The Effect of Capital Structure on Profitability with Market Volatility as a Moderating Variable: Evidence from Indonesian Automotive Firms
Abstract
The automotive manufacturing sector in Indonesia experienced significant financial pressure during and after the COVID-19 pandemic due to declining vehicle demand, exchange rate fluctuations, and increased market uncertainty. These conditions impacted corporate capital structure decisions and financial performance. This study addresses the issue of whether capital structure affects financial performance and whether market volatility moderates this relationship. The purpose of this study is to analyze the effect of capital structure, as represented by the Debt-to-Equity Ratio (DER) and the Debt-to-Assets Ratio (DAR), on financial performance as measured by Return on Assets (ROA), and to examine the moderating role of market volatility, as represented by Beta (β). This study employs a quantitative associative approach using panel data from 13 automotive manufacturing companies listed on the Indonesia Stock Exchange during the 2019–2024 period, resulting in 78 observations. Data were collected from annual financial reports and analyzed using Moderated Regression Analysis (MRA) with EViews software. The findings indicate that DER and DAR have a negative and significant effect on ROA, indicating that higher leverage reduces corporate profitability. Furthermore, market volatility significantly moderates the relationship between capital structure and financial performance. Higher market volatility amplifies the negative effect of leverage on profitability, suggesting that excessive use of debt in volatile market conditions worsens financial performance.
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