Successful companies will earn income. The income can be invested in the form of operating assets, invested in securities, used to pay off debts, or distributed to shareholders. The company's income that is distributed to shareholders is called dividends.
Dividend policy is one of the important aspects in the company's financial management that affects the relationship between the company and its shareholders. The dividend policy reflects management's decision in allocating the company's profits between dividend payments to shareholders and retention of profits for investment purposes and future growth. Decisions related to dividend policy have significant implications not only for the value of the company, but also on the stock price, investor confidence, and the company's relationship with the capital market. The following will be described some definitions of dividends according to several experts, namely:
- According to Sartono (2016: 282), dividend policy is a decision whether the profits obtained by the company at the end of the year will be distributed to shareholders in the form of dividends or will be retained to increase capital for investment financing in the future.
- Dividend policy is also one of the policies that must be taken by management is to decide whether the profits earned by the company during a period will be divided all or part of it for dividends and some are not divided in the form of retained earnings (Sutrisno, 2017).
From some of the understandings above, it can be concluded that dividends are the distribution of profits given by the company which are distributed to shareholders. A company's dividend policy also varies depending on internal and external factors such as company growth, capital requirements, risk, and shareholder preferences.
Since the introduction of dividend theory by Gordon and Lintner in the 1950s, research on dividend policy has been a topic of interest to academics, financial practitioners, and regulators. However, to date, there is still an ongoing debate about the factors that influence dividend policy, such as company growth, capital requirements, ownership structure, and the taxation environment. In addition, the impact of dividend policy on company value and market performance is also an interesting subject of research.
In the context of globalization and increasingly fierce market competition, a better understanding of dividend policy is becoming increasingly important for companies and stakeholders. The managers of the company need to be able to make the right dividend decisions, which not only consider the capital needs and growth of the company, but also reflect the preferences and interests of shareholders. On the other hand, investors and market analysts need a deep understanding of the implications of dividend policy on the value of their investments.
The factors, impacts, and implications regarding dividend policy, namely:
1. Factors Affecting Dividend Policy
Our literature study identified a number of factors that have consistently been found to influence a company's dividend policy. One of the main factors is the growth rate of the company. Research shows that companies that experience higher growth tend to choose to maintain returns for further investment rather than pay dividends, in order to support their growth strategies.
Another significant factor is tax policy, where companies tend to consider the implications of taxation in their dividend decisions. In addition, a company's ownership structure also plays an important role in determining dividend policy, with companies owned predominantly by institutional shareholders likely to choose to pay larger dividends.
2. Impact of Dividend Policy on Company Value and Market Performance
