Companies should focus on improving their profitability

Oct 13, 2025 by talynt.org 126 views

The Effect of Profitability, Debt Policy, and Dividend Policy on Company Value with Investment Decisions as Moderating Variables: Case Studies of Manufacturing Companies Listed on the Indonesia Stock Exchange

Introduction

In the business world, the value of a company is influenced by various factors, including profitability, debt policy, and dividend policy. These factors not only affect the perception of investors but also have a significant impact on the company's value. This study aims to examine the effect of profitability, debt policy, and dividend policy on company value, with investment decisions as moderating variables. The focus of this research is on manufacturing companies listed on the Indonesia Stock Exchange (IDX) during the 2010-2019 period, which includes 12 companies.

Background

The Indonesia Stock Exchange (IDX) is one of the largest stock exchanges in Southeast Asia, with a market capitalization of over $500 billion. The IDX is home to over 600 listed companies, including manufacturing companies that play a significant role in the country's economy. The manufacturing sector is a key driver of economic growth, and companies in this sector are expected to generate high profits and create employment opportunities.

Research Methodology

This study uses a quantitative approach, with a focus on secondary data. The data used in this study is sourced from the IDX and includes financial statements of 12 manufacturing companies listed on the exchange during the 2010-2019 period. The data is analyzed using multiple linear regression techniques through Stata software. The dependent variable is the company value, which is proxied by the ratio of prices to book value (Price to Book Value/PBV). The independent variables are profitability, debt policy, and dividend policy, which are proxied by Return on Assets (ROA), debt to equity ratio (DER), and dividend payout ratio (DPR) respectively.

Hypothesis

The following hypotheses are tested in this study:

H1: Profitability has a positive influence on company value.
H2: Debt policy has a positive influence on company value.
H3: Dividend policy has a negative influence on company value.

Results

The results of this study show that:

Profitability has a positive influence on company value, but is not significant. This shows that even though the company is able to generate good profits, this does not necessarily have a direct impact on increasing the value of the company in the view of investors.
Debt policy shows a positive and significant effect on company value. This indicates that the use of the right debt can increase the value of the company, possibly because investors see debt as a way to enlarge business scale and increase potential earnings.
Dividend policy has a negative but not significant influence on company value. Although dividend policy is a way to share profits to shareholders, in the context of this research, it seems that the policy does not contribute to increasing company value.

Analysis

Deeper analysis of the results shows that investment decisions play an important role in this context. Investors tend to be more responsive to companies that have a good investment plan, thereby increasing their trust. Positive investment decisions can improve company performance in the future and in turn increase company value in the market.

Conclusion

This study provides valuable insights for stakeholders, especially company management who need to consider the influence of their policies on company value. By understanding the interaction between profitability, debt policy, dividend policy, and investment decisions, companies can be more strategic in designing policies that are not only profitable in the short term but also in the long run. As a suggestion, further research can be done to explore other aspects such as external factors that affect the value of the company and increase variations in the industrial sector studied.

Recommendations

Based on the findings of this study, the following recommendations are made:

Companies should focus on improving their profitability by increasing their efficiency and reducing costs.
Companies should use debt strategically to enlarge their business scale and increase potential earnings.
Companies should reconsider their dividend policy to ensure that it aligns with their long-term goals and does not negatively impact their value.
Investors should consider the investment decisions of companies when making investment decisions, as these can have a significant impact on company value.

Limitations

This study has several limitations, including:

The sample size is limited to 12 manufacturing companies listed on the IDX.
The data used is secondary data, which may not be accurate or up-to-date.
The study only focuses on manufacturing companies, which may not be representative of all companies listed on the IDX.

Future Research Directions

Future research can be done to explore other aspects such as:

External factors that affect the value of the company, such as economic conditions, industry trends, and government policies.
Variations in the industrial sector studied, such as companies in different industries or companies with different sizes and structures.

By exploring these areas, researchers can gain a deeper understanding of the factors that affect company value and provide more valuable insights for stakeholders.
Frequently Asked Questions (FAQs) about the Effect of Profitability, Debt Policy, and Dividend Policy on Company Value

Q: What is the main objective of this study?

A: The main objective of this study is to examine the effect of profitability, debt policy, and dividend policy on company value, with investment decisions as moderating variables.

Q: What is the focus of this research?

A: The focus of this research is on manufacturing companies listed on the Indonesia Stock Exchange (IDX) during the 2010-2019 period.

Q: What is the methodology used in this study?

A: This study uses a quantitative approach, with a focus on secondary data. The data used in this study is sourced from the IDX and includes financial statements of 12 manufacturing companies listed on the exchange during the 2010-2019 period. The data is analyzed using multiple linear regression techniques through Stata software.

Q: What are the independent variables in this study?

A: The independent variables in this study are:

Profitability, which is proxied by Return on Assets (ROA).
Debt policy, which is proxied by debt to equity ratio (DER).
Dividend policy, which is proxied by dividend payout ratio (DPR).

Q: What is the dependent variable in this study?

A: The dependent variable in this study is company value, which is proxied by the ratio of prices to book value (Price to Book Value/PBV).

Q: What are the findings of this study?

A: The findings of this study show that:

Profitability has a positive influence on company value, but is not significant.
Debt policy shows a positive and significant effect on company value.
Dividend policy has a negative but not significant influence on company value.

Q: What is the role of investment decisions in this study?

A: Investment decisions play an important role in this study, as investors tend to be more responsive to companies that have a good investment plan, thereby increasing their trust. Positive investment decisions can improve company performance in the future and in turn increase company value in the market.

Q: What are the implications of this study?

A: The implications of this study are that companies should focus on improving their profitability, use debt strategically, and reconsider their dividend policy to ensure that it aligns with their long-term goals and does not negatively impact their value.

Q: What are the limitations of this study?

A: The limitations of this study are:

The sample size is limited to 12 manufacturing companies listed on the IDX.
The data used is secondary data, which may not be accurate or up-to-date.
The study only focuses on manufacturing companies, which may not be representative of all companies listed on the IDX.

Q: What are the future research directions?

A: Future research can be done to explore other aspects such as:

External factors that affect the value of the company, such as economic conditions, industry trends, and government policies.
Variations in the industrial sector studied, such as companies in different industries or companies with different sizes and structures.

By exploring these areas, researchers can gain a deeper understanding of the factors that affect company value and provide more valuable insights for stakeholders.