The Effect of Overinvestment on Firm Performance with Debt, Dividend and Institutional Ownership as Moderators

Abstract

This study examines the effect of overinvestment on company performance by moderating the company's debt policy, dividend policy, and institutional ownership. The company's performance is assessed using three profitability ratio proxies, namely Return on Assets (ROA), Basic Earning Power (BEP), and Net Profit Margin (NPM). This study is based on 55 non-financial companies listed on the Indonesia Stock Exchange during 2011 – 2021 (11 years) that consistently distribute dividends and have debt. Overinvestment is calculated using the residual new investment equation. The data in this study was collected from the database of refinitiv eikon and Kustodian Sentral Efek Indonesia (KSEI). The results of this study show that overinvestment has a negative and significant influence on the company's performance. Furthermore, moderation of debt policy, dividend policy, and institutional ownership can weaken the negative relationship of overinvestment with company performance to reduce agency conflicts that occur in the company