Leverage as a Moderator Between Good Corporate Governance, Firm Size, Working Capital, and Profitability: Evidence from Indonesian Manufacturing Firms

Abstract

This study aims to examine the relationship between Good Corporate Governance (GCG), firm size, and working capital on profitability, as well as the moderating role of leverage in these relationships within manufacturing companies listed on the Indonesia Stock Exchange (IDX). This correlational research investigates the associations among multiple variables, where GCG (X1), firm size (X2), and working capital (X3) serve as independent variables, profitability (Y) as the dependent variable, and leverage (Z) as the moderating variable. The research objects include manufacturing firms listed on the IDX during the 2020–2024 period. A purposive sampling technique was employed, resulting in a total of 10 sample companies. Secondary data were analyzed using multiple linear regression with the assistance of SPSS version 26. The findings reveal that both GCG and firm size have a statistically significant effect on profitability, with p-values of 0.000 (<0.005). However, working capital does not significantly influence profitability, indicated by a p-value of 0.006 (>0.005). Furthermore, leverage significantly moderates the relationships between GCG, firm size, and working capital with profitability. The interaction p-values of leverage with GCG, firm size, and working capital are 0.004, 0.000, and 0.001 respectively (<0.005), indicating that leverage plays a substantial moderating role. These results highlight the importance of financial structure considerations in enhancing firm profitability through governance, size optimization, and capital management.