The Intervening Effect of the Dividend Policy on Financial Performance and Firm Value in Large Indonesian Firms

Perdana Wahyu Santosa,Ovinda Aprilia,Martua Eliakim Tambunan

doi:10.5430/ijfr.v11n4p408

Perdana Wahyu Santosa, Ovinda Aprilia + Show 1 more

Open Access

https://doi.org/10.5430/ijfr.v11n4p408

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Abstract

This study aims to examine the relationship between financial performance with firm value with dividend policy as an intervening variable in an emerging market, Indonesia. The samples in this study are large firms listed on the Indonesia Stock Exchange (IDX). The sampling method uses a purposive sampling technique according to research criteria, especially members of the LQ45 index. The study used the data analysis by using multiple regression analysis, path analysis, and Sobel test to find the direct, indirect, and intervening effect and significance in this study. The results indicated that profitability and activity have a positive effect, leverage has a negative effect, but liquidity has no effect on the value of the firms. The subsequent analysis shows that profitability and leverage do not affect dividend policy, liquidity has a negative effect, while activity has a positive effect, significantly. Dividend policy has a positive effect on firm value. Liquidity and leverage do not affect the firm value, but profitability and activity effect positively on the firm value through intervening dividend policy. Conclusions: in general, financial performance indicates an influence on firm value and less effect on dividend policy. As an intervening variable, dividend policy weakens the effect of financial performance on firm value.

Highlights

Financial performance, corporate dividend policy, and firm value have remained essential and an ambiguous issue in corporate finance literature
This study examines whether the financial performance, which is proxied by liquidity, solvability, activity, and profitability, affect firm value significantly with and without mediating of intervening variables, such as dividend policy
Based on descriptive statistical results, the results of the study and discussion on the effect of profitability, liquidity, leverage, and activity on firm value described in the dividend policy as an intervening variable

Summary

Introduction

Corporate dividend policy, and firm value have remained essential and an ambiguous issue in corporate finance literature. Some studies in corporate finance have tried to determine the effect of inter-relationship financial performance, dividend policy on the value of the firm, but results are still conflicting (Santosa, 2020). Some literature presented the reason that a firm's value is not related to its dividend policy, unlike the profitability. In a perfect financial market, most investors are not interested in cash dividends or capital gains. This view is only accurate under the condition that investors and managers get the information about the financial position, . Some investors prefer to present cash streams rather than expected future cash flows in the form of capital gain (Kasmiati and Santosa, 2019; Osamwonyi1 & Lola-Ebuek,2016; Yegon et al, 2014; Van Horne & Wachowics, 2012)

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