The Mediating Role of Dividend Policy on Financial Performance and Firm Value: A Literature Review

Abstract

Firms or companies are obligated to possess favorable worth in the perception of investors if they desire to establish the trust of various parties to cultivate the confidence to venture and desire to invest in the firm. The notion is held that company worth is capable of illustrating both the present and future financial performance. In addition to financial performance, dividend policies are believed to exert a noteworthy impact on company value. This literature study aims to ascertain whether there exist theoretical explanations that elucidate the link between financial performance and dividend policies, such as the link between financial performance and company value, the link between dividend policies and company value, and the impact of financial performance on company worth with dividend policies serving as a mediating variable. A literature review was conducted by finding and choosing numerous sources to evaluate, including publications accessible in the form of empirical studies papers and literature review papers, books, and conferences. According to the findings of multiple prior study sources utilized in this literature review, the majority of the empirical study’s findings that the authors reviewed suggest that profitability, leverage, and liquidity have an impact on dividend policies. Profitability, leverage, liquidity, and a firm’s size are all factors that impact company value. Dividend policies have an impact on company worth as well. It is also discovered that dividend policies can help to mediate the impact of profitability and liquidity on company value, but they cannot mediate the effect of leverage.
 Keywords: financial performance, firm value, dividend policy