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All Journal Al-Kharaj: Journal of Islamic Economic and Business
Dini Pramitasari
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Economics, Econometrics & Finance

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The Effect of Leverage on Profitability with Firm Size and Sales Growth as Moderating Variables in LQ-45 Companies Listed on the Indonesia Stock Exchange Tuharea, Firdaus Indrajaya; Dini Pramitasari; Mutiara Cahyani
Al-Kharaj: Journal of Islamic Economic and Business Vol. 7 No. 4 (2025): All articles in this issue include authors from 3 countries of origin (Indonesi
Publisher : LP2M IAIN Palopo

Show Abstract | Download Original | Original Source | Check in Google Scholar | DOI: 10.24256/kharaj.v7i4.8428

Abstract

This study examines the effect of financial leverage (Debt to Equity Ratio) on corporate profitability, measured by Return on Assets, Return on Equity, and Net Profit Margin, among companies listed in the LQ-45 Index of the Indonesia Stock Exchange. Firm size and sales growth are analyzed as moderating variables to understand how internal capacity and market performance influence the leverage–profitability relationship. The research applies a quantitative approach using secondary data from 45 listed companies during 2022–2024. Panel data analysis with a Fixed Effect Model (FEM) and Generalized Least Squares (GLS) correction was employed to address heteroscedasticity and autocorrelation issues. The results indicate that leverage has a significant negative effect on profitability, confirming the relevance of the Trade-Off Theory in the Indonesian capital market context. Moreover, firm size strengthens this negative relationship, while sales growth moderates it positively. These findings provide new insights into how financial structure decisions affect performance among large and liquid firms in emerging markets. The study contributes to financial management literature by validating classical capital structure theories within Indonesia’s dynamic market environment.
Co-Authors Mutiara Cahyani tuharea, firdaus indrajaya