Revisiting Firm Value Determination: A Dynamic Panel Analysis of Investment Decisions and Financial Structure in Large-Cap Firms

This research investigates how financial structure and investment choices affect the value of large cap companies through a dynamic panel data methodology. The analysis utilizes a panel dataset of prominent firms spanning from 2009–10 to 2024–25, accounting for both firm-specific and temporal variations. Firm value is assessed using winsorized Tobin’s Q, with key explanatory variables including leverage ratios, investment activities, profitability, growth prospects, and other firm-level attributes. The study applies a fixed effects model with a lagged dependent variable to capture dynamic persistence and address unobserved heterogeneity. Diagnostic evaluations affirm the model's appropriateness, and robust inference is guaranteed through clustered standard errors. The empirical results indicate that firm value demonstrates significant persistence over time, underscoring the role of historical performance in influencing current valuation. Investment activities, profitability, and growth prospects are identified as having a strong and positive effect on firm value, emphasizing the essential nature of effective resource allocation and operational efficiency. Conversely, financial structure variables exhibit limited impact, with leverage showing only a slight negative effect. The findings imply that internal performance factors are more influential than external financing decisions in determining firm value among large-cap firms. This study enhances the existing literature by offering a comprehensive analysis of financial structure and investment decisions within a dynamic context. Additionally, it provides practical insights for managers and policymakers by highlighting the significance of investment efficiency and sustainable growth strategies in improving firm value.