IDEAS home Printed from https://ideas.repec.org/a/gam/jecomi/v9y2021i4p163-d669672.html
   My bibliography  Save this article

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

Author

Listed:
  • Akhmadi Akhmadi

    (Department of Management, Faculty of Economics and Business, University of Sultan Ageng Tirtayasa, Jalan Raya Palka, Km. 3, Sindangsari, Kec. Pabuaran, Kabupaten Serang 42163, Indonesia)

  • Yeni Januarsi

    (Department of Accounting, Faculty of Economics and Business, University of Sultan Ageng Tirtayasa, Jalan Raya Palka, Km. 3, Sindangsari, Kec. Pabuaran, Kabupaten Serang 42163, Indonesia
    Graduate School of Economics, Kyushu University, Fukuoka 819-0395, Japan)

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.

Suggested Citation

  • Akhmadi Akhmadi & Yeni Januarsi, 2021. "Profitability and Firm Value: Does Dividend Policy Matter for Indonesian Sustainable and Responsible Investment (SRI)-KEHATI Listed Firms?," Economies, MDPI, vol. 9(4), pages 1-23, November.
    • Handle: RePEc:gam:jecomi:v:9:y:2021:i:4:p:163-:d:669672
    as

    Download full text from publisher

    File URL: https://www.mdpi.com/2227-7099/9/4/163/pdf
    Download Restriction: no
    File URL: https://www.mdpi.com/2227-7099/9/4/163/
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Bedford, Anna & Ma, Le & Ma, Nelson & Vojvoda, Kristina, 2021. "Future profitability and stock returns of innovative firms in Australia," Pacific-Basin Finance Journal, Elsevier, vol. 66(C).
    2. repec:eme:arjpps:arj-08-2020-0277 is not listed on IDEAS
    3. Sean Cleary, 1999. "The Relationship between Firm Investment and Financial Status," Journal of Finance, American Finance Association, vol. 54(2), pages 673-692, April.
    4. Dang, Chongyu & (Frank) Li, Zhichuan & Yang, Chen, 2018. "Measuring firm size in empirical corporate finance," Journal of Banking & Finance, Elsevier, vol. 86(C), pages 159-176.
    5. Yuanyuan Hu & Shouming Chen & Yuexin Shao & Su Gao, 2018. "CSR and Firm Value: Evidence from China," Sustainability, MDPI, vol. 10(12), pages 1-18, December.
    6. Fairchild, Richard & Guney, Yilmaz & Thanatawee, Yordying, 2014. "Corporate dividend policy in Thailand: Theory and evidence," International Review of Financial Analysis, Elsevier, vol. 31(C), pages 129-151.
    7. Andreas Charitou & Neophytos Lambertides & Giorgos Theodoulou, 2010. "The Effect of Past Earnings and Dividend Patterns on the Information Content of Dividends When Earnings Are Reduced," Abacus, Accounting Foundation, University of Sydney, vol. 46(2), pages 153-187, June.
    8. Musaab Mousa & Judit Sági & Zoltán Zéman, 2021. "Brand and Firm Value: Evidence from Arab Emerging Markets," Economies, MDPI, vol. 9(1), pages 1-13, January.
    9. Chune Young Chung & Sangjun Jung & Jason Young, 2018. "Do CSR Activities Increase Firm Value? Evidence from the Korean Market," Sustainability, MDPI, vol. 10(9), pages 1-22, September.
    10. David Hirshleifer & Po-Hsuan Hsu & Dongmei Li, 2018. "Innovative Originality, Profitability, and Stock Returns," The Review of Financial Studies, Society for Financial Studies, vol. 31(7), pages 2553-2605.
    11. Benlemlih, Mohammed, 2019. "Corporate social responsibility and dividend policy," Research in International Business and Finance, Elsevier, vol. 47(C), pages 114-138.
    12. Ararat, Melsa & Black, Bernard S. & Yurtoglu, B. Burcin, 2017. "The effect of corporate governance on firm value and profitability: Time-series evidence from Turkey," Emerging Markets Review, Elsevier, vol. 30(C), pages 113-132.
    13. Antonio D'Amato & Camilla Falivena, 2020. "Corporate social responsibility and firm value: Do firm size and age matter? Empirical evidence from European listed companies," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 27(2), pages 909-924, March.
    14. Hirdinis M, 2019. "Capital Structure and Firm Size on Firm Value Moderated by Profitability," International Journal of Economics & Business Administration (IJEBA), International Journal of Economics & Business Administration (IJEBA), vol. 0(1), pages 174-191.
    15. ZHANG, Jing & ZI, Shuang, 2021. "Socially responsible investment and firm value: The role of institutions," Finance Research Letters, Elsevier, vol. 41(C).
    16. Ahmed, Kamran & Falk, Haim, 2006. "The value relevance of management's research and development reporting choice: Evidence from Australia," Journal of Accounting and Public Policy, Elsevier, vol. 25(3), pages 231-264.
    17. Merton H. Miller & Franco Modigliani, 1961. "Dividend Policy, Growth, and the Valuation of Shares," The Journal of Business, University of Chicago Press, vol. 34, pages 411-411.
    18. Miller, Merton H & Rock, Kevin, 1985. "Dividend Policy under Asymmetric Information," Journal of Finance, American Finance Association, vol. 40(4), pages 1031-1051, September.
    19. Chia, Yee-Ee & Lim, Kian-Ping & Goh, Kim-Leng, 2020. "Liquidity and firm value in an emerging market: Nonlinearity, political connections and corporate ownership," The North American Journal of Economics and Finance, Elsevier, vol. 52(C).
    20. Jianxin (Daniel) Chi, 2005. "Understanding the Endogeneity Between Firm Value and Shareholder Rights," Financial Management, Financial Management Association, vol. 34(4), Winter.
    21. Chen, Jihui & Waters, George, 2017. "Firm efficiency, advertising and profitability: Theory and evidence," The Quarterly Review of Economics and Finance, Elsevier, vol. 63(C), pages 240-248.
    22. Chen, Carl R & Steiner, Thomas L, 1999. "Managerial Ownership and Agency Conflicts: A Nonlinear Simultaneous Equation Analysis of Managerial Ownership, Risk Taking, Debt Policy, and Dividend Policy," The Financial Review, Eastern Finance Association, vol. 34(1), pages 119-136, February.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Erik Syawal Alghifari & Ardi Gunardi & Jaja Suteja & Indah Khoerun Nisa & Zalfa Amarananda, 2022. "Investment Decisions of Energy Sector Companies on the Indonesia Stock Exchange: Theory and Evidence," International Journal of Energy Economics and Policy, Econjournals, vol. 12(6), pages 73-79, November.
    2. Anggita Langgeng WIJAYA & Ima Widha RATNASARI, 2023. "The Effect of the Audit Committee on the Firm Value of State-Owned Enterprises in Indonesia: The Mediation Role of Financial Performance," CECCAR Business Review, Body of Expert and Licensed Accountants of Romania (CECCAR), vol. 4(6), pages 60-72, June.
    3. Georgina Maria Tinungki & Powell Gian Hartono & Robiyanto Robiyanto & Agus Budi Hartono & Jakaria Jakaria & Lydia Rosintan Simanjuntak, 2022. "The COVID-19 Pandemic Impact on Corporate Dividend Policy of Sustainable and Responsible Investment in Indonesia: Static and Dynamic Panel Data Model Comparison," Sustainability, MDPI, vol. 14(10), pages 1-23, May.
    4. Liudmila I. Khoruzhy & Valery I. Khoruzhy & Bogdan S. Vasyakin & Wenhao Shen, 2022. "Program-Targeted Approach to Managing Financial Risks of Sustainable Development Based on Corporate Social Responsibility in the Decade of Action," Risks, MDPI, vol. 10(3), pages 1-20, March.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Małgorzata Snarska & Tomasz K. Wisniewski & Andrzej Zygula, 2020. "Are Emerging Markets Efficient? Evidence from Informational Content of Dividend Changes in Polish Stock Market," European Research Studies Journal, European Research Studies Journal, vol. 0(4), pages 687-717.
    2. Hussein Abedi Shamsabadi & Byung-Seong Min & Richard Chung, 2016. "Corporate governance and dividend strategy: lessons from Australia," International Journal of Managerial Finance, Emerald Group Publishing Limited, vol. 12(5), pages 583-610, October.
    3. Sanjeev Kumar & K. S. Ranjani, 2018. "Dividend Behaviour of Indian-listed Manufacturing and Service Sector Firms," Global Business Review, International Management Institute, vol. 20(1), pages 179-193, February.
    4. Yuanyuan Hu & Shouming Chen & Yuexin Shao & Su Gao, 2018. "CSR and Firm Value: Evidence from China," Sustainability, MDPI, vol. 10(12), pages 1-18, December.
    5. Florackis, Chris & Kanas, Angelos & Kostakis, Alexandros, 2015. "Dividend policy, managerial ownership and debt financing: A non-parametric perspective," European Journal of Operational Research, Elsevier, vol. 241(3), pages 783-795.
    6. Basil Al-Najjar, 2011. "The inter-relationship between capital structure and dividend policy: empirical evidence from Jordanian data," International Review of Applied Economics, Taylor & Francis Journals, vol. 25(2), pages 209-224.
    7. Darakhshan Younis & Attiya Yasmin Javid, 2014. "Market Imperfections and Dividend Policy Decisions of Manufacturing Sector of Pakistan," PIDE-Working Papers 2014:99, Pakistan Institute of Development Economics.
    8. Hyunmin Oh & Sambock Park, 2021. "Corporate Sustainable Management, Dividend Policy and Chaebol," Sustainability, MDPI, vol. 13(13), pages 1-19, July.
    9. Huang-Meier, Winifred & Freeman, Mark C., 2015. "Aggregate dividends and consumption smoothing," International Review of Financial Analysis, Elsevier, vol. 42(C), pages 324-335.
    10. Gambacorta, Leonardo & Oliviero, Tommaso & Shin, Hyun Song, 2020. "Low price-to-book ratios and bank dividend payout policies," CEPR Discussion Papers 15615, C.E.P.R. Discussion Papers.
    11. Pantelis Longinidis & Panagiotis Symeonidis, 2013. "Corporate Dividend Policy Determinants: Intelligent Versus A Traditional Approach," Intelligent Systems in Accounting, Finance and Management, John Wiley & Sons, Ltd., vol. 20(2), pages 111-139, April.
    12. Qin, Wei & Liang, Quanxi & Jiao, Yan & Lu, Meiting & Shan, Yaowen, 2022. "Social trust and dividend payouts: Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 72(C).
    13. Thomas McCluskey & Aoife Broderick & Amanda Boyle & Bruce Burton & David Power, 2010. "Evidence on Irish financial analysts' and fund managers' views about dividends," Qualitative Research in Financial Markets, Emerald Group Publishing Limited, vol. 2(2), pages 80-99, June.
    14. Paul Tanyi & David B. Smith & Xiaoyan Cheng, 2021. "Does firm payout policy affect shareholders’ dissatisfaction with directors?," Review of Quantitative Finance and Accounting, Springer, vol. 57(1), pages 279-320, July.
    15. Andres, Christian & Doumet, Markus & Fernau, Erik & Theissen, Erik, 2015. "The Lintner model revisited: Dividends versus total payouts," Journal of Banking & Finance, Elsevier, vol. 55(C), pages 56-69.
    16. Bedford, Anna & Ma, Le & Ma, Nelson & Vojvoda, Kristina, 2022. "Australian innovation: Patent database construction and first evidence," Pacific-Basin Finance Journal, Elsevier, vol. 73(C).
    17. Darren K. Hayunga & Clifford P. Stephens, 2009. "Dividend behaviour of US equity REITs," Journal of Property Research, Taylor & Francis Journals, vol. 26(2), pages 105-123, September.
    18. du Jardin, Philippe & Séverin, Eric, 2011. "Dividend policy," MPRA Paper 44382, University Library of Munich, Germany.
    19. Louis T. W. Cheng & Hung‐Gay Fung & Tak Yan Leung, 2009. "Dividend preference of tradable‐share and non‐tradable‐share holders in Mainland China," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 49(2), pages 291-316, June.
    20. Alpa Dhanani, 2005. "Corporate Dividend Policy: The Views of British Financial Managers," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 32(7‐8), pages 1625-1672, September.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:gam:jecomi:v:9:y:2021:i:4:p:163-:d:669672. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: MDPI Indexing Manager (email available below). General contact details of provider: https://www.mdpi.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.