The Role of Profitability as a Mediating Variable on the Relationship between Loan Deposit Ratio and Stock Return: A Case Study on the Indonesian Stock Exchange

Abstract

Stock returns show the financial performance of a banking company. It can be influenced by several factors, such as the loan-to-deposit ratio (LDR) and profitability. This study aimed to determine the effect of LDR on stock returns through profitability as a mediating variable in commercial banks listed on the Indonesia Stock Exchange from 2013 to 2018. There were 20 banks listed on the Indonesia Stock Exchange that met the criteria as a research sample. Data analysis in this study used the SEM-PLS analysis model to test the proposed hypothesis. The results showed that LDR a significant effect on profitability and stock returns, profitability had a substantial impact on stock returns, and, finally, it appeared that profitability could mediate the effect of LDR on stock returns. Based on these findings, the drawn conclusion is that bank companies can better manage liquidity so that profitability and bank stock returns can be maximized.

Keywords: Stock Return, Loan-to-deposit Ratio, Profitability, Indonesia Stock Exchange

DOI: 10.7176/RJFA/11-18-15

Publication date:September 30^th 2020