Dividend policy is a company's decision to distribute the profits it earns to its shareholders in the form of dividends. Dividend policy is one of the policies that need to be implemented by the company to increase the value of the company. To determine the amount of dividends to be paid, management must have a dividend policy implemented in the company. Each company has a different dividend policy (Husam, 2010). The types of dividend policies that companies can implement include: constant payout ratio dividend policy, residual dividend policy, and low periodic dividend policy plus additions. In addition, there are several factors that can affect a company's dividend payment policy to its shareholders, such as the funds received by the company, profitable investment opportunities and its position. which in the dividend policy itself there is liquidity and asset performance where the funds received by a company are related to the company's profitability, namely the profit used to pay dividends. The higher the profitability, the higher the company's ability to generate net income (Garett, 2000).
Dividend announcements, which are information published by public companies regarding the distribution of corporate profits, can have varying impacts on the market, both positive and negative. A study showed that the stock price changes of BRIS stocks before and after the ex-dividend date showed no significant difference, while for BTPS stocks, there was a significant difference in stock price changes before and after the ex-dividend date. However, there is no significant difference in the abnormal return of BRIS and BTPS shares before and after the ex-dividend date, as well as no significant difference in the trading volume activity of BRIS and BTPS before and after the ex-dividend date. This shows that dividend policy is not the main factor for investor interest in investing in the company, but is more determined by the earning power of the Company's assets (Darmawan, 2023).
The announcement of a policy not to distribute dividends generates a significant reaction from the market, indicating that dividend-related information has a considerable impact. This is reflected in the abnormal returns which are shown to be statistically significant, indicating that dividend decisions contain information that is important to investors. An analysis of Dividend Omission Announcements found that there was variation in market reaction, with some observations conforming to signalling theory before and after the announcement (Selviningtyas, 2015). However, there are also observations that do not conform to the theory, signaling imperfections and variations in market perception. Overall, these findings suggest that the Indonesia Stock Exchange does not fully support the semi-strong form market hypothesis, indicating the presence of suboptimal efficiency and variation in investor perception. In addition, on the dividend announcement, none of the firm characteristics can explain the market reaction consistently, suggesting complexity and uncertainty in the market response to the Company's decision (Avanzi, 2022).
Companies with larger sizes tend to have a lower dividend payout ratio, while simultaneously, company growth, debt policy, and company size together have a significant effect on dividend policy. This confirms that corporate decision making regarding the allocation of profits between distribution to shareholders and reinvestment in company operations is a complex process and involves various interacting factors (Rahmat, 2023).
Dividend distribution to shareholders has no real effect on shareholder prosperity or overall firm value. Likewise, the amount of corporate debt has no direct impact on the value of the Company (Hidayat, 2022). In contrast, investment decisions are a more dominant factor in determining firm value. Companies that make investments to improve their operations tend to generate higher profits, which in turn encourages investor interest and contributes to an increase in firm value. Therefore, dividend distribution and debt utilization should not be the main focus of corporate communication to the public. Stock prices and market movements are more important indicators in showing value for companies that have gone public (Priestley, 2000). For future research, it is recommended to use different research objects or focus on certain types of companies. Researchers can also consider other variables beyond the variables that have been considered, such as liquidity, profitability, capital structure, and other financial factors that can affect firm value.
*Written to fulfill the assignment of the Financial Management course Dr. Darmawan Soegandar
