A high dividend payout ratio indicates that a company distributes a significant portion of its profits to shareholders

Oct 13, 2025 by wbrum.org 45 views

Relationship of Capital Structure, Dividend Policy, and Profitability in Manufacturing Companies on the Jakarta Stock Exchange

In the business world, every company strives to achieve maximum profitability. One important factor that influences profitability is the capital structure and dividend policy applied. The capital structure refers to the ideal composition between own capital and long-term debt, which is used as a source of financing for company investment and development. Meanwhile, the dividend policy, measured through the ratio of dividend payments, can affect the value of the company by impacting stock prices in the capital market. Understanding the relationship between capital structure, dividend policy, and profitability is crucial for companies to make informed decisions about their financial strategies.

This study examines the relationship between capital structure and dividend policy with profitability as an intermediary variable. This study was conducted on 36 manufacturing companies listed on the Jakarta Stock Exchange, with time series data from 2002 to 2004. The selection of manufacturing companies as the subject of this study is due to their significant contribution to the Indonesian economy.

The Variables Used in This Study

The variables used in this study are:

*** Capital structure (independent variable): ** symbolized by debt to total asset ratio (DAR) that measures the debt ratio to total assets. A high debt-to-asset ratio indicates that a company relies heavily on debt financing. *** Dividend Policy (Dependent Variable): ** Developed by Dividend Payout Ratio (DPR) which shows the dividend ratio paid to net profit. A high dividend payout ratio indicates that a company distributes a significant portion of its profits to shareholders. *** Profitability (intervening variable): ** symbolized by Return on Assets (ROA) which shows the company's ability to generate profits from assets owned. A high return on assets indicates that a company is able to generate significant profits from its assets.

The Analysis Method Used in This Study

The analysis method used in this study is:

*** Pearson Product Moment Correlation: ** Used to test the relationship between DAR and the Parliament. This method is used to measure the strength and direction of the relationship between two variables. *** Path analysis: ** Used to test the relationship between DAR, DPR, and ROA as intermediary variables. This method is used to examine the relationships between multiple variables and to identify the direction of causality.

The Results of the Study

The results of the study show that:

*** The relationship between DAR and the DPR is negative and significant. ** That is, companies with high dividend payments tend to use less debt in their capital funding. This finding supports previous research by Jogiynato (2002). *** ROA acts as an intermediary variable in the relationship between DAR and the Parliament. ** That is, the relationship between DAR and the DPR is actually direct, without going through ROA. This indicates that profitability is not a major factor in determining capital structure decisions and dividend policies in manufacturing companies on the Jakarta Stock Exchange.

Research Implications

The results of this study have implications for stakeholders, such as company management, investors, and regulators.

*** For company management, ** The results of this study can be taken into consideration in formulating optimal capital structure and dividend policy strategies. This can help companies to make informed decisions about their financial strategies and to optimize their profitability. *** For investors, ** The results of this study provide important information in assessing investment potential in manufacturing companies. This can help investors to make informed decisions about their investments and to minimize their risk. *** For regulators, ** The results of this study can be an evaluation material for policies that apply related to capital structure and dividend policy. This can help regulators to develop policies that are effective in promoting the growth and development of manufacturing companies in Indonesia.

Suggestions for Future Research

Further research can be done by expanding the scope of samples, research periods, and variables being studied. This can help to increase the generalizability of the findings and to provide a more comprehensive understanding of the relationship between capital structure, dividend policy, and profitability.
Research can also be done by examining the effect of other factors that might affect the relationship between capital structure, dividend policy, and profitability. This can help to identify other variables that may influence the relationship between capital structure, dividend policy, and profitability and to provide a more nuanced understanding of the complex relationships between these variables.

Conclusion

This study shows that the relationship between capital structure and dividend policy with profitability in manufacturing companies on the Jakarta Stock Exchange is complex. Profitability is not a major factor in determining capital structure decisions and dividend policies. This finding can provide valuable information for stakeholders in understanding the financial dynamics of manufacturing companies in Indonesia and can help to inform the development of policies that promote the growth and development of these companies.

Limitations of the Study

The study was limited to 36 manufacturing companies listed on the Jakarta Stock Exchange. This may limit the generalizability of the findings to other companies and industries.
The study was conducted using time series data from 2002 to 2004. This may limit the ability to generalize the findings to other time periods.

Future Directions for Research

Future research can be conducted to examine the relationship between capital structure, dividend policy, and profitability in other industries and companies. This can help to increase the generalizability of the findings and to provide a more comprehensive understanding of the complex relationships between these variables.
Future research can also be conducted to examine the effect of other factors that might affect the relationship between capital structure, dividend policy, and profitability. This can help to identify other variables that may influence the relationship between capital structure, dividend policy, and profitability and to provide a more nuanced understanding of the complex relationships between these variables.
Frequently Asked Questions (FAQs) about the Relationship between Capital Structure, Dividend Policy, and Profitability

Q: What is the capital structure, and how does it affect a company's profitability?

A: The capital structure refers to the ideal composition between own capital and long-term debt, which is used as a source of financing for company investment and development. A company's capital structure can affect its profitability by influencing its ability to raise funds, manage risk, and make investments.

Q: What is the dividend policy, and how does it relate to a company's capital structure?

A: The dividend policy refers to the ratio of dividend payments to net profit. A company's dividend policy can affect its capital structure by influencing its ability to distribute profits to shareholders and retain earnings for future investments.

Q: What is the relationship between capital structure, dividend policy, and profitability?

A: The relationship between capital structure, dividend policy, and profitability is complex. Research has shown that a company's capital structure and dividend policy can affect its profitability by influencing its ability to raise funds, manage risk, and make investments.

Q: What are the implications of this study for company management, investors, and regulators?

A: The results of this study have implications for company management, investors, and regulators. For company management, the study suggests that they should consider the optimal capital structure and dividend policy strategies when making financial decisions. For investors, the study provides important information in assessing investment potential in manufacturing companies. For regulators, the study can be an evaluation material for policies that apply related to capital structure and dividend policy.

Q: What are the limitations of this study?

A: The study was limited to 36 manufacturing companies listed on the Jakarta Stock Exchange, and the data was collected from 2002 to 2004. This may limit the generalizability of the findings to other companies and industries.

Q: What are the future directions for research?

A: Future research can be conducted to examine the relationship between capital structure, dividend policy, and profitability in other industries and companies. Additionally, research can be conducted to examine the effect of other factors that might affect the relationship between capital structure, dividend policy, and profitability.

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

A: The study suggests that company management should consider the optimal capital structure and dividend policy strategies when making financial decisions. For investors, the study provides important information in assessing investment potential in manufacturing companies.

Q: How can regulators use the findings of this study to inform policy decisions?

A: The study can be used as an evaluation material for policies that apply related to capital structure and dividend policy. Regulators can use the findings of this study to inform policy decisions that promote the growth and development of manufacturing companies in Indonesia.

Q: What are the potential risks and challenges associated with implementing the findings of this study?

A: The potential risks and challenges associated with implementing the findings of this study include the potential for increased debt levels, decreased profitability, and increased risk of financial distress.

Q: How can company management and investors mitigate the potential risks and challenges associated with implementing the findings of this study?

A: Company management and investors can mitigate the potential risks and challenges associated with implementing the findings of this study by carefully considering the optimal capital structure and dividend policy strategies, monitoring financial performance, and managing risk.

Q: What are the potential benefits of implementing the findings of this study?

A: The potential benefits of implementing the findings of this study include increased profitability, improved financial performance, and enhanced competitiveness.