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

Akhmadi Akhmadi · Yeni Januarsi

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Corporate Finance and Governance Corporate Social Responsibility Reporting Financial Reporting and Valuation Research

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.

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References

1961Dividend Policy, Growth, and the Valuation of Shares 2000Corporate social responsibility and financial performance: correlation or misspecification?1985Dividend Policy under Asymmetric Information 1979Imperfect Information, Dividend Policy, and "The Bird in the Hand" Fallacy 2004Economic Shocks and Civil Conflict: An Instrumental Variables Approach 2001Dividends and Expropriation 1999The Relationship between Firm Investment and Financial Status 2017Measuring firm size in empirical corporate finance

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