Profitability and Dividend Policy

Oct 13, 2025 by recoveryshake.com 79 views

The Effect of Profitability, Liquidity, Leverage, Growth, and Size of the Company on Dividend Policies in Manufacturing Companies Listed on the IDX (2014-2016)

In today's highly competitive economic landscape, companies must carefully consider various factors that influence their business decisions. One such crucial decision is dividend policy, which directly affects shareholder satisfaction. This study aims to analyze the effect of profitability, liquidity, leverage, growth, and size of the company on dividend policies in manufacturing companies listed on the Indonesia Stock Exchange (IDX) during the 2014 to 2016 period.

Importance of Dividend Policy

Dividend policy is a vital decision for companies as it has a direct impact on shareholder satisfaction. Shareholders expect companies to distribute a portion of their profits as dividends, which can lead to increased investor confidence and loyalty. On the other hand, companies that fail to distribute dividends may face decreased investor interest and potential financial instability.

Methodology

This study employs a causal relationship method with a population of 119 manufacturing companies listed on the IDX during the specified period. However, only 109 companies meet the criteria as samples, with a total of 327 observations for three years. Data was collected through documentation studies and analyzed using multiple linear regression analysis.

Results

The results of the analysis show that profitability, liquidity, leverage, growth, and overall size of the company have a significant influence on dividend policies. Partially, profitability, liquidity, and growth had a positive and significant effect on dividend policies. This means that the higher the company's profitability and liquidity, as well as its growth, the more likely the company is to distribute dividends to shareholders.

Deeper Analysis

Profitability and Dividend Policy

Profitability is an essential financial performance indicator. A more profitable company has more resources to be distributed to shareholders. This gives a positive signal to investors that the company is in good condition and is able to generate sufficient profits to support dividend payments.

Key Takeaways:

Companies with higher profitability are more likely to distribute dividends to shareholders.
Profitability is a crucial factor in determining dividend policy.

Liquidity and Dividend Distribution

Liquidity refers to the company's ability to fulfill its short-term obligations. Companies with high liquidity can pay dividends without disturbing daily operations. This is an important factor in the decision to distribute dividends, because financial uncertainty can make the company reluctant to share profits.

Key Takeaways:

Companies with high liquidity are more likely to distribute dividends to shareholders.
Liquidity is a critical factor in determining dividend policy.

Leverage and Risk of Dividend Distribution

Leverage, or the use of debt, can function as a double-edged sword. Although it can increase company growth through investment, too much debt can cause the company to experience difficulties in meeting interest payments and other debt obligations, which in turn makes the company more careful in dividend payments.

Key Takeaways:

Companies with high leverage are more likely to be cautious in dividend payments.
Leverage can introduce additional risks in dividend policy.

Investor Growth and Attractiveness

Company growth often attracts the attention of investors, and companies that show good growth have a greater opportunity to distribute dividends in the future. Investors are more likely to invest in companies that have positive growth prospects and stable financial health.

Key Takeaways:

Companies with good growth prospects are more likely to distribute dividends to shareholders.
Growth is a critical factor in determining dividend policy.

Company Size and Dividend Policy

The size of the company is usually measured based on the total assets or market capitalization. Large companies may have more resources to distribute dividends, but sometimes they also tend to reinvest in profit for better growth. This explains why company size has an insignificant negative influence on dividend policies in this study.

Key Takeaways:

Company size may not be a significant factor in determining dividend policy.
Large companies may reinvest profits for better growth.

Conclusion

The results of this study show that financial factors such as profitability, liquidity, and growth greatly affect dividend policies in manufacturing companies listed on the IDX. While leverage and company size need to be carefully considered, because they can introduce additional risks in dividend policy. Therefore, company managers need to evaluate these factors holistically in making decisions related to dividend distribution to shareholders.

Recommendations

Based on the findings of this study, the following recommendations are made:

Companies should prioritize profitability, liquidity, and growth in their financial planning.
Leverage should be used judiciously to avoid introducing additional risks in dividend policy.
Company managers should evaluate all factors holistically in making decisions related to dividend distribution to shareholders.

By considering these factors, companies can make informed decisions about dividend policy and ensure that they meet the expectations of their shareholders.
Frequently Asked Questions (FAQs) on the Effect of Profitability, Liquidity, Leverage, Growth, and Size of the Company on Dividend Policies in Manufacturing Companies Listed on the IDX (2014-2016)

Q1: What is the significance of dividend policy in a company?

A1: Dividend policy is a crucial decision for companies as it directly affects shareholder satisfaction. Shareholders expect companies to distribute a portion of their profits as dividends, which can lead to increased investor confidence and loyalty.

Q2: What are the key factors that influence dividend policies in manufacturing companies listed on the IDX?

A2: The key factors that influence dividend policies in manufacturing companies listed on the IDX are profitability, liquidity, leverage, growth, and size of the company.

Q3: How does profitability affect dividend policies?

A3: Profitability is an essential financial performance indicator. A more profitable company has more resources to be distributed to shareholders. This gives a positive signal to investors that the company is in good condition and is able to generate sufficient profits to support dividend payments.

Q4: What is the relationship between liquidity and dividend distribution?

A4: Liquidity refers to the company's ability to fulfill its short-term obligations. Companies with high liquidity can pay dividends without disturbing daily operations. This is an important factor in the decision to distribute dividends, because financial uncertainty can make the company reluctant to share profits.

Q5: How does leverage affect dividend policies?

A5: Leverage, or the use of debt, can function as a double-edged sword. Although it can increase company growth through investment, too much debt can cause the company to experience difficulties in meeting interest payments and other debt obligations, which in turn makes the company more careful in dividend payments.

Q6: What is the role of company growth in determining dividend policies?

A6: Company growth often attracts the attention of investors, and companies that show good growth have a greater opportunity to distribute dividends in the future. Investors are more likely to invest in companies that have positive growth prospects and stable financial health.

Q7: How does company size affect dividend policies?

A7: The size of the company is usually measured based on the total assets or market capitalization. Large companies may have more resources to distribute dividends, but sometimes they also tend to reinvest in profit for better growth. This explains why company size has an insignificant negative influence on dividend policies in this study.

Q8: What are the implications of this study for company managers?

A8: Company managers need to evaluate all factors holistically in making decisions related to dividend distribution to shareholders. They should prioritize profitability, liquidity, and growth in their financial planning, and use leverage judiciously to avoid introducing additional risks in dividend policy.

Q9: What are the limitations of this study?

A9: This study has several limitations, including the use of a sample of 109 manufacturing companies listed on the IDX, and the analysis of data for only three years. Future studies should aim to overcome these limitations by using a larger sample size and analyzing data for a longer period.

Q10: What are the future research directions based on this study?

A10: Future research directions based on this study include investigating the effect of other factors on dividend policies, such as industry characteristics and market conditions. Additionally, researchers can explore the impact of dividend policies on company performance and shareholder value.