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The Effect of Free Cash Flow, Leverage, and Profitability on Dividend Policy in IDX-Listed Transportation and Logistics Companies

Author

Listed:
  • Rido Luspratama

    (Universitas Tarumanagara, Jakarta, Indonesia)

  • Sarwo Edy Handoyo

    (Universitas Tarumanagara, Jakarta, Indonesia)

Abstract

In the business world, companies continuously strive to enhance their value through various strategies and policies. One of the critical policies influencing a company's value is the dividend policy. Dividend policy is a crucial decision for company management as it reflects the financial condition and prospects of the company and can influence shareholders' investment decisions. This study examines the influence of free cash flow, leverage, and profitability on dividend policy in transportation and logistics companies listed on the Indonesia Stock Exchange from 2018-2022. The data used in this study are secondary data obtained from the companies' annual financial reports. This research employs purposive sampling to select 20 companies from a population of 37 IDX-listed transportation and logistics companies. This study measures free cash flow using the free cash flow ratio, leverage using the debt-to-equity ratio, and profitability using return on equity. This study analyzed the data using descriptive statistics and Partial Least Squares (PLS) technique. The study's results indicate that free cash flow and profitability significantly influence dividend policy. Since profitability significantly affects dividend policy, companies with high profitability have to increase dividend payments to attract and retain investors. This will increase positive perceptions in the market and increase the company's stock value. Besides, high free cash flow indicates that the company has sufficient liquidity to pay dividends without sacrificing important investments in operations or growth. Therefore, companies must adopt effective cash management strategies to ensure healthy cash flow, such as optimizing operational costs, working capital efficiency, and appropriate financing strategies to maintain liquidity. Leverage does not affect dividend policy but can provide mixed signals to the market regarding the company's financial condition.

Suggested Citation

  • Rido Luspratama & Sarwo Edy Handoyo, 2024. "The Effect of Free Cash Flow, Leverage, and Profitability on Dividend Policy in IDX-Listed Transportation and Logistics Companies," Oblik i finansi, Institute of Accounting and Finance, issue 2, pages 70-78, June.
    • Handle: RePEc:iaf:journl:y:2024:i:2:p:70-78
    DOI: 10.33146/2307-9878-2024-2(104)-70-78
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    More about this item

    Keywords

    free cash flow ratio; debt-to-equity ratio; return on equity; dividend policy; transportation and logistics sector companies;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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