Profitability and Firm Value: Does Dividend Policy Matter for Indonesian Sustainable and Responsible Investment (SRI)-KEHATI Listed Firms?

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.

The Influence of Profitability and Liquidity on Firm Value (Case Study on a Non-financial Company Indexed ESG Quality 45 IDX-Kehati on the Indonesia Stock Exchange 2017-2020)

“…(2) According to Yesidora [22], ROA more comprehensively measures the company's efficiency and effectiveness in managing assets and debt than ROE because ROE is profit performance after deducting debt. Previous researchers who used ROA to measure profitability were [15,9,11,12,23,24,10].…”

“…Based on the above phenomenon, the authors are interested in researching the topic of the Influence of Profitability and Liquidity on Firm Value (Case Study on Non-Financial Companies Indexed ESG Quality 45 IDX-Kehati period 2017-2020). Financial sector companies were excluded from the study because they had specific regulations, such as measuring liquidity with the loan-todeposit ratio (LDR) [15]. In contrast, the most commonly used liquidity measurement was the current ratio (CR) [16].…”

Covid Impact on Tourism Profit and Cash Holding

“…Chen and Chen (2011) explain that profitability is the efficiency of company management companies in managing company resources. Akhmadi & Januarsi (2021) explain that improving financial performance will increase stakeholder confidence in the company. A pandemic condition is a crisis caused by external factors of the Article's contents are provided on a Attribution-Non Commercial 4.0 Creative commons license.…”

“…The results of this study are consistent with the statement of Chen et al (2021), Oruonye & Ahmad (2020) , and Rahman et al (2021), which explains that the tourism sector is a sector that is significantly affected by the Covid-19 pandemic. Akhmadi & Januarsi (2021) explain that an increase in profit is an indicator of an increase in the owner's welfare. Umbul tourism object is a public sector organization under the local government.…”

“…To assess non-financial performance can be seen from the social, environmental, and contribution aspects to community activities. Company performance information is essential to increase company value (Akhmadi & Januarsi, 2021). Ambarwati et al (2019) explain that good financial performance guarantees the company's business sustainability.…”