Post-Pandemic Evidence on Financial Health and Stock Returns in Indonesian Manufacturing Firms

Abstract

This study analyzes the effect of financial health, profitability, leverage, and liquidity on stock returns of manufacturing sub-sector companies listed on the Indonesia Stock Exchange (IDX) during 2022–2024. The rapid growth of Indonesia's capital market following the post-COVID-19 economic recovery has heightened the importance of understanding the financial fundamentals driving investment returns in this sector. This study contributes to the literature by addressing inconsistencies in prior findings and extending the work of Fachrudin & Ihsan (2021) and Handayani et al. (2023), which were largely confined to the pre-pandemic period, by covering the entire manufacturing sub-sector during the more recent post-pandemic recovery phase. A quantitative research design was employed using secondary data obtained from the official IDX website (www.idx.co.id). The population comprised 200 manufacturing sub-sector companies, from which 85 were selected through purposive sampling, yielding 255 panel data observations over three years. Financial health was measured using the Altman Z-Score, profitability by Return on Assets (ROA), leverage by the Debt-to-Equity Ratio (DER), and liquidity by the Current Ratio (CR). Multiple linear regression was applied following classical assumption testing. The model demonstrated strong explanatory power, with an Adjusted R² of 0.619, indicating that 61.9% of the variation in stock returns is explained by the four variables. The results show that financial health, profitability, leverage, and liquidity each exert a positive and significant effect on stock returns. Leverage emerged as the most dominant predictor (? = 0.696). These findings suggest that investors should comprehensively evaluate these four financial indicators when making investment decisions in manufacturing companies listed on the specifically on the (IDX).