Leverage, Financial Distress and Profit Growth: The Role of Tax Shield

Abstract

The purpose of this study is to develop an empirical research model of the relationship between Leverage, Financial Distress and Growth of profit By Proposing Tax Shield as a mediator variable and trying to understand the influence of financial distress and leverage towards tax shield and profit growth, also to understand the influence of tax shield on profit growth. This research was conducted on Food And Beverage Companies Listed On The Indonesia Stock Exchange in the period 2011 – 2015, and observational data of about 40 types of data obtained from financial statements. This research uses a type of quantitative research and the data was tested by Structural Equation Model analysis techniques. The results of this research show that leverage has negative significant influence on profit growth, and it has positive significant influence on tax shield; furthermore, financial distress has negative significant influence on profit growth, and it has positive significant influence on tax shield, and tax shield has positive significant influence on profit growth, so we may conclude that tax shield may act as a mediator variable. Keywords—Tax shield, Leverage, Financial distress, Profit growth