The Influence of Profitability, Liquidity, and Capital Structure on Stock Prices Through Signaling Theory

Abstract

This study aims to examine the influence of profitability, liquidity, and capital structure on stock prices from the perspective of signaling theory. Financial information disclosed by companies serves as an important signal for investors to assess performance, prospects, and potential investment risks. Profitability reflects the company’s efficiency in generating income and provides a positive signal that can lead to an increase in stock prices. Conversely, a non-optimal capital structure may heighten financial risk and send a negative signal to the market, potentially reducing firm value. Liquidity also plays a crucial role, as it indicates the company’s ability to meet short-term obligations and maintain financial stability, which is interpreted by investors as a sign of sound financial management. This research applies a library research approach by analyzing various relevant academic studies. The findings indicate that profitability, liquidity, and capital structure significantly influence stock prices, although the degree of their effects varies depending on company performance and market perception.