality demonstrate a significant influence on firm value, while capital structure does not show a meaningful relationship with firm value. The study also finds that audit quality does not operate as a mediating factor between capital structure, firm size, and firm value. Overall, these results provide empirical evidence supporting both signaling theory and agency theory, highlighting the importance of audit quality in strengthening public trust in firms. High-quality audits contribute to enhancing corporate reputation and sustaining firm value in the long run. While audit quality is influenced by debt policy and firm size, it does not act as a mediating mechanism in the link between capital structure, firm size, and firm value. Stakeholders should select professional and independent auditors to ensure transparency, thereby improving reporting quality and market confidence.