The Effect of Dividend Policy, Profitability, and Leverage on Share Price Volatility of Service Sector Enterprise Indexed on the Indonesia Stock Exchange During 2015–2019

Abstract

This research analyzes the effect of dividend payout ratio, dividend yield, earnings volatility, and debt-to-equity ratio on share price volatility in service sector enterprise indexed on the Indonesia Stock Exchange during the 2015–2019 period. This study used a quantitative approach with multiple linear regression. The findings of this study indicate that observations on the Indonesia Stock Exchange show that the dividend payout ratio has a compelling positive effect on share price volatility. This is because the higher the dividend yield, or the more enterprise pay dividends each year, the more volatile the stock price will be because the demand for the company’s shares increases [1]. However, the dividend yield has no compelling adverse effect on share price volatility because investors prefer capital gains over dividends. After all, the tax imposed on dividends is higher. Then earnings volatility has a compelling positive effect. This is because, traditionally, profit has been used as an indicator to measure a company’s financial performance [2]. Enterprise with consistent earnings are less likely to surprise investors with unexpected earnings announcements. The debt-to-equity ratio has a marginally favorable impact on stock price volatility. This is because, according to the trade-off hypothesis, the company’s decision to employ debt can be viewed as a way to avoid tax on loan interest payments and financial distress expenses produced by the growth of company debt.

Effects of Stock Trading Volume, Leverage, and Dividend Payout Ratio on Stock Price Volatility

“…As a result, investors tend to respond negatively to companies with high levels of leverage because they question the sustainability of those companies. This research is in line with (Marini & Sutrisna Dewi, 2019), (Sirait et al, 2021) (Rosyida et al, 2020) dan (Ria Selpiana & Bagus Badjra, 2018), (Fiorenza et al, 2023), but not supported by temuan (Priana & Muliartha, 2017). (Tati et al, 2020), (Septyadi & Bwarleling, 2020), (Ridloah et al, 2022), (Octavian et al, 2022.…”

“…Previous research conducted by (Septyadi & Bwarleling, 2020), (Marini & Sutrisna Dewi, 2019), (Dewi & Paramitha, 2019) (Zainudin et al, 2018, (Sugathadasa, 2018), (Nurleli & Wibisono, 2021), (Akram Ahmad et al, 2018), (Hieu Nguyen et al, 2020), (Khan, 2019), (Kayode I. et al, 2022), (Singh & Tandon, 2019), (Fiorenza et al, 2023), (Hossin & Ahmed, 2020), which states that dividend payments negatively affect stock price volatility. A high Dividend Payout Ratio (DPR) indicates the company has strong cash flow and is able to pay high dividends.…”

“…Information about liabilities can be seen from the company's leverage. Leverage is a signal that can affect stock price volatility (Eka et al, 2021) Previous research was conducted by (Septyadi & Bwarleling, 2020), (Marini & Sutrisna Dewi, 2019), (Sirait et al, 2021), (Rosyida et al, 2020) dan (Ria Selpiana & Bagus Badjra, 2018, (Fiorenza et al, 2023) states that leverage positively affects stock price volatility. By using leverage, companies can magnify equity returns if debtfinanced investments provide higher returns.…”

Tinjauan Variabel Finansial Pada Capital Market Dengan Pendekatan Chat GPT

“…Pada penelitian selanjutnya di tahun 2022, ditemukan bahwasanya perusahaan dan investor perlu mempertimbangkan kebijakan dividen, profitabilitas, dan leverage untuk merencanakan strategi keuangan maupun investasi terbaik. Dikarenakan investor terus merugi akibat dari volatilitas harga saham, peneliti merekomendasikan agar perusahaan sebaiknya menetapkan kebijakan dividen yang konservatif dan mempertahankan profitabilitas untuk mengurangi eksposur dari volatilitas harga saham (Sutejo et al, 2022a).…”