This policy is another alternative to paying cash dividends. It can be explained as a procedure that generates additional shares and causes an increase in the number of shares by lowering the par value of the shares. Typically, it is used to create demand for shares by increasing the number of shares outstanding in the company's capital.
- Quality Distributions and Bond Dividends
This policy is also known as non-monetary distribution where the company management provides distributions in the form of goods, property, investments, or bonds as an alternative to paying dividends in cash. Companies use this type of distribution when they are experiencing liquidity problems (lack of liquidity), but this is not desirable for shareholders because cash dividend payments provide greater flexibility for recipients to fulfill their needs and desires.
The Effect of Dividend Policy on Firm Value
Research by Sugiarto (2011) and Fenandar (2012) shows that dividend policy has a positive and significant impact on firm value, because investors prefer companies that pay dividends to provide certainty of return on their investment. The greater the dividends given, the better the company's performance is considered, resulting in the perception that the company is profitable. Similar findings are also conveyed by the research of Wijaya (2010) and Novita (2014), confirming that dividend distribution contributes positively and significantly to increasing firm value. So, dividend distribution can increase firm value.
The variables of good corporate governance, liquidity, free cash flow, leverage, collateral assets, and institutional ownership have no effect on dividend policy. Profitability and company size affect dividend policy. Dividend payouts can trigger a good or bad market response.
- Written to fulfill Dr. Darmawan's financial management course assignments.
