Dividen Distribution and Its Effect on Company Value

Financial management is important in achieving financial goals. Generally, an established company has the main purpose of obtaining profits. In establishing a company, of course, requires large capital so the role of investors is very important in this matter. By investing, a company can operate and on the other hand an investor also benefits in the future.

One of the financial instruments that can be used as investment material is Stocks. Shares are one source of capital for a company, especially for newly developing companies. So that it can be used as an alternative for someone to start investing. Investing in a company involves the process by which individuals or business entities buy part of the company through capital participation. In this process, the individual or business entity buying shares has rights to a portion of the company including the profits earned. They also have rights to the company's assets and income as well as the right to attend the General Meeting of Shareholders (GMS). Stock investment has several advantages, one of which is getting dividends.

According to Baridwan (1997), dividends are part of the profits distributed to shareholders according to the number of shares they own. The profit from each invested share provides information about the prosperity of shareholders. The presence of dividends is attractive to an investor because it shows that a company generates enough profit to reward the results obtained to shareholders. The amount of dividends a company pays to its shareholders depends on the company's ability to generate profits and the company's dividend policy. When distributing dividends, shareholders receive high dividends, this shows that corporate governance has been running well.

The value of the company is very important because it shows how the market values the company. An investor is certainly not careless in investing their capital, so the Company needs to increase the value of its company. Company value is also defined as market value, which can provide maximum prosperity to shareholders when the stock price of a company increases. In other words, the stock price can be said to determine the value of the company. The higher the stock price, the higher the value of the company.

The value of the company is influenced by several factors, including the level of profitability. In addition to the profitability of the company, investors also usually focus on its dividend policy, because the value of the company can be reflected in its ability to pay dividends to shareholders. According to Husnan (2012), the profits obtained by a company can be distributed as dividends or held to be reinvested. Reinvested dividends are known as retained earnings. Therefore, if management wants to increase the value of the company in the future, they must consider a dividend policy.

The distribution of dividends to the company to investors is determined through a dividend policy. The dividends distributed by the company are seen as a positive signal for investors. The amount of cash dividends paid to shareholders can affect the value of a company which is reflected in its stock price within a certain period of time. High cash dividends tend to jack up stock prices and increase company value. Conversely, if dividends are low then the stock price tends to fall.

In this case, financial statements have an important role. The reason is, the financial statements contain information about the company's financial performance that can be used as material for assessing whether a company has good prospects in the future. Company valuation can provide perspective to investors or the public that the company has a good reputation. The reason is, if the company's business is not good, it can affect the stock market and the perspective of shareholders in owning a share (Francis hutabarat, 2021)

The rate of return on dividends can be reflected through an increase in the value of the Company, so it can be concluded that if in the distribution of dividends a shareholder gets a high dividend, it can be said that a company has a good performance and makes the company's reputation good so that the stock price will increase followed by an increase in company value.