The Effect of Leverage and Company Size on The Indonesian Stock Exchange

Abstract

Purpose: This study aims to empirically test the effect of leverage and company size on the profitability of paper industry sub-sector companies on the Indonesia Stock Exchange in the 2020–2023 period.

Methodology/approach: Profitability is measured through Return on Assets (ROA) and Return on Equity (ROE). A quantitative method with a causal associative approach was used in the analysis of four companies selected using purposive sampling. Testing was conducted using multiple linear regression analysis, t-tests, F-tests, and coefficient of determination tests.

Results/findings: The results show that neither leverage nor firm size has a significant effect on ROA or ROE partially, although they simultaneously show an effect on ROA. This finding indicates that capital structure and scale of operations are not dominant factors in improving financial performance in the paper industry subsector.

Conclusions: This study shows that neither leverage nor company size has a significant effect on profitability as proxied by ROA and ROE in paper industry subsector companies on the Indonesia Stock Exchange (2020–2023).

Limitations: The use of natural logarithms as a transformation of company size has not shown a statistically strong relationship with profitability.

Contribution: Adding research references regarding the influence of leverage and company size on the profitability of companies in the paper industry sub-sector on the Indonesia Stock Exchange