Abstract

Purpose: This study examines whether current sales growth conditions the relationship between prior operating cash-flow intensity and subsequent return on equity among Indonesian non-financial companies.

Research Methodology: A quantitative balanced panel comprising 163 consistently profitable companies and 652 temporally aligned firm-year observations from 2020-2025 was analyzed. Operating cash-flow intensity and controls preceded sales growth, while return on equity was measured subsequently. Two-way fixed-effects regression, firm-clustered standard errors, mean-centered interaction terms, simple-slope analysis, and cluster bootstrap estimation were applied.

Results: Prior operating cash-flow intensity was negatively associated with subsequent return on equity at average sales growth, whereas sales growth was positively associated with subsequent profitability at average cash-flow intensity. Higher sales growth weakened the negative cash flow-profitability relationship, which became statistically indistinguishable from zero under high-growth conditions. However, the moderation result was sensitive to extreme-value treatment.

Conclusions: Operating cash generation does not automatically enhance shareholder profitability. Its economic value depends on whether firms possess productive opportunities to convert internal liquidity into commercially meaningful sales expansion.

Limitations: The short pandemic-to-recovery window, restriction to consistently profitable firms, reliance on accounting disclosures, residual cross-sectional dependence, and sensitivity to winsorization limit causal interpretation and generalizability.

Contributions: The study introduces a temporal moderation framework and identifies sales growth as an operating boundary condition. It extends the Agency Theory-Free Cash Flow Hypothesis and Contingency Theory while providing cross-sector evidence from an emerging market.

Keywords: Agency theory, Indonesia, Operating cash flow, Return on equity, Sales growth

How to Cite: Stella, Destriana, N., & Febriantaka, D. S. (2026). Sales Growth as a Boundary Condition: The Moderating Role of Operating Cash Flow Intensity on Future Return on Equity in