<![CDATA[Capital structure decisions play a critical role in shaping financial reporting behavior and the sustainability of firms in emerging capital markets. This study aims to examine the effect of capital structure, proxied by leverage measured using the debt ratio, on profit quality measured by discretionary accruals, while controlling for company size and sales growth. This study employs a quantitative approach using panel data from manufacturing companies listed on the Indonesia Stock Exchange for the period 2015–2024. A dynamic panel data model is estimated using the GMM Arellano–Bond estimator to address potential endogeneity and to examine both short-run and long-run effects of capital structure on profit quality. The estimates indicate a decline in profit quality associated with growing debt under a leverage capital structure, as financial reporting quality deteriorates and contractual pressures and profit management conflicts escalate. In contrast, a positive relationship exists between profit quality and company size and sales growth, such that companies with larger operations and better sales performance are more likely to produce financial statements of higher quality. The results indicate a need to balance debt and equity financing to maintain the quality of reporting and the business’s viability in Indonesia’s capital markets.]]>
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