Effect of Company Growth on Dividend Policy and Capital Structure with Managerial Ownership as a Moderating Variable

Oct 13, 2025 by talynt.org 141 views

Effect of Company Growth on Dividend Policy and Capital Structure with Managerial Ownership as a Moderating Variable

Introduction

In the business world, company growth is one of the main indicators that reflects the financial health and future prospects of a company. However, how does this growth affect dividend policy and company capital structure? This study aims to test the effect of company growth on dividend policy and capital structure, taking into account managerial ownership as a moderating variable. This study was taken from companies listed on the Jakarta Stock Exchange, especially in the manufacturing sector during the 2003, 2004, and 2005 financial years.

The Importance of Company Growth

Company growth is a crucial factor in determining the financial health and future prospects of a company. It reflects the company's ability to generate revenue, increase market share, and expand its operations. In the context of dividend policy and capital structure, company growth can have a significant impact on a company's decision-making process. A company that is experiencing rapid growth may be more likely to distribute dividends to shareholders, as it has the financial resources to do so. On the other hand, a company that is experiencing slow growth may be more likely to retain its profits and invest in new projects.

The Role of Dividend Policy

Dividend policy refers to the company's decision to distribute a portion of its profits to shareholders in the form of dividends. The dividend payout ratio is a key indicator of a company's dividend policy, and it is calculated by dividing the total amount of dividends paid by the total amount of profits earned. A company's dividend policy can have a significant impact on its financial health and future prospects. For example, a company that pays high dividends may be more attractive to investors, but it may also reduce its ability to invest in new projects and expand its operations.

The Impact of Capital Structure

Capital structure refers to the mix of debt and equity used by a company to finance its operations. A company's capital structure can have a significant impact on its financial health and future prospects. For example, a company that uses too much debt may be more vulnerable to financial distress, while a company that uses too much equity may be more vulnerable to dilution of ownership. A company's capital structure can also affect its ability to invest in new projects and expand its operations.

The Moderating Role of Managerial Ownership

Managerial ownership refers to the proportion of a company's shares held by its managers. Managerial ownership can play a significant role in a company's decision-making process, particularly in relation to dividend policy and capital structure. Managers who own a significant proportion of a company's shares may be more likely to make decisions that benefit the company in the long term, rather than just focusing on short-term gains. This is because managers who own a significant proportion of a company's shares have a direct stake in the company's performance and are more likely to make decisions that maximize shareholder value.

Research Methodology

This study uses several key variables to test the effect of company growth on dividend policy and capital structure, taking into account managerial ownership as a moderating variable. The variables used in this study include:

Company growth: measured using the Tobins Q indicator, which includes total debt and stock market value (outstanding shares x closing price), divided by BVA (BOOK VALUE of Assets).
Dividend policy: known through dividend payout, namely the distribution of dividends per share obtained from profits per share.
Capital Structure Policy: Using the BVDar Indicator, which is the total debt ratio divided by BVA.
Managerial ownership: found through manown indicators.

The sample in this study consisted of 54 companies selected through the Purposive Judgment Sampling method of a total of 141 companies in the manufacturing sector listed on the Jakarta Stock Exchange.

Results and Discussion

The results showed that the company's growth variable had a positive influence on dividend policies and capital structure. This means that the higher the company's growth, the more likely the company is to distribute dividends to shareholders and regulate capital structure in a more efficient way.

On the other hand, managerial ownership is proven to play an important role in this relationship. Companies with a proportion of higher managerial ownership tend to make dividend policy decisions and better capital structures, because managers have incentives to maximize company value. This is in line with the agency theory, which shows that managerial ownership can reduce conflicts of interest between shareholders and management.

Conclusion

This study emphasizes the importance of company growth in decision making related to dividend policy and capital structure. In addition, the role of managerial ownership as a moderating variable shows that with the direct involvement of managers in company ownership, the decisions taken will be more in favor of the company's long-term increase. Therefore, companies in the manufacturing sector, especially those listed on the Jakarta Stock Exchange, need to pay attention to this dynamics to achieve optimal performance.

Keywords

Company growth
Dividend policy
Capital structure policy
Managerial ownership
Tobins Q
Agency Theory

Recommendations

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

Companies in the manufacturing sector should pay attention to their growth rate and adjust their dividend policy and capital structure accordingly.
Companies should consider increasing their managerial ownership to reduce conflicts of interest between shareholders and management.
Companies should use the Tobins Q indicator to measure their company growth and adjust their dividend policy and capital structure accordingly.
Companies should use the BVDar Indicator to measure their capital structure and adjust it accordingly.

Limitations

This study has several limitations that should be noted. Firstly, the study only focuses on companies listed on the Jakarta Stock Exchange, which may not be representative of companies listed on other stock exchanges. Secondly, the study only uses a sample of 54 companies, which may not be representative of all companies in the manufacturing sector. Finally, the study only uses a limited number of variables to test the effect of company growth on dividend policy and capital structure, which may not capture all the complexities of this relationship.

Future Research Directions

This study provides several avenues for future research. Firstly, future studies could investigate the effect of company growth on dividend policy and capital structure in other industries, such as the service sector. Secondly, future studies could investigate the effect of managerial ownership on dividend policy and capital structure in other countries, such as the United States. Finally, future studies could investigate the effect of other variables, such as corporate governance and institutional ownership, on dividend policy and capital structure.

Conclusion

In conclusion, this study provides evidence that company growth has a positive influence on dividend policies and capital structure, and that managerial ownership plays an important role in this relationship. The findings of this study have implications for companies in the manufacturing sector, particularly those listed on the Jakarta Stock Exchange. By paying attention to their growth rate and adjusting their dividend policy and capital structure accordingly, companies can achieve optimal performance and maximize shareholder value.
Frequently Asked Questions (FAQs) about the Effect of Company Growth on Dividend Policy and Capital Structure with Managerial Ownership as a Moderating Variable

Q: What is the main objective of this study?

A: The main objective of this study is to test the effect of company growth on dividend policy and capital structure, taking into account managerial ownership as a moderating variable.

Q: What is company growth, and how is it measured?

A: Company growth refers to the increase in a company's revenue, profits, and market value over time. It is measured using the Tobins Q indicator, which includes total debt and stock market value (outstanding shares x closing price), divided by BVA (BOOK VALUE of Assets).

Q: What is dividend policy, and how is it measured?

A: Dividend policy refers to the company's decision to distribute a portion of its profits to shareholders in the form of dividends. It is measured using the dividend payout ratio, which is calculated by dividing the total amount of dividends paid by the total amount of profits earned.

Q: What is capital structure policy, and how is it measured?

A: Capital structure policy refers to the mix of debt and equity used by a company to finance its operations. It is measured using the BVDar Indicator, which is the total debt ratio divided by BVA.

Q: What is managerial ownership, and how is it measured?

A: Managerial ownership refers to the proportion of a company's shares held by its managers. It is measured using the manown indicators.

Q: What is the moderating role of managerial ownership in the relationship between company growth and dividend policy and capital structure?

A: Managerial ownership plays an important role in the relationship between company growth and dividend policy and capital structure. Companies with a proportion of higher managerial ownership tend to make dividend policy decisions and better capital structures, because managers have incentives to maximize company value.

Q: What are the implications of this study for companies in the manufacturing sector?

A: The findings of this study have implications for companies in the manufacturing sector, particularly those listed on the Jakarta Stock Exchange. By paying attention to their growth rate and adjusting their dividend policy and capital structure accordingly, companies can achieve optimal performance and maximize shareholder value.

Q: What are the limitations of this study?

A: This study has several limitations that should be noted. Firstly, the study only focuses on companies listed on the Jakarta Stock Exchange, which may not be representative of companies listed on other stock exchanges. Secondly, the study only uses a sample of 54 companies, which may not be representative of all companies in the manufacturing sector. Finally, the study only uses a limited number of variables to test the effect of company growth on dividend policy and capital structure, which may not capture all the complexities of this relationship.

Q: What are the future research directions based on this study?

A: This study provides several avenues for future research. Firstly, future studies could investigate the effect of company growth on dividend policy and capital structure in other industries, such as the service sector. Secondly, future studies could investigate the effect of managerial ownership on dividend policy and capital structure in other countries, such as the United States. Finally, future studies could investigate the effect of other variables, such as corporate governance and institutional ownership, on dividend policy and capital structure.

Q: What are the practical implications of this study for investors and stakeholders?

A: The findings of this study have practical implications for investors and stakeholders. Investors should consider the growth rate of a company and its dividend policy and capital structure when making investment decisions. Stakeholders should also consider the impact of managerial ownership on a company's decision-making process and its potential impact on the company's performance.

Q: What are the policy implications of this study for regulators and policymakers?

A: The findings of this study have policy implications for regulators and policymakers. Regulators and policymakers should consider the impact of company growth on dividend policy and capital structure and the role of managerial ownership in this relationship when developing policies and regulations related to corporate governance and capital markets.