Free Cash Flow and Profitability in Indonesian Energy Companies

Authors

  • Amrie Firmansyah Faculty of Economics and Business, Universitas Pembangunan Nasional Veteran Jakarta, Jl. Pondok Labu Raya, Pondok Labu, Cilandak, Jakarta Selatan, DKI Jakarta 12450
  • Nafis Dwi Kartiko Directorate General of Taxes, Ministry of Finance of the Republic of Indonesia, Kav. 40-42, Jl. Gatot Subroto No.77, Senayan, Kebayoran Baru, Jakarta Selatan, DKI Jakarta 12190

DOI:

https://doi.org/10.21632/

Keywords:

Free Cash Flow, Return on Assets, Return on Equity, Agency Theory, Energy Sector

Abstract

This study aims to analyze the relationship between free cash flow (FCF) and firm profitability in the energy sector in Indonesia. Using a quantitative approach and panel regression method, this study evaluates data from 978 annual observations of energy companies over the period 2002-2023. The analysis shows that FCF generally has a significant negative effect on profitability, both short-term (ROA, ROE) and long-term (LTROA, LTROE). This negative effect is most pronounced in the middle quantiles of the firm performance distribution, supporting the argument in agency theory that free cash accumulation without adequate supervision may trigger opportunistic managerial behavior and inefficient investment. In contrast, at the highest quantile, the effect of FCF tends to be insignificant, indicating that high-performing firms are able to manage FCF more optimally. This finding emphasizes the importance of strengthening corporate governance mechanisms to direct FCF allocation to productive investments and improve long-term profitability.

Author Biographies

Amrie Firmansyah, Faculty of Economics and Business, Universitas Pembangunan Nasional Veteran Jakarta, Jl. Pondok Labu Raya, Pondok Labu, Cilandak, Jakarta Selatan, DKI Jakarta 12450

Dr. Amrie Firmansyah is an Associate Professor and currently serves as the Head of the Accounting Department as well as the Head of the Master of Accounting Program at the Faculty of Economics and Business, Universitas Pembangunan Nasional Veteran Jakarta, Indonesia. His academic interests include financial accounting, sustainability reporting, and public sector governance. He is actively engaged in research, teaching, curriculum development, and academic leadership at both undergraduate and postgraduate levels.

Nafis Dwi Kartiko, Directorate General of Taxes, Ministry of Finance of the Republic of Indonesia, Kav. 40-42, Jl. Gatot Subroto No.77, Senayan, Kebayoran Baru, Jakarta Selatan, DKI Jakarta 12190

Nafis Dwi Kartiko is a practitioner-researcher at the Directorate General of Taxes, Ministry of Finance of the Republic of Indonesia. He holds expertise in public sector taxation and financial policy, and is actively involved in applied research related to fiscal behavior, corporate governance, and financial reporting. His academic collaborations include cross-sector studies on state-owned and private enterprises in Indonesia.

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Submitted

05/30/2025

Accepted

12/08/2025

Published

12/12/2025

How to Cite

Firmansyah, A., & Dwi , N. (2025). Free Cash Flow and Profitability in Indonesian Energy Companies. International Research Journal of Business Studies, 18(3). https://doi.org/10.21632/

Issue

Vol. 18 No. 3 (2025): December 2025 - March 2026 - In Progress

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Copyright (c) 2025 Amrie Firmansyah, Nafis Dwi Kartiko (Author)

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Firmansyah, A., & Dwi , N. (2025). Free Cash Flow and Profitability in Indonesian Energy Companies. International Research Journal of Business Studies, 18(3). https://doi.org/10.21632/