The Effect of Interest Rate and Financial Leverage on Profitability and Firm Value in Manufacturing Companies in Indonesia Stock Exchange

This study aims to examine and analyze the influence of interest rates and financial leverage on profitability and firm value. This study uses explanatory survey and research methods. The population in this study were all public companies as many as 531 companies until 2016. The target sample in this study were manufacturing companies listing successively from 2010-2016. The sampling technique was determined by purposive sampling technique and the criteria for sampling were 31 companies. The data used are secondary data sourced from manufacturing companies' financial statements during the period of 2010 - 2016. Data analysis was performed using structural equation modeling or Structural Equation Modeling (SEM), which in processing data using AMOS software. The results of the analysis show that the interest rate directly has a negative and significant effect on profitability, but financial leverage does not affect profitability. The interest rate has a positive and significant effect on firm value and financial leverage has a positive and significant effect on firm value. The results of the analysis also show that indirectly the interest rate has a significant effect on firm value through profitability. However, financial leverage does not affect on the firm value through profitability. The results of this study support capital structure theory from Modigliani and Miller, trade off theory and signaling theory.