The effect of geopolitical risk, return on assets, and debt to asset ratio on stock returns of oil and gas subsector companies on the Indonesia Stock Exchange, 2021-2025

Geopolitical shocks have intensified since 2021 and heightened uncertainty in global energy markets, yet evidence that jointly considers geopolitical risk, profitability, and financing structure for Indonesian oil and gas issuers remains limited. To examine whether geopolitical risk, return on assets (ROA), and the debt-to-asset ratio (DAR) explain the stock returns of oil and gas subsector firms listed on the Indonesia Stock Exchange, individually and jointly. Grounded in Signaling Theory, the Efficient Market Hypothesis, and Real Options Theory, this quantitative study analyzes a balanced panel of 12 firms, selected through purposive sampling from 19 listed issuers, over 2021-2025 (60 firm-year observations). Geopolitical risk is measured with the Caldara and Iacoviello index. Model-selection tests favor the common effect model, estimated with heteroskedasticity-robust standard errors. The three variables jointly have a significant but modest explanatory power for stock returns. Individually, geopolitical risk has a positive and significant effect, contrary to the hypothesized negative direction, which is consistent with investors pricing in commodity-price gains during periods of tension. ROA and DAR have no significant individual effect, suggesting that firm fundamentals are overshadowed by external shocks. The study extends evidence on geopolitical risk to an emerging-market energy sector by integrating external risk and firm fundamentals in one framework. Investors and issuers should assess geopolitical exposure alongside profitability and leverage, although the short period and small sample warrant cautious generalization.