Leverage, Managerial Efficiency, Firm Size, and Sales Growth as Determinants of Corporate Performance in IDX-Listed Manufacturing Firms (2020

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Pontianak— Debt Does Not Determine Performance: UPNVY Study Finds Efficiency, Size, and Sales Growth Matter More. Research conducted by Muhammad Iman, Khoirul Hikmah, and Hendro Widjanarko from the Department of Management, Universitas Pembangunan Nasional Veteran Yogyakarta (UPNVY) published in January 2026 in the International Journal of Management Analytics (IJMA).

The research conducted by Muhammad Iman, Khoirul Hikmah, and Hendro Widjanarko reveals that the performance of manufacturing companies in Indonesia does not automatically improve simply because of additional debt. This study is important because it emerges amid a situation where the manufacturing industry is facing pressure: from weakening profits, market volatility, to factory closures and layoffs.

What the Study Examined

The research evaluates four widely discussed determinants of corporate performance:

Leverage (measured by Debt-to-Equity Ratio / DER)
Managerial efficiency (measured by the ratio of operating costs to revenue)
Firm size (measured using the natural logarithm of total assets)
Sales growth (measured by year-to-year sales changes)

Corporate performance was measured using Return on Assets (ROA), a profitability ratio calculated from net income divided by total assets.

Research Method: 161 Firms and 805 Observations

The authors used a quantitative approach and applied panel data regression to financial statement data from IDX-listed manufacturing firms.

From an initial population of 228 companies, they applied purposive sampling criteria and selected 161 companies that met the requirements. Over five years, this produced 805 firm-year observations (161 firms × 5 years).

To ensure statistical reliability, the authors tested multiple regression models and determined that the Fixed Effect Model (FEM) was the most appropriate, based on the results of the Chow test, Hausman test, and Lagrange Multiplier test.

Main Findings: Debt Is Not the Key Driver

The regression results show that the four variables collectively influence corporate performance. However, when examined individually, their impacts differ sharply.

1) Leverage Has No Significant Effect

The most striking result is that leverage does not significantly affect corporate performance.

This means firms with higher DER are not automatically less profitable, and firms with lower DER are not automatically stronger performers. In other words, debt level alone is not a reliable predictor of ROA for Indonesian manufacturing firms.

The authors suggest several possible reasons:

debt may not be allocated to productive assets,
firms may be able to manage repayment burdens effectively,
operational factors may be more dominant than financing structure.

2) Managerial Efficiency Has a Positive and Significant Impact

Managerial efficiency shows a positive and statistically significant relationship with corporate performance.

This indicates that firms that control operating costs effectively—without reducing productivity—tend to achieve higher ROA.

In practical terms, the study reinforces a business reality: profitability is not only about growing revenue, but also about managing costs with discipline.

3) Firm Size Positively Influences Performance

Firm size also has a positive and significant effect on ROA.

Larger firms tend to benefit from:

stronger production capacity,
easier access to financing,
better risk management systems,
economies of scale.

This suggests that asset strength still plays a critical role in manufacturing profitability, particularly in industries where capital intensity remains high.

4) Sales Growth Significantly Improves Performance

Sales growth is another variable that shows a positive and significant impact.

Companies that experience consistent sales increases tend to improve asset utilization, stabilize cash flow, and generate higher profitability.

Key Regression Output

Using the Fixed Effect Model, the authors produced the following regression equation:

Perform = –1.077 – 0.0002(LEV) + 0.002(EM) + 0.085(FZ) + 0.035(SG)

The model also produced an Adjusted R-squared of 0.4885, meaning approximately 48.85% of performance variation in manufacturing firms can be explained by the four variables.

The remaining variation is likely influenced by other factors, including corporate governance quality, innovation, macroeconomic conditions, market competition, supply chain disruptions, and strategic decision-making.

Why Debt Doesn’t Matter as Much as Expected

The paper highlights an important insight: debt is not inherently harmful or beneficial. Its impact depends heavily on how it is used.

The authors point out that some companies maintained stable ROA even with very high debt ratios, while others showed unstable profitability even when leverage levels changed dramatically.

This supports the idea that debt is simply a financial tool. If debt is used to expand productive capacity, improve efficiency, or strengthen distribution networks, it may help. If it is used inefficiently, it becomes neutral or even harmful.

This also helps explain why previous studies in Indonesia often show mixed results regarding leverage—some report positive effects, some negative, and others no significant effect at all.

Implications for Businesses, Investors, and Policymakers

For manufacturing companies

The study provides a clear strategic message: firms should prioritize three key areas:

improving cost efficiency,
strengthening asset capacity,
accelerating sustainable sales growth.

Meanwhile, debt decisions should be made cautiously, because leverage alone is not guaranteed to increase profitability.

For investors

The findings also suggest that investors should not rely solely on DER when evaluating manufacturing stocks.

Instead, they should pay closer attention to:

cost management performance,
total asset scale,
sales growth trends.

These variables show stronger and more consistent links to ROA than leverage does.

For government and regulators

At the policy level, the research implies that improving manufacturing competitiveness cannot rely only on expanding access to credit or corporate borrowing.

A stronger manufacturing sector depends on policies that support:

operational efficiency,
productivity upgrades,
market expansion,
innovation in sales and distribution.

Author Profiles

Muhammad Iman -Universitas Pembangunan Nasional Veteran Yogyakarta
Khoirul Hikmah - Universitas Pembangunan Nasional Veteran Yogyakarta
Hendro Widjanarko -Universitas Pembangunan Nasional Veteran Yogyakarta

Research Source

Iman, Khoirul, Hendro. Leverage, Managerial Efficiency, Firm Size, and Sales Growth as Determinants of Corporate Performance in IDX-Listed Manufacturing Firms (2020–2024) International Journal of Management Analytics (IJMA)Vol. 4 No. 1 (Januari 2026), hlm. 45–62

DOI: https://doi.org/10.59890/ijma.v4i1.228

URL resmi: https://dmimultitechpublisher.my.id/index.php/ijma