IMPACT OF DIVIDEND POLICY ON FIRM PERFORMANCE: MODERATING ROLE OF CREDIT RISK
DOI:
https://doi.org/10.51903/jiab.v5i1.998Keywords:
Dividend Payout Ratio, Non-Performing Loan, Return on AssetsAbstract
This study examines the impact of Dividend Payout Ratio (DPR) on firm performance, measured by Return on Assets (ROA), in Indonesian banking companies, with Non-Performing Loans (NPL) as a moderating variable. Using secondary data from the financial statements of 11 banks listed on the Indonesia Stock Exchange (IDX) from 2019 to 2023, this research employs Moderating Regression Analysis (MRA) to test three hypotheses. The results indicate that DPR has a significant positive effect on ROA, supporting the hypothesis that higher dividend payouts enhance firm performance by attracting and retaining investors and signaling financial health. Conversely, NPL does not have a statistically significant direct effect on ROA, nor does it moderate the relationship between DPR and ROA. This suggests that while DPR is crucial for improving firm performance, the role of credit risk, as measured by NPL, does not significantly alter this relationship in the context of the studied banking companies. The R-squared value of the regression model is approximately 0.53, indicating that DPR and NPL explain 53% of the variability in ROA. These findings imply that dividend policies can be pursued independently of the current levels of non-performing loans, simplifying decision-making processes regarding dividend strategies. However, banks must continue to manage NPLs effectively for overall financial health. The study's limitations include a limited sample size and the exclusion of other potential moderating variables, suggesting areas for future research to provide a more comprehensive understanding of the factors influencing firm performance in the banking sector.
References
Abeysinghe, A. (2023). The relationship between dividend policy and firm financial performance: empirical study of non-financial listed companies in sri lanka. sljo-j-jcpad, 6(1), 20-36. https://doi.org/10.4038/jcpad.v6i1.7
Agrawal, A. (2021). Impact of elimination of dividend distribution tax on indian corporate firms amid covid disruptions. Journal of Risk and Financial Management, 14(9), 413. https://doi.org/10.3390/jrfm14090413
Ahmed, S., Majeed, M., Thalassinos, E., & Thalassinos, Y. (2021). The impact of bank specific and macro-economic factors on non-performing loans in the banking sector: evidence from an emerging economy. Journal of Risk and Financial Management, 14(5), 217. https://doi.org/10.3390/jrfm14050217
Aman, S. (2022). Relationship between the dividend payout and firm’s profitability: a study in the oil sector of pakistan. jobams, 4(2), 48-55. https://doi.org/10.58921/jobams.4.2.85
Baker, H., Dewasiri, N., Koralalage, W., & Azeez, A. (2019). Dividend policy determinants of sri lankan firms: a triangulation approach. Managerial Finance, 45(1), 2-20. https://doi.org/10.1108/mf-03-2018-0096
Budagaga, A. (2020). Determinants of banks’ dividend payment decisions: evidence from mena countries. International Journal of Islamic and Middle Eastern Finance and Management, 13(5), 847-871. https://doi.org/10.1108/imefm-09-2019-0404
Budhathoki, P. (2024). The effects of dividend policy on the price of shares of microfinance companies in developing countries. Socioeconomic Challenges, 8(1), 52-61. https://doi.org/10.61093/sec.8(1).52-61.2024
Fauzi, I. and Rukmini, R. (2018). The effect of financial performance measured with rentability ratio against dividend payout ratio (empirical study on manufacturing companies group listed on bei). International Journal of Economics Business and Accounting Research (Ijebar), 2(01). https://doi.org/10.29040/ijebar.v2i01.228
Gurung, J. (2023). The impact of dividend policy on stock prices: evidence from nepalese banking sector. Contemporary Research an Interdisciplinary Academic Journal, 6(2), 88-109. https://doi.org/10.3126/craiaj.v6i2.60250
Haryono, C. (2024). The mediating role of dividend policy on financial performance and firm value: a literature review. Kne Social Sciences. https://doi.org/10.18502/kss.v9i11.15780
Heriansyah, K. (2023). Determination of dividend policy in indonesian banking. JACTA, 2(1), 9-19. https://doi.org/10.58738/jacta.v2i1.322
Ibrahim, I., Zaidi, N., & Jais, M. (2023). Dividend payout policy: the case of islamic and non-islamic banks in malaysia. International Journal of Academic Research in Accounting Finance and Management Sciences, 13(1). https://doi.org/10.6007/ijarafms/v13-i1/15904
Jabbar, B., Haidery, A., Kamran, A., & Zafar, F. (2023). Analysis on regional guidance mechanism for promoting prevention based on combination of traditional chinese medicine and western medicine. E3s Web of Conferences, 409, 05010. https://doi.org/10.1051/e3sconf/202340905010
Jamal, N. (2023). Effect of liquidity and credit risk on bank financial performance: a case of afghanistan’s commercial banks. American Journal of Finance and Business Management, 2(1), 27-38. https://doi.org/10.58425/ajfbm.v2i1.227
Jatoi, M., Rasheed, A., & Wahla, K. (2023). Impact of dividend policy on firm performance: evidence from non-financial firms of pakistan. Pakistan Journal of Humanities and Social Sciences, 11(2). https://doi.org/10.52131/pjhss.2023.1102.0430
Jiang, T. (2024). Indicators of non-performing loan: does efficiency matter?. Technological and EconomicDevelopment of Economy, 30(1), 129-147.https://doi.org/10.3846/tede.2024.20453
Li, K., Niskanen, J., & Niskanen, M. (2019). Capital structure and firm performance in european smes. Managerial Finance, 45(5), 582-601. https://doi.org/10.1108/mf-01-2017-0018
Margono, F. and Gantino, R. (2021). Influence of firm size, leverage, profitability, and dividend policy on firm value of companies in indonesia stock exchange. Copernican Journal of Finance & Accounting, 10(2), 45-61. https://doi.org/10.12775/cjfa.2021.007
Mushafiq, M., Sindhu, M., & Sohail, M. (2021). Financial performance under influence of credit risk in non-financial firms: evidence from pakistan. Journal of Economic and Administrative Sciences, 39(1), 25-42. https://doi.org/10.1108/jeas-02-2021-0018
Mustafa, E. (2024). Assessing the impact of non-performing loans and capital adequacy on bank profitability for the case of north macedonia. TEFMJ, 6(1), 51-62. https://doi.org/10.69648/ifvp1211
Napi, M. (2024). Factors influencing non-performing loans: empirical evidence from commercial banks in malaysia. International Journal of Academic Research in Accounting Finance and Management Sciences, 14(1). https://doi.org/10.6007/ijarafms/v14-i1/20995
Nguyen, A., Pham, C., Doan, N., Ta, T., Nguyen, H., & Truong, T. (2021). The effect of dividend payment on firm’s financial performance: an empirical study of vietnam. Journal of Risk and Financial Management, 14(8), 353. https://doi.org/10.3390/jrfm14080353
Njoku, O. (2024). Revisiting the effect of dividend policy on firm performance and value: empirical evidence from the korean market. International Journal of Financial Studies, 12(1), 22. https://doi.org/10.3390/ijfs12010022
Nurhidayat, D., Adhiguna, E., Pasha, S., & Sihombing, P. (2023). Pengaruh profitabilitas, efisiensi & covid-19 terhadap kredit bermasalah pada ukuran perusahaan pada tahun 2018-2021 sebagai variabel moderating. Populis Jurnal Sosial dan Humaniora, 8(1), 29-47. https://doi.org/10.47313/pjsh.v8i1.1752
Ozili, P. (2019). Non-performing loans and financial development: new evidence. The Journal of Risk Finance, 20(1), 59-81. https://doi.org/10.1108/jrf-07-2017-0112
Puspitaningtyas, Z. (2019). Assessment of financial performance and the effect on dividend policy of the banking companies listed on the indonesia stock exchange. Banks and Bank Systems, 14(2), 24-39. https://doi.org/10.21511/bbs.14(2).2019.03
Rajan, D. (2024). Analyzing the impact of dividend policy on the value of listed companies- insights from india. International Journal of Innovative Research in Engineering & Management, 11(2), 84-88. https://doi.org/10.55524/ijirem.2024.11.2.17
Rawal, A. (2024). Impact of financial distress on the dividend policy of banks in india: evidence using panel data. Future Business Journal, 10(1). https://doi.org/10.1186/s43093-024-00310-y
Safitri, M. (2022). The role of interest rates on the effect of non-performing loans and capital adequacy ratios on banking profitability (case study on conventional commercial banks listed on the indonesia stock exchange 2016-2020). Jurnal Cakrawala Ilmiah, 1(7), 1785-1796. https://doi.org/10.53625/jcijurnalcakrawalailmiah.v1i7.1801
Sutrisno, S. (2023). An in-depth analysis of credit, capital, and operational risks on regional development banks' performance amidst the covid-19 pandemic. International Journal of Finance & Banking Studies, 12(3), 57-64. https://doi.org/10.20525/ijfbs.v12i3.3062
Thornton, J. and Tommaso, C. (2020). The effect of non‐performing loans on credit expansion: do capital and profitability matter? evidence from european banks. International Journal of Finance & Economics, 26(3), 4822-4839. https://doi.org/10.1002/ijfe.2042
Tran, D. and Ashraf, B. (2018). Dividend policy and bank opacity. International Journal of Finance & Economics, 23(2), 186-204. https://doi.org/10.1002/ijfe.1611
Wardani, S., Wijaya, A., Devi, H., & Ayera, A. (2022). Effect of capital structure, tax avoidance, and firm size on firm value with dividend payout ratio as moderating. Journal of Business Management Review, 3(1), 069-081. https://doi.org/10.47153/jbmr31.3022022
