The Nexus of Interest Rate, Foreign Exchange Rate, Profitability, and Leverage on Stock Returns in the Indonesia LQ45 Companies

DOI

10.2991/978-2-38476-273-6_4How to use a DOI?

Keywords

Interest Rate; Stock Returns; Indonesia LQ45 Companies

Abstract

Companies must maintain their stock price high to maximize the existing shareholders’ wealth. Maintaining the company’s solid fundamentals to cope with the macroeconomic turmoil is crucial to sustaining its excellent financial performance. This study analyzes the effect of interest rates, foreign exchange rates, and leverage on profitability- interest rates, foreign exchange, leverage, and profitability on stock returns- the profitability in mediating the effect of interest rates, foreign exchange rates, and leverage on stock returns. This research was carried out in the Indonesian capital market from 2018 to 2020, involving 37 samples out of 45 Liquid companies (LQ45). Path analysis with the Sobel test was used to analyze the data. The results found that interest rates and foreign exchange negatively and significantly affect profitability. Interest rate, foreign exchange, and leverage negatively and significantly affect stock returns, and profitability significantly positively affects stock returns. Profitability negatively and substantially mediates the effect of interest and exchange rates on stock returns. These results imply that investors respond negatively to the increase in the interest rate due to the high level of company leverage. The company leverages have reached an optimum level. Companies were vulnerable to interest rate changes and foreign exchange changes. As a result, the companies are exposed to a higher financial risk. Hence, companies should pay more attention to managing their leverage before they have difficulties in cash flows.

Copyright

© 2024 The Author(s)

Open Access

Open Access This chapter is licensed under the terms of the Creative Commons Attribution-NonCommercial 4.0 International License (http://creativecommons.org/licenses/by-nc/4.0/), which permits any noncommercial use, sharing, adaptation, distribution and reproduction in any medium or format, as long as you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons license and indicate if changes were made.

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TY  - CONF
AU  - Andewi Rokhmawati
AU  - Rifo Firmansyah
AU  - Fitri Fitri
AU  - Elvi Rahmayanti
PY  - 2024
DA  - 2024/08/02
TI  - The Nexus of Interest Rate, Foreign Exchange Rate, Profitability, and Leverage on Stock Returns in the Indonesia LQ45 Companies
BT  - Proceedings of 5th Borobudur International Symposium on Humanities and Social Science 2023
PB  - Atlantis Press
SP  - 21
EP  - 32
SN  - 2352-5398
UR  - https://doi.org/10.2991/978-2-38476-273-6_4
DO  - 10.2991/978-2-38476-273-6_4
ID  - Rokhmawati2024
ER  -