Abstract
This study investigates the potential factors explaining the inconsistent relationship between profitability and firm value. Specifically, it examines whether dividend policy contributes to the profitability–firm value relationship and determines the form of the moderating variables. We use a unique data set from the Indonesian capital market, with sustainable and responsible investment (SRI)-KEHATI-listed firms from 2010 to 2019. Adopting hierarchy moderating analysis, the results show a positive direct relationship between profitability and firm value. Moreover, the profitability–firm value relationship becomes stronger with a higher dividend policy ratio. We complement this with evidence that the dividend policy plays a role as a pure moderator in more sustainable and responsible firms. A sensitivity battery analysis and the endogeneity concern show consistent results as the baseline model, implying that the model is robust to different conditions. Additional tests revealed that the dividend policy is more prominent in low-leverage enterprises, low-intensity advertising firms, and during the financial service authority’s post-dividend policy regulation phase. The implication of our study is that corporate policy and country regulation play a role as a potential competitive strategy to increase shareholder value for SRI-KEHATI-listed firms.
Highlights
Firm value has been overwhelmingly studied for a few decades to better understand how numerous elements affect its creation
As the first study which distinguishes the form of the moderating effect using sustainable and responsible investment (SRI)-KEHATI-listed firms, we provide the additional insight that the dividend policy has a pure moderating function in the profitability–firm value relationship which was overlooked by most previous studies
Economies 2021, 9, 163 the dividend policy becomes the single driving variable, it may not give the greatest impact to the firm value, as we find that dividend policy plays a role as a pure moderator for SRI-KEHATI-listed firms
Summary
Firm value has been overwhelmingly studied for a few decades to better understand how numerous elements affect its creation. These studies include corporate social responsibility (Chune et al 2018; D’Amato and Falivena 2020; Hu et al 2018; Jadiyappa et al 2021; Jo et al 2016; Zhang and Shuang 2021) R&D intensity (Kim et al 2021), online information (Salvi et al 2021), and corporate governance (Fauver et al 2017; Ararat et al 2017; Huang et al 2020). Studies have examined the role of profitability in firm value and investigated this relationship in various sample settings (Chen and Chen 2011; Liow 2010). We investigate this issue using firms listed as sustainable and responsible investments (SRIs), which is expected to enrich the literature by providing fresh evidence from a unique data set
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