The Risks of Financial Distress: Investigating the Effects of Liquidity, Leverage, and Profitability on the Transportation and Logistics Industry in Indonesia

Abstract

This study aims to analyze the impact of liquidity and leverage on profitability and the risk of financial distress, specifically evaluating profitability as a mediating variable within Indonesian transportation and logistics (T&L) companies. Using data from 28 T&L companies listed on the Indonesia Stock Exchange, the research employed pooled panel regression with clustered standard errors, robustness testing, and Sobel mediation tests. The results reveal that while liquidity positively impacts profitability and reduces the risk of financial distress, leverage increases the risk of financial distress without significantly affecting profitability. Furthermore, profitability successfully mediates the relationship between liquidity and financial distress, but fails to mediate the impact of leverage on financial distress. By identifying two distinct pathways for financial risk formation the liquidity-profitability pathway and the leverage-financial distress pathway these findings theoretically clarify how internal financial conditions dictate corporate health. Practically, the study implies that to avoid financial distress, T&L companies must proactively manage their liquidity, enhance asset efficiency, and strictly control their debt structures rather than relying on profitability to offset high leverage.