THE INFLUENCE OF PROFITABILITY, FREE CASH FLOW
AND INVESTMENT OPPORTUNITY SET TO CASH DIVIDEND WITH
THE QUALITY OF PROFIT AS VARIABLE MODERATION
(Empirical studies in manufacturing companies that divides dividends cash listed
on Indonesian Stock Exchange year 2010-2014)
Nani Rohaeni
STIE Bina Bangsa, Serang
E-mail: [email protected]
M.F. Arrozi Adhikara
Universitas Esa Unggul, Jakarta
E-mail: [email protected]
ABSTRACT
Cash dividend policy of the company would have important implications for
various stakeholders, including shareholders or investors, management and
creditors. The Parties shall require financial information to determine the amount
of dividends to be received within a certain period. That information is properly
presented in the financial statements prepared in accordance with accounting
standards and reflects the quality of financial reporting is good and the quality of
the actual profit. The purpose of this study was to examine the effect of
Profitability, Free Cash Flow and Investment Opportunity Set to Cash Dividend
by Quality Variable Gain As Moderation with simultaneously and partially.
The design of this study was to test the hypothesis of causality. The method used in
this research is the MRA (Moderated Regression Analysis). The data source used
in secondary data. The population in this research is manufacturing companies
listed on the Indonesian Stock Exchange (IDX) during period 2010-2014, used
purposive sampling techniques. The sample used is manufacturing companies that
distribute a cash dividend of 30 companies. The unit of analysis is the companies.
The results of simultaneous profitability, free cash flow and investment
opportunity set proved positive and significant impact on the Cash Dividend.
Partially profitability and significant positive effect on cash dividends, free cash
flow there is no influence and no significant effect on the cash dividend and the
investment opportunity set proved negative and significant effect on the Cash
Dividend. Earnings quality cannot moderate the effect of profitability, free cash
flow and investment opportunity set against Cash Dividend either simultaneously
or partially.
The findings of this study is proven to attract investors by giving a positive signal
from the distribution of cash dividends of companies implementing The Political
Cost Hypothesis (Hypothesis Political fee) with the concept of positive accounting
theory.
Keywords: profitability, free cash flow, investment opportunity set, cash
dividend
INTRODUCTION
Shareholders will need financial information for determine the dividend
that would be accepted in a particular period. The information should be presented
in the company financial report that arranged in accordance with the accounting
standard and reflects the quality of good financial reporting. Accounting standard
give companies the opportunity to choose various alternatives a method of
accounting that can be used, so creative accounting for interpretation accountant
would taking advantage over the choice of an alternative that allows management
accountant make some profit. Management practices profit will at last showing
the low quality of the profit generated. Profit is an indicator that can be used for
measuring operational performance company. Those information will be
measured their success or failure on its business an operation that is assigned
(Parawiyati, 1996 in Hamonangan and Mas’ud, 2006). Both creditors and
investors, using profit to evaluate management, expects earnings power, and to
predict profits.
Information about corporate profits must be qualified to support an
investment decision. If the information about corporate profits has a poor quality
and investors already invest to companies that has a high profit but their quality is
low. The good quality are reflected to the profit, not the management.
Management is a management action profit in the formulation of financial reports,
to affect the profit published. The goal is to improve the welfare of certain parties,
although in the long term there is no distinction of those who identified as a profit
(Fischer and Roseinzweig, 1995). A number of studies alleging manipulation to
earning are often done by the management. The preparation of earning done by
management more know the state in a company, the condition it was predicted by
Dechow (1995) could caused a problem, because management as the party that
provides information about the company performance evaluate and valued based
on report of his own. The profit lacking in quality is running a business firm,
management is not a company owner (Hamonangan and Mas’ud, 2006).
Policy of a cash dividend by the company has an important impact on
various parties. For shareholders or investors, dividends cash is the rate of return
investment of their ownership that shares published other companies. For the
management, dividends cash is cash flow out that reduces a cash. For that reason,
a chance to do investment with cash that distributed as the dividends, will be
diminished. For creditors, dividends cash can be signal about sufficiency of cash
to pay interest or even pay off loan principal. Dividend cash policy tend to pay
dividends a relatively large number of observers will be able to motivate to buy
company shares. The company that has the ability to paid dividends, community
will be assumed that enterprise has benefits (Suharli, 2007).
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Cash dividend often be the subject of shareholders and management of
public companies, even likely controversy between shareholders and public
companies. Its controversy makes Miller and Modigliani (1961) suggested
dividend irrelevance theory namely large or minuteness pay dividends have no
influence on the value companies. Return are expected to assets, that can
determine the amount of the company, instead of separation become a profit.
While Gordon and Lintner (1956) suggested bird-in-the hand theory that investors
expect more dividend higher than capital gains, for capital gains expected could
lead to greater risks for dividends determined by market, by the determination of
stock prices contrast to tax preference theory that was mentioned by Litzenberger
and Ramaswamy (1979), that investors prefer a dividend low because a high
dividend will taxable higher. This theory shows that investors choose a dividend
low so they can save the payment of tax. (Aristantia and Putra, 2015).
Investors have aims major things for investing their fund in companies,
looking for income or rate of return (investment return) good dividend income
(dividend yield) and income from the difference between stock price and the
buying price (capital gains). In conjunction with cash dividend, investors
generally want the dividends relatively stable, because the stability can increase
dividends investor confidence against the company thus reducing uncertainty
infuse investors in their funds into the company. On the other hand, the payment
of dividends faced with various consideration include the need for one group
profit to re-invest that might be profitable, the company funds, liquidity company,
the nature of shareholders, specific targets associated with ratio dividend payment
and other factors related to dividend policy (Sunarto and Kartika, 2003).
The other things to be researched, is the quality of the profit produced by
company. Profit is one of potential information contained in a financial filing and
a very important for the internal and external company. A financial report served
in accordance with the accounting standard (SAK) not necessarily report showed
the quality of good financial and quality of good profit, will generate profit quality.
Management profit perhaps is the result of accounting the accrued most
problematic. The use of assessment and estimation in accounting allows manager
to use information for their own to add the uses of accounting. But a few
managers use this freedom, to change the numbers accounting, especially profit,
for personal gain in order to reduce its quality. (Wild and Subramanyam , 2014 ).
Manufacturing companies, specially automotive companies tended to use
the operational budget which large enough, and there is the possibility in one
accounting year operating costs exceeds its revenue operational, although the
money was will irreducible in accounting year next. Based on observation have
done by the writer to the financial 2010 up to 2014, found that all the company
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never done a management profit. It can be seen from the calculation on profit
alignment with using formulas index eckel.
Some previous studies that tests about factors affecting cash dividend
conducted by the researchers before, there are still of research results that contrary
to each other so as to cause research gap. That attracts writer’s attention to analyze
further information about what factors that can affect cash dividend. For example,
research of Sunarto and Kartika (2003) by the testing of hypotheses in partial
stated that cash ratio, current ratio, debt to total assets (DTA), return on
investment (ROI) not significant to dividends cash. Research conducted by
Nurhidayati (2006) find that current ratio (CR), and earnings per share caused
significant and positive impact on dividends cash and return on investment (ROI),
current ratio (CR), debt to total assets (DTA) and size is not significant impact on
dividends cash.
Research conducted by Lubis (2009) found that a partial cash ratio, current
ratio (CR), and debt to equity ratio significant of cash dividend, while return on
investment (ROI), debt to total assets (DTA), earnings per share (EPS) and
dividend payout ratio are not significant. Further research conducted by Sandy
and Asyik (2013) said that ROA has partial influence to dividends cash policy,
while profit margin (PM), return on equity (ROE), current ratio (CR) and quick
ratio (QR) no significant influence against dividends cash policy.
The research motivation is first at least manufacture enterprises to pay
dividends cash and to detect factors that affecting company in making dividend
cash policy in terms of profitability, free cash flow and investment opportunity set
with regard to the quality of those who owned company. Both detect engineering
financial statements as proxy the quality of those who was something new from
the study compared with the previous studies. There is a third research gap about
the research that motivates an author in doing this research.
The purpose of this research is: 1) studying and analyzing whether
profitabiltas, free cash flow, the quality of profit and investment opportunity set
impact on cash dividend simultaneously and in a partial; 2) studying and
analyzing whether quality can prove profitability moderating influence, free cash
flow and investment opportunity set against cash dividend simultaneously and
partial evaluation.
LITERATURE REVIEW
Signaling Theory
The theory signal based on the assumption that received information by
each parties are not the same. The theory signal showed asymmetrics information
between company management and parties that concerned with those information.
So, manager needs to give information for the parties concerned through the issue
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of financial reports. The theory signaling is theory that explains perception outside
investors on the prospect of the company because of corporate action (Ross in
Hasnawati, 2008).
Financial report containing about any information be necessary for
investors and the management in decision-making investment, funding and
policies dividends. Signals can be a promotion or other information stated that the
company better than other companies. Received information by investors first
translated as a signal the good news or signal bad (bad news). Dividends used as a
signal for prospecting company, thus the increase in dividends are defined by the
market as signal positive and vice versa reduction dividends used as signal
negative for prospected company. Meanwhile from management side, company
might be forced to reduce dividend payment only because it requires additional
funds for investment. But once again because of the asymmetric information is
leading to what is desired by management not to understood correctly by investors
and markets. Therefore thats uncommon to management to reduce the dividend,
they will be trying to maintain a stable dividends. (R. Agus Sartono, 2010).
Positive Accounting Theory
The positive accounting theory tried to explain a process that uses ability,
the understanding and knowledge of accounting policy most be appropriate to get
a good condition. The determination of accounting policy and practices is
important for companies in financial reporting. So, in relation to determine policy
accounting and this was not in spite of authorities parties and have interest in
financial report. Scott (2009) mentioned that positive accounting theory is
concerned with predicting such as the actions choices of accounting policies by
firm managers and how managers will respond to proposed new accounting
standards. The positive accounting theory associated with estimated a decision in
principle accounting by manager of a company and how manager will give
response to a new accounting standards. The positive accounting theory assumed
that manager is the description of rational as investors, and manager would choose
the accounting policy that give an advantage for himself. There are three
hypothesis of the positive accounting theory, Scott (2009), they are:
1. The Bonus Plan Hypothesis
Manager of a company would choose of the accounting procedures reported
income from the future would come to a period. Manager want a high bonus,
if the bonus dependent on the profit reported, so manager will maximize their
bonus by reported earnings as high as possible. This concept discuss that the
bonus promised by the owner to manager of a company not only motivate
manager to work better but also motivate manager to do cheating managerial.
In order to reach a bonus performance, manager playing with the size of
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numbers in a financial and a bonus will always made every year. This is what
caused the owner losses double, namely be false information and bring some
bonus.
2. The Debt Covenants Hypothesis
This hypothesis relating to the conditions must be met by the company in
agreement debt. The company has the ratio between debt and equity larger,
tending to choose and used accounting methods to report earnings and higher
tend to violate the debt if any benefits and certain benefits that can be obtained.
The gains in an obligation debts and receivables can wait for the next period
that all parties to know the companies condition that obtain information and
business decision are wrong, as a consequence there a mistake in allocate
resources.
3. The Political Cost Hypothesis
Big company with a high profit made an object of the rules and government
policy, as the imposition of income tax high, obliged to comply with a higher
as the responsibility of the environment and so on.
Watts and Zimmerman (1986) in Setijaningsih (2012) revealed that there
are three basic reason that shift normative approach to positive, namely: 1)
inability approach in theory normative test empirically, because it is based on the
premise or a wrong assumption and cannot be tested its validity empirically, 2)
normative approach more focused on prosperity investors individually than
prosperity of the general public, 3) normative approach not encouraging or allow
for allocation of economic resources optimally at the stock market.
Positive accounting theory admitting three forms of relationship agency,
they are: 1). Management with the owner, 2). Management with creditors, 3).
Management with the government. In this context, positive accounting theory
used to explain and predict management against the choice of method and of the
accounting procedures. Positive accounting theory tried to analyze the cost and
benefit of the disclosure of certain financial for communities that requires
accounting information. The assumption underlying community is all interested
parties with company acting rationally to maximize their interests.
Agency Theory
Agency theory said that between management and owners have different
interests. Agency model designed a system that involves both management and
owners. Next, management and the owner make a deal (contract) to achieve
expected benefits (utility). Lambert (2001) said that the agreement is expected to
maximize utility (principal owner), and satisfy and ensure (management agent) to
receive rewards. Benefits and obtained by both sides based on the company. In
general, the company performance in terms of profitability. The difference
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between the interests and management located at maximization the benefits
(principal owner) with an obstacle (constraint) of the benefits and incentives to be
received by the management (agent). (Sunarto, 2009 ).
The quality of profit and management profit
Dechow and Schrand in 2004, define the profit quality at least containing
basic characteristics, reflect operational performance of a firm in the country and
as an indicator that either the upper persistence performance the operations of a
firm in which to come. Sloan (1996) define the profit quality as the profit
persistent. Bernard and Stober (1989) said that the profit quality is profit that can
be used by users financial report to take the best decision.
The quality of profit in the company can be measured by several methods.
The first, is the accrual persistence, namely the equation regression between the
accrued and cash flows current with operating profit company future. The second,
is the error estimation that developed by compared previous cash flow, current
cash flow, and future cash flow of a company, to indicate the quality, because it
exaggerate profit and vice versa. The third, is detect management profit.
Management profit define by Scott (2009) is as the selection of accounting
policy by manager. Scott express two events where management can understand
the profit. First, as opportunistic infection manager behavior to maximize their
utility in the face of a contract compensation, contract debts and political costs.
Second, looked at management profit from the perspective of a contract efficient,
where profit give management manager a flexibility to protect their position and
companies in anticipation of events that is not unexpected for the benefit of the
parties in a contract. There are several forms of profit management be made
manager, among other (Sott, 2009):
1. Taking a bath
Taking a bath done by acknowledging the costs in the period to come and
losses period walks so that requires management imposes estimates of the
future, as a result of the next period is higher.
2. Income minimization
Done at the time when companies experienced level profitability high that if
profit next the period is expected to dropped drastic insurmountable by taking
profit in the previous period.
3. Income maximization
Done at the time when profit decline. Action upon income maximization aims
to reported net income high for the purpose of bonus greater.
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4. Income smoothing
Company did profit by means of flatten reported so as to diminish fluctuations
profit was too great because generally investors like those who are relatively
stable.
The profit management formula used in this research was alignment profit
(income smoothing) measured by uisinf index eckel in Syahfandi and Mutmainah
(2012), described as follows:
Indeks Eckel = CV Δ I : CV Δ S
CV ΔI and CV ΔS can be counted as follows:
CV Δ X =
Description:
CV Δ I
=
CV Δ S =
CV
=
ΔX
=
ΔX
=
N
=
√
Σ ( Δ X - Δ X )2
n-1
:
ΔX
The coefficients variant for change profit
A coefficient variant for changes in operational income
A coefficient variant
Change x between n with n-1 year
Average of changes X
The number of the period observed
The practices profit alignment indicated by an index that less than one (<1), while
index that is indicative of more than one (>1) or equal to one ( = 1 ) showed that
companies did not do practices alignment profit. Status measured by index eckel
(1981) criteria that the company considered to have been do the act of smoothing
profit when CV Δ S > CVΔ I and an enterprise are not do alignment profit when
CV Δ S < CVΔ I.
Cash Dividend
Ang (1997) also indicated that cash dividend (cash dividend) is a dividend
paid in the form of cash, while dividend of stocks (stock dividend) is a dividend
paid in the form of shares with specific proportions. Weygandt and Kimmel (2002)
in Ahmad Sandy and Nur Fajrih Asyik, (2013) distinguish some dividend types
distributed to its shareholders, they are:
a. Cash Dividend
Is a dividend distributed in cash. This dividend is the most common and
attractive to investors. According to Gitman (2003) cash dividends is investors
paid assessment on a share. Cash dividends reflect cash flow to the
shareholders and inform the company current and future. Because retained
earnings (profit balance) is one types of funding internal, so a decision on the
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dividend can affect company’s needs to external funding sources. Thus, the
bigger cash dividends paid by the company, will increased the number of
external funding sources required through debts or stock sales.
The total amount of cash dividends
The measurement of cash dividends =
The number of shares
b. Property Dividend
This dividend is dividends distributed in assets companies like merchandise,
real estate, investment, and so on. This dividend is generally distributed by
companies that always move mine location.
c. Liquidating Dividend
Dividends distributed in order to restore vision of its investment to
shareholders. This dividend is the only one type dividend to pay dividends by
reducing agio shares (paid in capital) company.
d. Stock Dividend
Dividends dispensed in the form of a stake in the company. This dividend is
usually to be used by companies that don’t have sufficient cash to distribute
dividends but the company would still like to distribute dividends.
e. Scrip Dividend
Dividends dispensed in the form of notes payable (debentures). This dividend
is rarely used currently.
f. Liquidity position profit were helm
Usually invested in the form of assets needed to keep the business, so that net
profit was not deposited in cash money. Although an enterprise have pointed
about profit, a company might can not be pay cash dividends because of their
liquidity position. A company that developing although have the advantage
large, usually has funding need for the most pressing. Under these
circumstances it can be decided not to paid dividends.
g. The repayment debt
When debts of the company due, company can pay the debt with cash or by
giving securities other. If his decision is to pay the debt, then this usually need
to detention profit.
h. Restrictions in agreement debt
Agreement debt, especially when is long-term debt company often restricts its
ability to pay cash dividend.
Cash dividend is the type of dividends that most common and attractive to
investors. Retained earnings (profit balance) is one types of funding internal that
is a source of funding for dividend, so decision the amount of the dividend can
affect needs funding internal and external company. Thus, the bigger cash
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dividends paid by the company the large also the number of external funding
sources required through debts or stock sales. The formula that used for reckoning
cash dividend is:
The total amount of cash dividends
Cash Dividends =
(Sandy and Asyik, 2013)
The number of shares
Consider the total number of share is the result of the division between the
capital stock of with a face value of a share, thus making the proportion private
ownership of capital stock from the investor and the number of shares of the
company will make a difference between the company of one by another, hence
the formula cash dividend as follows:
The total amount of cash dividends
Cash Dividends =
Share Capital
Profitability
Profitability is company’s capability to derive profit in conjunction with
sales, total assets and their own capital. Thus to investors the long-term are likely
very interested from the analysis profitability this for example for shareholders
will see profits which it will actually be accepted in the form of dividends
(Sartono, 2010). The management will pay dividends to give the signal on the
success of company a profit (Wirjolukito at al, 2003 in Suharli 2007) signal
concluded that the company to pay dividends is a function of advantage.
Profitability can be measured used ROI (return on investment), ROA
(Return on assets), ROE (return on equity), and NPM (net profit margin). Return
on investment (ROI) is one form of the ratio profitability intended to measures the
company with overall funds implanted in any assets that are used to operate
company to produce gains (Munawir, 2010). Although ROI often called ROA,
ROI referred to in the research is size the effectiveness of company in producing
gain by abusing investment used for operation company. If then ROI high net
profit of its being obtained from the total asset of second match will be high. If
corporate profits high and the proportion of the amount of the dividend cash will
be increased. The ratio of this can be calculated by a formula: (Suardi Jacob,
Suharsil and Jukfri Halim, 2014).
profit after tax
ROI =
total assets
Free Cash Flow
Free cash flow is cash flow available to be distributed to investors after the
company invested for fixed asset and working capital required to maintain their
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business continuity (Sartono, 2010). Free cash flow as the amount of cash
available from the investment in working capital operational clean and assets
fixed. Cash will be distributed to company owner and creditor (Keown et al.,
2002). According to Brigham & Houston (2013: 96) cash flow clean (net cash
flow) net cash actual, different and its accounting (net profit), produced by an
enterprise during a given period. Profit accounting (accounting profit) net profit
an enterprise as reported in the report profit to loose.
Accounting for calculating free cash flow according to Keown et al. (2002)
in Sartono (2010) determined by a formula:
Free Cash Flow = cash flow from operation – capital expenditures
Investment Opportunity Set
Investment is a current expenditure with expected results from expenditure
will be accepted in which to come. Each company invest a new assets to keep it
always in the hope that the company would win back funds embedded from their
investment. The term investment opportunity set (IOS) or investment
opportunities was first introduced by Myer (1977) in Norpratiwi (2004) who
expounds the company as the combination of real assets (assets in place) and
options investment in the future. Option investment in the future is then known
with the term investment opprtunity set (IOS). Investment opportunity set (IOS)
as option future not only demonstrated by the projects company but also to the
ability of company that in higher exploitation take an advantage. Hartono (2003)
will investment opportunities or investment opportunity set (IOS) with accused of
extent opportunity investment for an enterprise. Company that experienced
growth would choose many investment opportunities as a way to develop
company. Growth of the company can be seen from its sales, a given period sales
growth and the ratio investment an increasingly large company did on assets fixed
the more high levels investment behavior by the association.
Proxy IOS that can be used the price earnings per share (PER), market
value to book value of equity (MVE / BVE), and market value to book value of
assets (MVA / BVA). IOS is the combination of assets owned and investment
options in the future. The formula that used to proxy IOS are (Hastuti , 2013):
Price Earning Ratio (PER) =
Price stock
Earning per share
a. Market Value to Book Value of Equity (MVE/BVE)
MVE/BVE =
(The
number of shares outstanding x the closing share price)
Total Equitas
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b. Market Value to Book Value of Assets (MVA/BVA)
Total assets -- total equity ordinary + ( the number of shares
outstanding x the closing share price )
MVA/BVA =
Total assets
In this research proxy used market value to book value of equity
(MVE/BVE).
The relationship between variable
The influence of profitability to cash dividend
The main attraction for company owner in this case shareholders and the
potential investors in the company is profitability, in this term profitability means
the results obtained by business management against funds invested by the owner
and investors. The bigger the profit or profitability obtained company will result
in the bigger dividends and it will be distributed and the contrary (Sunarto and
Kartika, 2003).
ROI is one form of the ratio profitability intended to measures the company
with overall funds implanted in any assets that are used to operate company to
produce gains (Munawir, 2010). If ROI increase, so net profit its being obtained
from gyrations total assets will be increased too. The higher corporate profits so
the proportion of the amount of the dividend cash will also go high, so also on the
other hand.
The influence of free cash flow to cash dividend
Free cash flow is available to be distributed to investors after the company
invest for fixed asset and working capital required to maintain their business
continuity (Sartono, 2010). According to Keown et al. (2002) free cash flow as the
amount of cash that is readily available after working capital investment in
operational still clean and assets. Cash will be distributed in company owner and
creditor. When free cash flow high hence the higher the number of cash available
to be given to the owner and investor so that the cash dividend also increased.
The influence of investment opportunity set to cash dividend
Investment opportunity set (IOS) as option in the future which has indicated a
chance of a new company projects and the company ability that in higher
exploitation chance to take an advantage. Company that in higher growth is often
said also have the opportunity investment (IOS) the height. That motivates parties
managerial to re-investment in large numbers. To further improve the growth,
companies tend to use funds derived from internal sources compared with an
external source (the issue of shares or bonds). The financial resources internal
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preferred to fund their reinvestment because these funds have risks and a lesser
charge. The growth rates the company high in the future usually followed by a
decrease in cash dividends. Dividend policy is highly influenced by investment
opportunities and the availability of funds to finance new investment. This means
that there was a policy residual (Brigham and Houston, 2006) or residual theory of
dividend, the dividends are paid if any remaining income after new investment.
The higher investment opportunities owned company can cause to drop cash
dividends will be distributed to shareholders.
The influence of profitability to cash dividend moderated by the quality of
profit
Profitability is companies capability derive profit in conjunction with the
sale, total assets and their own capital. To shareholders as well as a potential
investor (profit creditors) who was featured in a financial filing it is hoped that
profit is in good quality, as to be able to describe the truth of company
performance. Profitability is needed by the company if he wanted to have paid
dividends, with profit moderated quality, then the amount of the cash dividend
will increase. The higher the company posted a gains (profitability high) plus the
quality of a good profit, the more large amount of cash dividend which were
distributed.
The influence of free cash flow against cash dividend moderated by the quality
of profit
Free cash flow is the sum cash free available in the company is as
operating results after of investment in working capital and fixed assets. The
quality of profit resulting from a financial report quality to show free cash flow
strong and sustainable. The company which has the quality of good profit and
available free cash sufficient, who will distribute their profit to the shareholders in
the form of cash. But if a free cash are not enough then the company management
consider dividend to be divided in the form of dividends other than cash dividends.
The influence of investment opportunity set against cash dividend moderated by
the quality of profit
Investment opportunity set (IOS) is investment opportunities as options in
which future demonstrated by the plan projects companies and can be seen from
the company ability to capitalizing on an opportunity take advantage compared
with similar factors. Presentation of the quality of the profit better than a financial
report showed quality of data accuracy investment opportunities owned by
company. The higher investment opportunities that is occupied the low the
possibility of cash dividend and it will be distributed.
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The influence of profitability, free cash flow, and investment opportunity set to
cash dividend moderated by the quality of profit
Research the quality of profit as variable moderator to factor that
influences policy cash dividend has not been found by writer on literature in
Indonesia. This research is to test whether the quality of profit can strengthen or
weakened the influence of profitability, free cash flow, and investment
opportunity set to cash dividend paid. The writer think, the company that has the
quality of the profit better, will show a financial report truth and not mislead for
decision-makers. The profit reported is the actual profit on that period. Free cash
flow displayed is cash of which there are in companies that measurable in figures
that is in a financial filing. Investment opportunities seen is the real opportunity
owned by company that measured in the form of figures in financial report. To
companies that a profitability high plus the quality of profit good, so the more
probability cash dividend will be distributed. To companies that having free cash
flow high supported the quality of the profit have the more probability that cash
dividend will be distributed. To companies that invest more funds will cause the
cash dividend paid reduced. The profit quality and engineered has no base strong
cash and doubt their sustainability.
Hypothesis Research
Hypothesis advanced in this research are:
H1 : Profitability, free cash flow and investment opportunity set have had a
positive impact on cash dividend simultaneously.
H2 : Profitability have had a positive impact on cash dividend in partial.
H3 : Free cash flow have had a positive impact on cash dividend in partial.
H4 : Investment opportunity set have a negative influence on cash dividend in
partial.
H5 : The quality of profit can moderating a positive influence profitabiltas, free
cash flow, and investment opportunity set to cash dividend simultaneously.
H6 : The quality of profit can moderating a positive influence profitability to
cash dividend in partial.
H7 : The quality of profit can moderating a positive influence free cash flow to
cash dividend in partial.
H8 : The quality of profit can moderating a positive influence investment
opportunity set to cash dividend in partial.
RESEARCH METHODS
Types of data, data sources, data collection techniques and data analysis
method
Types of data is secondary data. Data sources obtained from the Indonesian
Stock Exchange by visiting idx.co.id web, plus with the data derived from
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sahamok.com and web ICMD (indonesian capital markets indonesia). Data
collection technique with: 1) documentation a financial report accompanied by
ratios that are deals with this research; 2) the literature study of journals and book.
This research using MRA (Moderated Regression Analysis) that test the
interaction by multiplying variable that is hypothesized as variable moderation
variable free (Suliyanto, 2011). Variable moderation raised to test the ability of
variable moderation the to strengthen / weakened relations independent variable to
dependent variable. The method of analysis data in this research using the tools
statistics that is SPSS version 21, to ensure of data accuracy, then done before
descriptive analysis then test the data quality, test the classics assumption
(heteroscedasticity test, multicollinearity test, and the autocorrelation) then the
hypothesis.
The Population And Sampel
Population in this research is a whole manufacturing companies which is
listed in the Indonesia stock exchange (BEI) until the 2014 which consisted of 142
company. Sample techniques used is nonprobability sampling, the sample used is
the purposive sampling method. The criteria are chosen in the determination of
sample is manufacturing companies who listed in the Indonesia stock exchange
(BEI) and perform a division cash dividend for 5 (five) consecutive years that is in
2010, 2011, 2012, 2013, and 2014, which consisted of 30 companies.
Hypothesis Testing
Test a hypothesis that used is F test and the t test. F test used to know
whether variables independent simultaneously significant dependent on variables.
Degrees trust used is 0.05. When the value of F count greater than the value of F
according to table, so alternative hypotheses holding that all the independent
variable simultaneously influential dependent on variables. Rules testing as
follows:
If, Fcount < Ftable So Ho received and Ha rejected
If, Fcount > Ftable So Ha received and Ho rejected
The t test used to see the influence of each variable free on variables bound
(testing in partial). The t test of one variable divided into two categories, namely:
a. t - test to one variable with one direction left or right (one tail)
b. t - test to one variable with both direction (two tail)
Rules of testing as follows:
If, tcount ≤ ttable, So Ho received and Ha rejected
If, tcount ≥ ttable, so Ho rejected and Ha received
Moderated Regression Analysis (MRA)
Moderating variable is the variable that can strengthen or weakened a
direct relationship between the independent variable to dependent variable.
15
Moderating variable is the variable that have leverage against the character or
direction the relationship between variable. The nature of the relations between
independent variables and dependent variables the possibility of positive or
negative depends on variable moderating, hence moderating variable also called
as contingency variabel. In this research testing done with pure moderator or
variable who can only be moderation variable, testing done with pure moderator
done by making regression interaction, but moderating variable cannot function as
variable independent. Equation moderated regression analysis (MRA) used in this
research is as follows:
Y = a + b1*X1 + b2*X2 + b3*X3 + b4*Z + b5(X1*Z) + b6(X2*Z) +
b7(X3*Z) + e.
CD = a + b1*ROI + b2*FCF + b3*IOS + b4*PL + b5(ROI*PL) + b6(FCF*PL) +
b7(IOS*PL) + e.
Description:
CD
= Cash Dividend
ROI
= Return On Investment
FCF
= Free Cash Flow
IOS
= Investment Opportunity Set
PL
= Flattening Profit
a
= constanta
b1-b7
= coefficient of regression
e
= Error
THE RESULTS OF THE STUDY AND DISCUSSION
Data Description
Manufacturing companies that used in this research composed of different
sorts industry with the characteristics in products materials different, the size of
the company different and a scale of measurement different companies also
between one company with any other company. It is expected that the diversity of
sample results of obtained will be represent manufacturing companies as a whole.
Sampling techniques used is nonprobability sampling, to technique the sample
used by a writer is the method purposive sampling, namely the determination of
sample based on certain criteria in accordance with is intended. As for the criteria
chosen in the determination of sample is manufacturing companies who listed in
the Indonesia stock exchange BEI and perform a division cash dividend for five
consecutive years that is in 2010 up to 2014 obtained the number of as many as 30
companies. The number of the data used as many as 150 data.
Descriptive Statistics
Descriptive statistics made to showed the minimum value, a maximum
value, the average value (mean and standard deviations of each variable, with the
16
purpose of giving an overview of the size for the measure of central tendency) and
the size of the variation over the sample. Variable measured in this research is
return on investment, free cash flow, investment opportunity set and cash
dividend, moderating variable namely the quality of profit. Descriptive statistics
of variable it can be seen in table follows:
Table 1 Descriptive statistics
Descriptive Statistics
N
Cash Dividend
Return On Investment
150
150
Free Cash Flow
150
Investment Opportunity
Set
The quality of profits
Valid N (listwise)
Minimum
Maximum
.01
.09
70.70
71.51
17714000.
-2526581.00
00
Mean
Std. Deviation
4.2375
15.0397
11.40941
11.05176
1017265.2600
2655728.78743
150
.09
53.59
4.4834
7.99223
150
150
-24.71
27.84
.6829
4.36308
Source: processing the output SPSS 21
Based on the results of output in table 1 on top can known sample
observation 150 data with variables as follows:
1. Cash dividend variable shows that comparison of the total amount of cash
dividend with capital shares owned by manufacturing companies a minimum
of 0.01 which is found in PT Sumi Indo Cable Tbk in 2010 while a maximum
score is 70.70 found in PT Unilever Indonesia Tbk. The average score (mean)
comparison the total amount of cash dividend with share capital show 4.24.
Deviations standard of 11.41, it means the average total cash dividend per
share capital invested in the company is Rp. 4.24.
2. Return on investment (ROI) variable indicate that the company performance
seen from the ability firm in use any assets that are used for operation the
company has minimum value 0.09 owned by PT Triassic Sentosa in 2014
while maximum value of 71.51 owned by PT Unilever Indonesia Tbk in 2013.
The average score (mean) the ability of company produce profit of 15.04 with
deviations standard of 11.05. It means the ratio the average firm in gain
advantage over investment done of 15.04 %.
3. Free cash flow (FCF) variable is a free cash flow company that is available to
be distributed to investors come from the reduction of cash flow operations
with working capital expenditure has a minimum value of -2526581.00 owned
by PT Gudang Garam Tbk in 2014. It means the existing data showed that in
2014 PT Gudang Garam Tbk having cash flow operational smaller than
working capital expenditure. The maximum value of 17714000.00 owned by
PT Astra International Tbk in 2014. Average value (mean) free cash flow
manufacturing companies worth 1017265.26 with a deviation standard of
17
2655728.79. It means company has free cash flow to show the existence of
cash from operational activities after deducting investment activities is the
average Rp.1.017.265.260,-.
4. Investment opportunity set (IOS) variable are proxy with market to book value
of equity (MVE / BVE) shows investment opportunities owned by company
has value minimum of 0.09 owned by PT Goodyear Indonesia Tbk in 2011
while maximum value of 53.59 owned by PT Unilever Indonesia Tbk in 2014.
The average score (mean) investment opportunities to companies
manufacturing of 4.48 with deviations standard of 7.99. It means company has
investment opportunities to develop company in which to come an average of
4.48 points.
5. Moderating variable, the quality of the profit proxy the flattening profit found
that income from minimum of -24.71 owned by PT Indah Maju Tbk in 2011
while the maximum value of 27.84 owned by PT Surya Toto Indonesia Tbk in
2013. The value of flattened profit (mean flattening) of 0.68 with deviations
standard 4.36. It means based on the data obtained the average manufacturing
companies do management practices profit (income smoothing) can be seen
from the value of flattening profit is < 1. This is in accordance with criteria
eckel index which states that if the result of reckoning CV∆I divided CV∆S <
1 and flattening of the companies have profit.
Normality Data Test
The data quality test in this research using normality test. Based on display
charts histogram, it can be seen that to scatter data producing curves normal that
resembles the form of a bell with either side of the wide infinities are so that can
be concluded the distribution pattern normal and can be done the following
analysis.
Source: processing the output SPSS 21
Charts 1 Histogram Normality Test Data Research
Heteroscedasticity Test
Heteroscedasticity test used to see a scatterplot chart between predictive
value variable bound (zpred) with residual value (sresid). The following results of
the examination of heteroscedasticity test:
18
Source: processing the output SPSS 21
Charts 2 Scatterplot Heteroscedasticity Test
The result of heteroscedasticity test shows the heteroscedasticity because
charts scatterplot shows that there is a pattern clear, where points formed spread
above and under zeros on the y axis, so that this research process can proceed.
Multicollinearity Test
Problems that might be happen to the use of the regression equation is
multicolinearity, namely condition in which independent variable correlate with
other variables. A manner used to know the whereabouts of multicollinearity is by
seeing value variance inflation factor (VIF) of each variable on variables not free.
Based on the results of output test multicolinearity with SPSS statistics 21 seen in
table 2, that model regression having value variance inflation factor (VIF) each
variable smaller than 10, so that independent variable namely profitability, free
cash flow, and investment opportunity set, free from multicollinearity and
research process can proceed.
Table 2 Multicollinearity Coefficients Test
Collinearity Statistics
Model
Tolerance
VIF
(Constant)
1
Return On Investment
.408
2.450
Free Cash Flow
.673
1.486
Investment Opportunity Set
.219
4.574
The quality of profits
.325
3.076
The quality of profits*ROI
.187
5.345
The quality of profits*FCF
.717
1.394
The quality of profits*IOS
.168
5.948
a. Dependent Variable: Cash Dividend
Source: processing the output SPSS 21
Autocorrelation Test
Used to detect whether there were any autocorrelation done by Durbin
Watson Test. The following results of the examination of autocorrelation test
19
obtained value of 1.786 Durbin Watson, so can be concluded that the coefficients
in regression does not occur autocorrelation.
Table 3 Model Summary Autocorrelation Task
Model Summaryb
Model
1
R
.903a
R
Square
.815
Adjusted R
Square
.812
Std. Error of
the Estimate
4.95249
DurbinWatson
1.786
a. Predictors: (Constant), Investment Opportunity Set, Free Cash Flow, Return On
Investment
b. Dependent Variable: Cash Dividend
Source: processing the output SPSS 21
Testing Simultaneous Influence by F test
F test is used to see the influence of independent variable namely
profitability (ROI), free cash flow (FCF) and investment, opportunity set (IOS)
simultaneously all together on dependent variable namely cash dividend. The
results of the F mixed with use SPSS 21 can be seen in table follows:
Table 4 Anova task F
ANOVAa
Model
Regression
1
Residual
Total
Sum of Squares
Df
Mean Square
15814.560
3
3581.451
146
19396.011
149
F
Sig.
5271.520 214.897
.000b
24.530
a. Dependent Variable: Cash Dividend
b. Predictors: (Constant), Investment Opportunity Set, Free Cash Flow, Return On
Investment
Source: processing the output SPSS 21
Anova from the table can be explained that the value of 214.897 F count
with significant degree 0,000. In a significant degree 0,05 (α = 5%) and n as
many as 150 obtained df1= k – 1 (df1 = 4 – 1 = 3 ) and df2 = n – k (df2 = 150 – 4
= 146) until they reached dk a numerator 3 and dk the denominator 146 F tabel
obtained the value of as much as 2.67 therefrom Fcount > Ftable (214.897>2.67).
Because the value of greater than Fcount and extent of signification 0,000<0,05. So
Ha1 received and H01 is rejected, it means profitability, free cash flow and
investment opportunity set have had a positive impact on cash dividend
simultaneously.
Testing Partials Influence by t test
t test is used to see the influence of independent variable namely
profitability (ROI), free cash flow (FCF) and investment, opportunity set (IOS)
partial each independent variable to dependent variable namely cash dividend
(CD).
20
Table 5 Coefficients test t
Model
(Constant)
Return On Investment
1
Free Cash Flow
Investment Opportunity Set
a. Dependent Variable: Cash Dividend
Coefficientsa
Unstandardized
Coefficients
B
Std. Error
-3.050
.740
.142
.055
1.123
.000
E-007
-1.120
.079
Standardize
d
Coefficients
Beta
T
Sig.
-4.122
2.573
.652
.000
.011
.515
-.784 -14.261
.000
.138
.025
Source: processing the output SPSS 21
Based on the table can be explained that the results of the second to fourth
hypothesis is:
1) The second hypothesis (H2)
Profitability variabel the value of 2,573 t count with significant degree 0,011
in a significant degree 0,05 (α = 5%) and n as many as 150 obtained the value
1,65536 t table. Because the value of tcount > ttable (2,573>1,65536) in a
significant degree 0,05 so H02 rejected and received Ha2 it means profitability
had a positive impact and significant on cash dividend. Therefore second
hypothesis means profitability had a positive impact and significant on cash
dividend testing partial is received.
2) The third hypothesis (H3)
Free cash flow (FCF) variabel the value of 0,652 t count with significant
degree 0,515 in a significant degree 0,05 (α = 5%) and n as many as 150
obtained the value 1,65536 t table. Because the value of tcount > ttable
(0,652>1,65536) in a significant degree 0,515>0,05 so H03 received and Ha3
rejected, it means Free cash flow (FCF) had not a positive impact and
significant on cash dividend. Therefore third hypothesis means Free cash
flow (FCF) had a positive impact and significant on cash dividend testing
partial is rejected.
3) The fourth hypothesis (H4)
Investment opportunity set (IOS) variabel the value of -14,261 t count with
significant degree 0,000 in a significant degree 0,05 (α = 5%) and n as many
as 150 obtained the value -1,65536 t table. Because the value of tcount > ttable
(-14,261 > -1,65536 ) in a significant degree 0,05 so H04 rejected and
received Ha4 it means Investment opportunity set (IOS) variabel had a
positive impact and significant on cash dividend. Therefore second
hypothesis means Investment opportunity set (IOS) had a positive impact and
significant on cash dividend testing partial is received.
Testing Hipotesis Moderated Regression Analysis (MRA)
21
MRA by F test
Table 6 Anova test F MRA
Model
ANOVAa
Df
Mean Square
Sum of
F
Squares
4719305.386
3 1573101.795
.206
Regression
1116644891.7
146 7648252.683
Residual
1
15
1121364197.1
149
Total
01
a. Dependent Variable: Cash Dividend
b. Predictors: (Constant), Kualitas Laba*IOS, Kualitas Laba*FCF, Kualitas
Laba*ROI
Source: processing the output SPSS 21
Sig.
.892b
Anova from the table can be explained that the value of 0,206 F count with
significant degree 0,892. In a significant degree 0,05 (α = 5%) and n as many as
150 obtained df1= k – 1 (df1 = 4 – 1 = 3 ) and df2 = n – k (df2 = 150 – 4 = 146)
until they reached dk a numerator 3 and dk the denominator 146 F tabel obtained
the value of as much as 2.67 therefrom Fcount < Ftable (0,206 < 2.67). Because the
value of Fcount smaller than Ftable and extent of signification 0,892>0,05. So H05
received and Ha5 is rejected, it means fifth hypothesis is rejected. This shows that
the quality of profit cannot moderating a positive influence profitability (ROI),
free cash flow (FCF) and investment opportunity set (IOS) to cash dividends in
simultaneously. This proves that whether or not the quality of the income generated will
not affect the distribution of cash dividend throughout the interests of the owners to get
cash dividend.
MRA t Test
Test results of MRA t test can be seen from the results of the analysis in
partial by using SPSS statistics 21 of the table 7, so that hypothesis sixth until
eighth can be explained as follows:
a. The sixth hypothesis (H6)
t count on the variables of the quality of profit *ROI obtained such an amount
1.053 with significance 0.294 in extent of signification 0,05 (α = 5%) and n
150 obtained value of 1.65536 t table. Because tcount < ttable (1.053 < 1.65536)
and value significance 0.294 > 0,05 so decisions Ho6 received and Ha6
rejected, this shows that the quality of profit cannot moderating a positive
influence profitability to cash dividends in partial.
b. The seventh hypothesis (H7)
t count on the variables of the quality of profit*FCF of 1.415 with significance
0.159 in extent of signification 0,05 (α = 5%) and n 150 obtained value of
1.65536 t table. Because tcount < ttabel (1.415 < 1.65536) and value
22
significance 1,59 > 0.05 so Ho7 received and Ha7 rejected, this shows that the
quality of profit cannot moderating a positive influence free cash flow to cash
dividends in partial.
Table 7 Coefficients of t MRA Test
Coefficientsa
Model
Unstandardized
Coefficients
B
(Constant)
1
Standardized
Coefficients
Std. Error
2.980
.753
The quality of
profits*ROI
.021
.019
The quality of
profits*FCF
2.126E-007
The quality of
profits*IOS
-.078
T
Sig.
Beta
3.956
. 000
.091
1.053
.294
.000
.065
1.415
.159
.064
-.112
-1.215
.226
a. Dependent Variable: Cash Dividend
Source: processing the output SPSS 21
The Result of Research Discussion
H1: Profitability, free cash flow, and investment opportunity set have had a
positive impact on cash dividend simultaneously
The results of the study testing simultaneously with this F about
profitability (ROI), free cash flow (FCF) and investment opportunity set (IOS)
have had a positive impact on cash dividend in manufacturing companies who
listed in BEI stated that their level of significance in 0,000, so that concluded that
H1 accepted. This show to the management to pay attention to profitability and
maintain the stability, free cash flow, and investment opportunity set with the aim
of enhancing cash dividend to be divided, so that the community and the investors
will choose and or keep investment in the company. The result of this research in
line with research conducted by Susanti (2015) who discovered the influence of
profitability (ROI), free cash flow (FCF) and investment opportunity set (IOS)
impact on cash dividend simultaneously.
H2: Profitability have had a positive impact on cash dividend in partial
The results of the study testing partial evaluation through T test about
profitability against the influence of cash dividend on manufacturing companies
who listed in BEI said that the total amount of significance 0.011, so that it can be
concluded that H2 accepted. In other words, profitability in this case proxy with
ROI used by a company to become the foundation consideration in a cash
dividend on the basis of investment for the repayment of profit. Profitability is the
23
ability of companies in the generate profit, while cash dividends are only some of
corporate profits which are distributed to shareholders in the form of cash, hence
writers can conclude that profitability has links with cash dividend. A company
that can afford manage their assets effectively and efficiently tending to produce
good financial performance. This realized with the high profit and the firms are
considered to be incapable of to satisfy capital and able to to pay some portions of
their profit in the form of cash dividend. The higher the profit capable of produced,
the bigger also company probability to pay dividends cash. The result of this
research in line with research conducted by Salvatore Wika Phallus Pradana and I
Putu Sugiartha Sanjaya (2014), Dwi Hastuti (2013), Yeti Meliany Lubis (2009),
Satmoko and Sri Isworo Ediningsih (2009), Michell Suharli in 2007 that
concludes that profitability significant policy of cash dividend. The authors found
the results of research in contrast to the research Nur Hidayati (2006) and Sunarto
and Kartika (2003) who argued that in partial, profitability do not affect
significantly to cash dividend.
H3: Free cash flow have had a positive impact on cash dividend in partial
The results of the study testing in partial with this t test about the influence
of free cash flow to cash dividend in manufacturing companies who listed in BEI
said significance value 0.515, concluded that H3 rejected. Writer thought that in
the condition of free cash flow high, companies just hold the amount of the
dividend. This may be due to company has other policies for example maintain
the availability of cash and keep capital adequacy to fund their expansion
company. The result of this research in line with research conducted by Salvatore
Wika Phallus Pradana and I Putu Sugiartha Sanjaya (2014) which also concluded
that free cash flow are not significant to cash dividend policy but contrast with the
results of the study Dwi Aristantia and I Made Pande Dwiana Putra (2015).
H4: Investment opportunity set have a negative influence on cash dividend in
partial
The results of the study testing in partial with this t test on investment
opportunity set have a negative influence on cash dividend in manufacturing
companies who listed in BEI said significant 0.000, so that concluded that H4
accepted. This proved that the higher investment opportunities owned by the
company so company tended to use the derived from internal as profit arrested
and funds from accumulated depreciation to fund their new investment, so that
caused a decline in dividends cash to be divided to the shareholders. The result of
this research in contrast to the research conducted by Dwi Aristantia and I Made
Pande Dwiana Putra (2015) but in line with research of Luluk Muhimatul Ifada
and Sri Kusumadewi (2014), who also concluded that free cash flow have a
negative influence and significantly to cash dividend in partial.
24
H5- H8: Profit quality can be moderating a positive influence profitability,
free cash flow and investment opportunity set against cash dividend
simultaneously and partial.
The research results testing simultaneously through with F test moderated
regression analysis about quality who can profit of moderating influence positive
profitability (ROI), free cash flow (FCF) and investment opportunity set (IOS)
against cash dividend (CD) on manufacturing companies listed on BEI declare
0.892 extent of signification. So that it can be inferred H5 rejected. It means
hypothesis fifth suspected the author was rejected because it turns out that the
quality of profit cannot be moderating (strengthens or weakens) a positive
influence to profitability (ROI), free cash flow (FCF) and investment opportunity
set (IOS) simultaneously. This proved that both are permitted the quality of the
profit generated by the company would not affect for dividing the cash dividend
along the company has high profitability, available free cash flow and investment
opportunities low supported with the policy of amount of the dividends the
company owned. So that the profit quality will have no effect of the decision of
shareholders to maintain investment along a concern to get cash dividend have
been met. The results of research positive measure the impact of profitability, free
cash flow and investment opportunity set against cash dividend simultaneously
with moderated profit is the quality of new things that a writer of none had found
in previous studies. Research who writers find what are basically in line is
research in 2011, flattening influence the level of profit against the ratio of
payment of the dividend (DPR) that in conclusion that in the event of a rise in
profit, profit level alignment have had a positive impact on the ratio the payment
of dividends unacceptable.
The results of the study testing in partial with this t test and moderated
regression analysis on the quality of profit moderating profitability to cash
dividend in manufacturing companies who listed in BEI said value significance
0.294, so the decision H6 rejected. This showed that management did not make an
issue of whether the quality of the profit produced when decided a cash dividend
along the profit produced high. Writer thought this situation in future will put the
owner and potential investors. The results of the study that measures a positive
influence profitability to cash dividend in partial with moderated the quality of
profit a writer of none found in previous studies. Research who writers found was
analysis influence management profit and profitability policy of dividends done
by Herdiani Restu Ekasiwi and Moh. Didik Ardiyanto (2012). The outcome of
this research provide a summary that the management of profit has not been
affecting the policy dividend.
The results of the study testing partial evaluation through t test and
moderated regression analysis terms of the quality of moderating profit free cash
25
flow against cash dividend on manufacturing companies who listed in BEI stated
that 0.159 significance, hence the decision is H7 rejected. That means that the
quality of profit cannot be moderating a positive influence free cash flow cash
dividends against partial evaluation. Are permitted quality free cash flow
available in the company had no effect for dividing the cash dividend, along free
cash are enough to dispensed in the form of cash dividend. In contrast to research
by Luh Made Parama Yogi and I Gusti Ayu Eka Damayanthi in year 2015. The
outcome of this research concluded that that free cash flow can have negative
effects on management profit. The results of research measure the impact of
positive free cash flow against cash dividend partial evaluation moderated with
the quality of a writer of no profit had found in previous studies.
The results of the study testing in partial with this t test and moderated
regression analysis on the quality of profit moderating investment opportunity set
to cash dividend in manufacturing companies who listed in BEI stated that their
level of significance in 0.226, so the decision H8 rejected. This shows that the
quality of profit cannot moderating negative impact investment, opportunity set to
cash dividends in partial. The low investment opportunities which is seen from a
financial report quality not capable of strengthen or weakened decision a cash
dividend. Company tending to will still do a cash dividend although a financial
report produced indicated management profit. The results of research measure the
impact investment, opportunity set to cash dividend in partial with moderated the
quality of profit a writer of no found in previous studies. Research who writers
found was analysis influence management policy of profit dividends done by
Herdiani Restu Ekasiwi and Moh. Didik Ardiyanto in 2012, the outcome of this
research provide a summary that the management of profit has not been affecting
the dividend payout ratio.
From the analysis that has been done, writer get the result regression as
follows:
Y = a + b1*X1 + b2*X2 + b3*X3 + e.
Y = - 3.050 + 0,142 X1 + 1.123.000X2 − 1.120X3 + e.
Constant of - 3.050 claimed that if variable profitability, free cash flow, and
investment opportunity set worth 0 (zero) and cash dividend the company is of
minus 3.050. It means companies should having profitability and free cash flow
high so as to have a positive dividends cash. The regression coefficient
profitability of 0,142 states that each the addition of 1 points profitability will
resulting in a rise cash dividend Rp. 0,142, it means the bigger profitability so
will increase the dividend. The regression coefficient free cash flow of 1.123.000
states that each the addition of 1 points free cash flow will not resulting in a rise
cash dividend. It means though the having cash flow free high when policy the
division of dividend is not present then will not improve the dividend cash divided.
26
The regression coefficient investment opportunity set of -1.120 states that each the
addition of 1 points investment opportunity set will reduce the increase in cash
dividend. It means the greater investment opportunity set so the less likely the
company would pay their cash dividends.
Research Findings
This research trying to analyze and prove the concept of the theory
signaling and the positive accounting theory in practice in the capital market
especially in manufacturing companies who listed in BEI. The theory signaling
indicated assymmetrics information / imbalance information between company
management with the parties concerned of information accounting. The quality of
profit in produced from the financial statement in accordance with rule reporting
accounting (the accounting standard) is hoped able to minimize the asymmetry
information .
Based on the research done variable free profitability proxy with return on
investment, (ROI) is the variable the most dominant to push motive political cost
in policy on a cash dividend. Investment could provide guarantee an advantage to
manager, the owner, creditors and the government. Positive signal of the division
of cash dividend contains information good news but with the quality of the profit
questionable because indicated by the happened management profit (alignment
profit). In a condition of assymmetrics information promote moral hazard in the
form of efforts the company concealing information by doing management profit
approach in profit alignment that the profit obtained tended to be stable. The
positive accounting theory provide opportunities to choose of the accounting
procedures to changes the profit reported from a period of the future to the present
or otherwise with the hope of improving a bonus them on this period with
reported net income as high as possible but still in the corridor and character the
process of the accrued. Several alternative accounting that can be used by each
company to reach efficiency and the effectiveness of company and reach optimal
profit.
The findings of this research prove to attract investors by providing a
signal to the market positive sentiment from a cash dividend company applying
the political cost hypothesis (hypothesis the cost of politics) with the concept of
positive accounting theory. It was because the manager prefer of the accounting
procedures who gives up at a profit which reported from the present into the
future, the quality of the profits from the quality of a financial report made no
decision can be moderating a cash dividend. The owner of a potential investor or
no deal the quality of financial reports along their interests to obtain cash dividend
have been met.
27
CONCLUSION AND RECOMMENDATIONS
Conclusion
Based on the research processing data and the discussion of the results, it
can be inferred as follows:
1. Hypothesis 1 stated that they found a positive influence between profitability
(ROI), free cash flow (FCF) and investment opportunity set (IOS) of cash
dividend simultaneously. This show to the management in order to watching
and guarding stability profitability, free cash flow, and investment,
opportunity set with the aim of enhancing cash dividend to be divided, so that
the community and the investors will choose and or keep investment in the
company .
2. Hypothesis 2 stated that they found a positive influence and significant
between profitability (ROI) of cash dividend in partial. Hypothesis companies
have been able to manage their assets effectively and efficiently tending to
produce the profit high and the company considered to be incapable of to
satisfy capital and able to to pay some portions labanya in the form of cash
dividend .
3. Hypothesis 3 states that have not is the positive and insignificant between free
cash flow to cash dividend in partial. This hypothesis rejected because of the
free cash flow high, enabled firms hold the amount of the dividend, that may
be company has other policies for example maintain the availability of cash
and keep capital adequacy to fund their expansion company.
4. Hypothesis 4 stated that is the negative and welfare between investment
opportunity set to cash dividend in partial. Hypothesis received because this
proved that the higher investment opportunities owned by the company so
company tended to use the derived from internal to fund their new investment,
so that caused a decline in dividends cash to be divided to the shareholders .
5. Hypothesis 5, 6, 7 and 8 stating that the quality of profit cannot moderating
(strengthening or weakened) a positive influence profitability (ROI), free cash
flow (FCF) and investment, opportunity set (IOS) both simultaneously and
partial. Hypothesis rejected, this proved that management did not make an
issue of whether the quality of the profit produced when decided a cash
dividend. Good whereabouts of the quality of the profit produced by the
company would not affect for dividing the cash dividends along the company
has profitability high, available cash flow free and investment opportunities
low supported with the policy of a dividend owned company. So that the
quality of the profit produced would not affect of the decision shareholders to
maintain investments or potential investors invest along the interests of the
owner to get cash dividend fulfilled .
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Recommendation
Based on a conclusion that described above then the researcher
recommendations are:
1. Companies should maintain stability profitability and investment opportunities
to maintain the stability of a cash dividend in the hope of a cash dividend a
stable can provide signal positive for the owner and potential investors .
2. Expected the leaders management interested in the policy can build culture of
good ethics that doesn’t occur the act of moral hazard .
3. So that the results of research obtained diverse and more broadly to next
researchers suggested adding the independent variable for example other
management behavior and investors. A period of research augmented or
renewed with respect there are regulations of OJK (authority financial services)
since year 2014 about the amount of the dividend, will make the development
of science much better.
4. Investors and prospective investors although results showed no influence of
the quality of the profit on the amount of the dividend, should be more careful
it was feared that the presentation of financial report misleading the owner and
a potential investor in future.
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