Citation:

Arya Pradipta, Lisna Lisnawati. "Profitability Under Pressure: The Double-Edged Sword of Leverage and Capital Intensity on Earnings Management" International Research Journal of Economics and Management Studies, Vol. 4, No. 7, pp. 71-79, 2025.

Abstract:

This research aims to comprehensively examine the relationship between capital intensity, leverage, and earnings management, with a specific focus on the mediating role of profitability, to provide updated insights into the dynamics of earnings management practices in the modern business environment. Using the analysis method with Smart PLS on 180 data secondary from 60 manufacturing companies. Leverage and capital intensity both increase the Profitability of manufacturing companies. Capital intensity increases earnings management, while leverage has a negative effect. Leverage opens up opportunities for earnings management through Profitability, while capital intensity limits such practices due to the transparency and rigidity of fixed assets. The novelty of the research is that it shows the role of Profitability as a mediating variable between leverage, capital intensity, and earnings management, which is still rarely studied.

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Keywords:

Capital Intensity, Earning Management, Leverage, Profitability.