ANALYSIS OF THE FACTORS AFFECTING DEVIDENT POLICY

Auji Amalia

Manajement bacth 2017

Syiah Kuala University

I Introduction

The Indonesian economy is inseparable from the capital market. Many companies are

offering the company ownership in the form of shares to the public. Through activities carried

out in the capital market, both stock sellers or buyers certainly expect the benefits obtained. An

investor generally demanded to always keep abreast of market information and market price. In

connection with the information obtained, it was found an adverse reaction from investors.

Investors are found to not only consist of rational and unemotional people. Irrational investor

often make emotional decisions where they are fast absorb information obtained, even though the

information does not have clear source. These investors tend to quickly release shares they have

if they hear bad information regarding a stock. This action is called overreaction affect the return

expected by investors.

Dividend decision is an essential corporate finance issue due to its significant impact on

investment and financing decisions. If a firm decides not to pay or pay fewer dividends, the firm

will have more internal earnings; hence, reduce its reliance on external earnings. On the other

hand, if a firm pays high dividends, it will result in less internal earnings, thus, increases firm’s

dependence on debt or other external financing. This implies that the decision to raise funds is

directly associated with dividend policy.(Yusof, Yusniliyana. Ismail, 2017).

addition to rival theoretical stances on dividend policy, prior studies have reported that dividend

decision could be affected by various factors including earnings, firm size, investment

opportunities, lagged dividend, and cash flows. Over the years, academic research has

systematically examined the factors influencing dividend payment policy. Despite the

abundance of research on this issue, the evidence reported remains inconclusive.

Therefore, the determinants of company dividend policy have still been the subject of

many empirical studies for a long period of time. Such studies provide a number of sometimes

even conflicting theoriesthat try toexplain the factors that determine acompany’s dividend policy

and to find some pattern in the dividend decision behavior of companies.

(Lopolusi, 2013) classifies factors that are affect dividend policy into two, namely

internal factors in the form of profits, and external factors include taxes on dividends, taxes on

capital gains, access to capital markets, and legislation. Profit generated by the company can be

used to pay short-term obligations and can increase investor confidence in the company.

Therefore profitability, liquidity, company size, growth opportunities and leverage affect the

dividend payout ratio.

From the above description, it is necessary to do research on the factors that influence

dividend policy. In this study, we research about Dividend Policy of Food and Beverage Sub

Sector- Manufacturing companies in Indonesia and take 10 sample of the sub sector company of

Food and Beverage. The data from financial report of 2015 to 2020.

The purpose of this study is to analyze the factors that influence the dividend policy of

Food and Beverage Sub Sector- Manufacturing Companies listed on the IDX in the period of
2015-2020. The Factor that influence the dividend policy such as size of company, profitability,

liquidity, leverage and growth opportunities that will be examined in this study.

1.1 Formulation of the problem

Based on the background of existing problems, it can be formulated. Research issues as

follows:

1. Does profitability significantly influence dividend policy

2. Does liquidity have a significant effect on dividend policy

3. Does the size of the company have a significant effect on dividend policy

4. Does leverage have a significant effect on dividend policy.

5. Does Growth Opportunities have a significant effect on dividend policy

1.2 Research Objectives

The purpose of this research are:

1. To find out whether profitability influences policy dividend.

2. To find out whether liquidity affects dividend policy

3. To find out whether company size affects policy dividend.

4. To find out whether leverage affects the dividend policy

5. To find out whether Growth affect the dividend policy

This research is expected to provide many benefits for the parties those who need are:

a. Academics

This research is expected to be a reference material for conduct further research relating

to dividend policy.

b. Company

For companies, this research is expected to be used as a material consideration for

companies in determining dividend policy to be taken.

c. Investor

For investors, in relation to the decision to choose an investment, this thesis is expected

to be able to help and be taken into consideration for the investment decision-making process
 II Literature

Dividend

Dividends are paid out of a company’s profits based on specific shareholding. Dividends

are one out of two forms of equity investors’ returns, the other being capital gains (Frankfurter,

Wood & Wansley 2003).

Profitability.

Profitability is simply the capacity to make a profit, and a profit is what is left over from

income earned after you have deducted all costs and expenses related to earning the income. The

formulas you are about to learn can be used to judge a company's performance and to compare

its performance against other similarly-situated companies.

Earnings before interest per

Liquidity

The liquidity ratio is the company's ability to pay its obligations that must be fulfilled.

This research using quick ratio to measure the liquidity of the companies.

Acid - test ratio = Current assets – Inventories / Current liabilities

Leverage ratio consist of financial leverage and operations leverage. Financial leverage

used to calculate the financial leverage of a company to get an idea of the company's methods of

financing or to measure its ability to meet financial obligations and operations leverage used to

measure a company's mix of operating costs, giving an idea of how changes in output will affect

operating income. This research using debt to total assets to measure leverage of firms.

Debt to total assets ratio = Total Debt / Total Assets

Firm Size

Firm size can be expressed in total assets, sales and market capitalization. In this study

the firm size measured by natural logarithm of total assets. The firm size (SIZE) defined as

natural logarithm of total assets is expected to have a positive affect on dividend payouts as large

more diversified firm are likely to have very low chance of bankruptcy and can sustain higher

level of debt.(Ahmad & Wardani, 2014)

Growth Opportunities

Life cycle of company can be grouped into several groups, there are introduction, growth,

mature and decline. At growth stages the company has a high growth rate through expansion or

another corporate action and the company needs fund to financing their growth. In this research

growth opportunities is measured by assets growth.

the Indonesua Stock Exchange in the year 2015-2020 and paid a dividend consistently,

researcher found that profitability has a positive effect on dividend policy. Also found that firm

size, profitability, sales growth and cash holdings have a significant effect on the dividend policy

of 154 companies listed on the Indonesia Stock Exchange by using samples from 2006-2007.

Writer uses logit regression in her research. examined whether the cash ratio (CR), debt to equity

ratio (DER), equity to total assets ratio (ETAR), return on investment (ROI), earnings per share

(EPS), firm size (SIZE), Growth opportunities ( GR) have effect on the Dividend per share

(DPS) at the Food and Beverage Sub-sector manufacturing companies listed on the Stock

Exchange in 2015-2020. The results are very diverse that is variable CR, ROI and SIZE is

negatively related to DPS. While variable DER, ETAR and EP positively related to DPS.

Based on description, the hypothesis in this study are as follows:

H1 : Profitability has a positive effect on dividend policy

H2 : Liquidity has a positive effect on dividend policy

H3 : Leverage has a negative effect on dividend policy

H4 : Firm Size has a positive effect on dividend policy

H5 : Growth opportunities has a negative effect on dividend policy

H6 : Profitability, Liquidity, Leverage, Firm Size and Growth opportunities

simultaneously has significant effect on dividend policy

3.1 Research Object

The object of this research is the Food and Bevarage Manufacturing sub-sector company located

on the Indonesia Stock Exchange (IDX) using report data financial year 2015-2020. The data

used in this study were obtained with download financial statement data on the IDX official

website through the website www.idx.co.id.

3.2 Population and Sample

3.2.1 Population

Population is a collection of individuals or research objects that have quality and characteristic

that have been determined based on quality. Identification of population within. This research is

a manufacturing company listed on the Stock Exchange Indonesia (IDX) Food and Baverage Sub

Sector 2015-2020 period. Where is the company the company can already publish its financial

reports in the general public, so that people can easily find out the financial statements without

the need to come directly to the location of the company.

Samples taken were all manufacturing and manufacturing companies in the Food and baverage

sector sub-sector, which were 10 companies.

3.3 Type of Research

This research is an explanatory research. This research uses quantitative approach. Explanatory

research is testing research hypothesis. This study aimed to explain the causal relationship

between research variables and test hypotheses that are formulated. This research intended to

find out how the influence of independent variables towards the dependent variable, and

knowing how the relationship occurred.

profitability, liquidity, company size, leverage and growth opportunities.

3.4 Data Collection Methods

Data collection methods in this study were conducted by the study method library, namely by

examining a variety of library literature such as journals, papers, and other sources related to

research. Method documentation that is by recording or documenting data listed in the company's

Annual Report. The data in this study were sourced from secondary data (secondary data), which

comes from the Annual Report of manufacturing companies listed on the IDX.

Research Technique

In this research, the researcher using Multiple Linear Regression Analysis. This analysis is used

to find out the effect of independent variables on variables dependent.

The equation model is :

DPR = a + b1 X1+ b2a X2a + b2b X2b + b3X3 + b4X4 + b5X5+ e

Information :

DPR = Dividend Payout Ratio

a = constant

b = Regression coefficient

X1 = Return On Asset

X2a = Cash Ratio

X2b = Current Ratio

X3 = Debt To Equity Ratio

X4 = Growth

X5 = Firm Size

e = confounding variable
T test

Used to test influence each variable is independent of dependent variable individually.

Testing criteria Ho is accepted if –T (α / 2: n-k-1) ≤ t ≤ t (α / 2: n-k-1)

Ho is rejected if t > (α / 2: n-1) or t <- t (α / 2: n-1) Based on significance :

If the significance is> 0.05, then Ho is accepted

If the significance is <0.05, then Ho is rejected

Ahmad, G. N., & Wardani, V. K. (2014). The Effect of Fundamental Factor To Dividend Policy:

Evidence in Indonesia Stock Exchange. International Journal of Business and Commerce,

4(02), 14–25. www.ijbcnet.com

Lopolusi, I. (2013). Analisis Faktor-faktor Yang Mempengaruhi Kebijakan Dividen Sektor

Manufaktur Yang TerdafTar Di PT Bursa Efek Indonesia Periode 2007-2011. Jurnal Ilmu

& Riset Akuntansi Vol.2 No.1, 2(1), 1–18. https://doi.org/10.1002/cbic.200800077

Yusof, Yusniliyana. Ismail, S. (2017). Determinants of Dividend Policy of Public Listed

file:///F:/ARTICULOS/wang2018 (2).pdf

Frankfurter, G., Wood, B. G., & Wansley, J. (2003). Dividend policy: Theory and practice. Elsevier.