Abstract
The purpose of this study is to analyze the effect of firm size, financial leverage, profitability, diversification of market risk and stock returns. This research uses quantitative research methods. The population in this study is the consumption sector of manufacturing companies that are listed on the Indonesia Stock Exchange (IDX) during the observation period from 2007-2016. The sample technique using non probability sampling technique with purposive sampling method. The analysis technique used Partial Least Square (PLS). The results showed that the size of the firm had a negative and insignificant effect, while financial leverage, profitability, and diversification had a positive and not significant effect on stock returns and firm size had a negative and significant influence, financial leverage and profitability had a positive and significant relationship, diversification has a positive and not significant effect on market risk and market risk has a positive and significant effect on stock returns.
Highlights
Market risk is risk associated with changes that occur in the market as a whole
Research conducted by (Absari, 2012) and (Theriou, Aggelidis, & Maditinos, 2010) shows that systematics risk has an influence on stock return, research conducted by (Rahmatullah, 2013) shows a different opinion that beta does not have a positive and significant effect on stock returns. These results indicate that investors consider information about systematic risk to be not to be affect beta stocks on stock returns can be caused by psychological factors investors who want to always get a maximum return
Decreasing corporate profits will reduce investor interest in holding the company's shares, besides that the risk of unpaid corporate debt increases (Absari, 2012), besides high debt raises fixed costs such as interest expenses that can increase risk (Kartikasari, 2007). (Lee & Jang, 2007) states that if leverage is measured using Vol 27, No 3 December 2019 © Centre for Indonesian Accounting and Management Research Postgraduate Program, Brawijaya University a debt ratio, it has a positive relationship with beta, where high leverage makes the company vulnerable to systematic risk, this result shows that management needs pay special attention to the debt ratio to reduce the systematic risk of the company
Summary
Market risk (systematic risk or general risk) is risk associated with changes that occur in the market as a whole. The Effect of Financial Leverage On Market Risk The high debt is indicated by the higher level of leverage but the expected rate of return is high when the company gets a large profit, so the interest costs will increase which will reduce the company's profits. (Lee & Jang, 2007) states that if leverage is measured using Vol 27, No 3 December 2019 © Centre for Indonesian Accounting and Management Research Postgraduate Program, Brawijaya University a debt ratio, it has a positive relationship with beta (market risk / systematic risk), where high leverage makes the company vulnerable to systematic risk, this result shows that management needs pay special attention to the debt ratio to reduce the systematic risk of the company. Systematic risk can be referred to as market risk or general risk, due to events outside the company's activities, such as inflation, recession (Hartono, 2016), riots or political change (Tandelilin, 2010)
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