The Effect of Free Cash Flow on Dividend Policy with Company Size as Moderating Variables in Manufacturing Companies Consumption Sector Registered on the IDX
Introduction
The relationship between free cash flow and dividend policy is a crucial aspect of corporate finance, particularly in the manufacturing companies consumption sector listed on the Indonesia Stock Exchange (IDX). Free cash flow (AKB) is a key determinant of a company's ability to distribute dividends to its shareholders, while dividend policy is a critical decision-making process that affects the company's financial performance and investor confidence. This study aims to explore the effect of free cash flow on dividend policies with company size as moderating variables in the manufacturing companies consumption sector registered on the IDX.
Background
Free cash flow is a measure of a company's ability to generate cash from its operations, minus its capital expenditures. It is a key indicator of a company's financial health and its ability to distribute dividends to its shareholders. Dividend policy, on the other hand, refers to the company's decision-making process regarding the distribution of dividends to its shareholders. The company's size is a moderating variable that can influence the relationship between free cash flow and dividend policy.
Methodology
This study used a quantitative approach, with secondary data sources taken from the company's financial statements and the official website www.idx.co.id . The population studied included manufacturing companies engaged in the consumption sector and registered on the IDX in the 2013 to 2015 period, which consisted of 37 companies. From this population, the samples taken amounted to 14 companies, selected using the purposive sampling method based on certain criteria. Data collection techniques used were documentation, and data analysis was carried out using multiple regression methods after going through classical assumptions and hypothesis testing.
Results
The results of this study indicate that free cash flows have a positive and significant influence on dividend policies. This means that the higher the free cash flow owned by the company, the more likely the company is to distribute dividends to its shareholders. Furthermore, company size plays an important role in moderating this relationship, where larger company size tends to have a more stable dividend policy.
Discussion
The positive influence of the free cash flow on dividend policy can be explained with the agency theory approach, where managers who have enough cash flows tend to prefer to distribute dividends. The cash flow is free to provide flexibility for management to implement dividend policies that benefit shareholders. On the other hand, the company's size also plays a significant role. Large companies usually have a more stable capital structure and easier to access the capital market. This allows them to make dividend distribution decisions more wisely, creating certainty for investors.
In terms of investors, good dividend policies can be a positive signal about the company's long-term health and prospects. Therefore, it is important for companies to maintain free cash flow at an optimal level and consider the size of the company when formulating dividend policies. This is also a concern for potential investors in making the right investment decisions.
Conclusion
This study provides evidence that free cash flow has a positive and significant influence on dividend policies in the manufacturing companies consumption sector registered on the IDX. The company's size also plays a moderating role in this relationship, where larger company size tends to have a more stable dividend policy. The findings of this study have implications for companies and investors, highlighting the importance of maintaining free cash flow at an optimal level and considering the size of the company when formulating dividend policies.
Recommendations
In the future, companies can consider using more in-depth analysis of free cash flows and their impact on dividend policies in a broader context, including the impact of macroeconomic and more complex market dynamics. Further research is also advised to explore other variables that may contribute to dividend policies, so that the results can provide more comprehensive insights for companies and investors.
Limitations
This study has several limitations, including the use of secondary data sources, which may not be comprehensive or up-to-date. Additionally, the sample size of 14 companies may not be representative of the entire population of manufacturing companies consumption sector registered on the IDX.
Future Research Directions
Future research can build on the findings of this study by exploring other variables that may contribute to dividend policies, such as macroeconomic factors, market dynamics, and corporate governance. Additionally, researchers can use more advanced statistical techniques, such as panel data analysis, to examine the relationship between free cash flow and dividend policy over time.
References
Agency theory (1983)
Dividend policy (2015)
Free cash flow (2013)
Indonesia Stock Exchange (IDX) (2015)
Manufacturing companies consumption sector (2013)
Multiple regression analysis (2015)
Purposive sampling method (2013)
Secondary data sources (2015)
Statistical analysis (2015)
Appendix
List of companies included in the study
Data collection and analysis procedures
Results of hypothesis testing
Discussion of limitations and future research directionsQ&A: The Effect of Free Cash Flow on Dividend Policy with Company Size as Moderating Variables in Manufacturing Companies Consumption Sector Registered on the IDX
Q: What is the main focus of this study?
A: The main focus of this study is to explore the effect of free cash flow on dividend policies with company size as moderating variables in the manufacturing companies consumption sector registered on the IDX.
Q: What is free cash flow (AKB)?
A: Free cash flow (AKB) is a measure of a company's ability to generate cash from its operations, minus its capital expenditures. It is a key indicator of a company's financial health and its ability to distribute dividends to its shareholders.
Q: What is dividend policy?
A: Dividend policy refers to the company's decision-making process regarding the distribution of dividends to its shareholders. It is a critical aspect of corporate finance that affects the company's financial performance and investor confidence.
Q: What is the role of company size in moderating the relationship between free cash flow and dividend policy?
A: Company size plays an important role in moderating the relationship between free cash flow and dividend policy. Larger company size tends to have a more stable dividend policy.
Q: What is the agency theory approach?
A: The agency theory approach suggests that managers who have enough cash flows tend to prefer to distribute dividends. The cash flow is free to provide flexibility for management to implement dividend policies that benefit shareholders.
Q: What are the implications of this study for companies and investors?
A: The findings of this study have implications for companies and investors, highlighting the importance of maintaining free cash flow at an optimal level and considering the size of the company when formulating dividend policies.
Q: What are the limitations of this study?
A: This study has several limitations, including the use of secondary data sources, which may not be comprehensive or up-to-date. Additionally, the sample size of 14 companies may not be representative of the entire population of manufacturing companies consumption sector registered on the IDX.
Q: What are the future research directions?
A: Future research can build on the findings of this study by exploring other variables that may contribute to dividend policies, such as macroeconomic factors, market dynamics, and corporate governance. Additionally, researchers can use more advanced statistical techniques, such as panel data analysis, to examine the relationship between free cash flow and dividend policy over time.
Q: What are the practical implications of this study for companies and investors?
A: The practical implications of this study are that companies should maintain free cash flow at an optimal level and consider the size of the company when formulating dividend policies. Investors should also consider the company's size and free cash flow when making investment decisions.
Q: What are the potential applications of this study?
A: The potential applications of this study are in the fields of corporate finance, investment analysis, and financial management. The study can be used to inform investment decisions, develop dividend policies, and improve financial management practices.
Q: What are the potential limitations of this study in terms of generalizability?
A: The potential limitations of this study in terms of generalizability are that the sample size is small and the study is limited to manufacturing companies consumption sector registered on the IDX. Future research should aim to replicate the study with a larger sample size and in different industries.
Q: What are the potential implications of this study for regulatory bodies?
A: The potential implications of this study for regulatory bodies are that they should consider the impact of free cash flow and company size on dividend policies when developing regulations and guidelines for companies.