The Role of Profitability in Moderating the Effects of Leverage and Liquidity on Financial Distress in the Automotive Sector Listed on the IDX for the 2021–2025 Period

Abstract

Financial distress remains an important concern for automotive companies because economic uncertainty, market fluctuations, rising production costs, and debt obligations can weaken corporate financial stability. This study examines the effects of leverage and liquidity on financial distress and evaluates the moderating role of profitability in automotive sector companies listed on the Indonesia Stock Exchange during 2021–2025. A quantitative explanatory approach was employed using secondary data from annual financial statements. The sample consisted of 13 automotive companies observed over five years, producing 65 panel-data observations. Data were analyzed with Stata 18 using descriptive statistics, classical assumption tests, panel-data model selection, fixed-effects regression, and moderation regression analysis with cluster-robust standard errors. The results show that leverage, proxied by the Debt to Asset Ratio, has no significant effect on financial distress. Liquidity, measured by the Current Ratio, has a positive and significant effect on the Altman Modified Z-Score, indicating that stronger liquidity reduces financial distress risk. Profitability, measured by Return on Assets, significantly moderates the effect of leverage on financial distress but does not moderate the effect of liquidity. In conclusion, liquidity is a key determinant of financial health, while profitability conditions the impact of leverage on financial distress in the automotive industry.