Investors should consider the EPS and iOS of a company when analyzing its dividend potential

Oct 13, 2025 by magicalceylontours.com 0 views

The Influence of Current Ratio, Earning Per Share, Profitability, Investment Opportunity Set, and Ownership Structure on Cash Dividend: Empirical Studies of Manufacturing Companies Listed on the Indonesia Stock Exchange

Introduction

The decision to distribute cash dividends to shareholders is a crucial aspect of a company's financial management strategy. In the manufacturing sector, listed companies on the Indonesia Stock Exchange (IDX) are subject to various factors that influence their dividend policies. This study aims to analyze the effect of several financial variables on cash dividends received by shareholders in manufacturing companies listed on the IDX. The variables studied include the current ratio, earning per share (EPS), profitability, investment opportunity set (iOS), and ownership structure.

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 decision to distribute cash dividends is a critical aspect of a company's financial management strategy, as it affects the company's ability to attract and retain investors.

Research Methodology

This study employed a purposive sampling method to select 140 manufacturing companies listed on the IDX as research objects. The study period was from 2016 to 2020, with data taken from financial statements published through the official website of the IDX (www.idx.co.id). The study used a combination of quantitative and qualitative methods to analyze the effect of the variables on cash dividends.

Research Result

The results of this study showed that the variable earnings per share (EPS) and investment opportunity set (iOS) significantly had a positive effect on cash dividend payments. This means that the higher the EPS and investment opportunities the company has, the more likely the company is to distribute dividends to shareholders. On the other hand, the profitability variable showed a positive effect on cash dividends, although not significant. This suggests that although company profits have the potential to increase dividends, other factors may dominate the decision.

Meanwhile, the current ratio and ownership structure were recorded to have a negative but not significant influence on cash dividends. This negative influence can be interpreted that companies with higher liquidity ratios or more fragmented ownership structures do not automatically provide higher dividends. This possibility is influenced by managerial decisions and company policies that are more focused on reinvestment than dividend distribution.

Additional Analysis and Explanation

The combination of the results of this study provides an interesting picture of the dynamics of dividend decisions in manufacturing companies. Earning per share as an indicator of profitability is one of the key factors in the decision of dividend distribution. This is relevant, because the high EPS reflects the company's good financial performance, which certainly increases investor confidence. Whereas Investment Opportunity Set, which reflects future investment potential, can be a positive signal for investors that companies will continue to grow, so they are more willing to receive dividends in the long run.

On the other hand, insignificant profitability shows that companies may choose to reinstate their profits into new projects or expansion instead of distributing them as dividends. This approach, although risky, can be an intelligent strategy if the company believes in its future prospects.

The negative but not significant influence of current ratio can provide insight into how companies manage their cash flow. Companies with high liquidity may feel unnecessary to distribute dividends, because they have enough funds to finance their operations and investments. In addition, the negatively influential ownership structure can indicate that in a centralized context of ownership, controlling shareholders may prefer not to distribute dividends and focus more on the growth of stock value.

Conclusion

In conclusion, the results of this study indicate that although several factors influence dividend policies, decision making in the company is strongly influenced by long-term goals and financial management strategies. Investors and other stakeholders need to consider all these aspects when analyzing the potential of dividends from companies listed on the IDX, especially in the manufacturing sector.

Recommendations

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

Investors should consider the EPS and iOS of a company when analyzing its dividend potential. A high EPS and iOS can indicate a company's ability to distribute dividends to shareholders.
Companies should consider their current ratio and ownership structure when making dividend decisions. A high current ratio and centralized ownership structure may indicate a company's ability to reinvest profits rather than distribute dividends.
Companies should prioritize long-term goals and financial management strategies when making dividend decisions. A company's ability to distribute dividends is influenced by its long-term goals and financial management strategies.

Limitations of the Study

This study has several limitations that should be noted. Firstly, the study only analyzed the effect of five variables on cash dividends, and other factors may influence dividend decisions. Secondly, the study only analyzed manufacturing companies listed on the IDX, and the findings may not be generalizable to other industries or stock exchanges. Finally, the study only analyzed data from 2016 to 2020, and the findings may not be representative of the current market conditions.

Future Research Directions

This study provides several avenues for future research. Firstly, researchers can investigate the effect of other variables on cash dividends, such as return on equity (ROE) and debt-to-equity ratio. Secondly, researchers can analyze the effect of dividend policies on company performance, such as stock price and return on equity (ROE). Finally, researchers can investigate the effect of regulatory changes on dividend policies, such as changes in tax laws or accounting standards.
Q&A: The Influence of Current Ratio, Earning Per Share, Profitability, Investment Opportunity Set, and Ownership Structure on Cash Dividend

Q: What is the purpose of this study?

A: The purpose of this study is to analyze the effect of several financial variables on cash dividends received by shareholders in manufacturing companies listed on the Indonesia Stock Exchange (IDX).

Q: What are the variables studied in this research?

A: The variables studied in this research include the current ratio, earning per share (EPS), profitability, investment opportunity set (iOS), and ownership structure.

Q: What is the significance of earning per share (EPS) in dividend decisions?

A: Earning per share (EPS) is a key factor in dividend decisions, as it reflects a company's profitability and ability to distribute dividends to shareholders.

Q: What is the role of investment opportunity set (iOS) in dividend decisions?

A: Investment opportunity set (iOS) reflects a company's future investment potential and can be a positive signal for investors that companies will continue to grow, making them more willing to receive dividends in the long run.

Q: What is the relationship between current ratio and dividend decisions?

A: A high current ratio may indicate a company's ability to reinvest profits rather than distribute dividends, as they have enough funds to finance their operations and investments.

Q: What is the significance of ownership structure in dividend decisions?

A: Ownership structure can influence dividend decisions, as controlling shareholders may prefer not to distribute dividends and focus more on the growth of stock value.

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

A: Investors and other stakeholders should consider all these aspects when analyzing the potential of dividends from companies listed on the IDX, especially in the manufacturing sector.

Q: What are the limitations of this study?

A: This study has several limitations, including the analysis of only five variables, the focus on manufacturing companies listed on the IDX, and the analysis of data from 2016 to 2020.

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

A: Future research directions include investigating the effect of other variables on cash dividends, analyzing the effect of dividend policies on company performance, and investigating the effect of regulatory changes on dividend policies.

Q: What are the recommendations for companies based on this study?

A: Companies should consider their current ratio and ownership structure when making dividend decisions, prioritize long-term goals and financial management strategies, and consider the EPS and iOS of a company when analyzing its dividend potential.

Q: What are the implications of this study for regulatory bodies?

A: Regulatory bodies should consider the findings of this study when developing policies and regulations related to dividend payments and financial reporting.

Q: What are the implications of this study for accounting standards?

A: Accounting standards should be revised to reflect the importance of current ratio and ownership structure in dividend decisions, and to provide more detailed guidance on the disclosure of dividend policies and financial performance.