The Role of Firm Size as a Moderating Variable in the Relationship Between Net Interest Margin, Liquidity, and Solvency on Profitability

Abstract

This study was conducted to examine the effect of Net Interest Margin (NIM), liquidity, and solvency on the level of profitability of conventional commercial banks listed on the Indonesia Stock Exchange (IDX) during the period 2022–2024. In addition, this research aims to assess the role of firm size as a moderating variable in the relationship between these three financial variables and profitability. The sample was selected using a purposive sampling technique, resulting in 36 banks that met the research criteria. The analytical method employed a quantitative approach, utilizing SmartPLS version 4 to process the data and test the structural model. The results indicate that Net Interest Margin has a positive and statistically significant effect on profitability. Liquidity shows a positive but statistically insignificant effect, while solvency exhibits a negative and statistically insignificant influence on profitability. Firm size, as a moderating variable in the relationship between Net Interest Margin and profitability, demonstrates a negative but insignificant moderating effect. Similarly, in the relationships between liquidity and profitability as well as solvency and profitability, firm size shows a positive but insignificant moderating role. These findings suggest that although firm size may reflect operational strength and financial stability, it does not necessarily strengthen the impact of financial variables on profitability. This study contributes to the banking sector by emphasizing the importance of efficient Net Interest Margin management as a primary determinant of profitability.