Recent research from Universitas Swadaya Gunung Jati reveals the complex dynamics between profitability, dividend policy, and firm value in the Indonesian banking sector for the 2022-2024 period. Wulan Sri Hartati, Maiyaliza, and Agustina found that while profitability boosts firm value, an excessively high dividend payout can actually negatively impact a company's value in the eyes of investors.
Capital Market Dynamics Post-Pandemic
Amidst post-pandemic economic recovery and global monetary policy fluctuations, investors have become more selective in assessing the financial performance of banks. An interesting phenomenon is occurring in the national banking industry where there is a discrepancy between increased profitability and dividend distribution patterns. Some large banks consistently distribute dividends, while mid-sized banks tend to retain earnings to strengthen internal capital.
Data Analysis Approach
This study employed an associative quantitative methodology using secondary data from the annual financial statements of banking companies listed on the Indonesia Stock Exchange (IDX) between 2022 and 2024. The researchers used the Structural Equation Modeling (SEM) method based on Partial Least Squares (PLS) with the help of SmartPLS software to test direct and indirect influences between variables.
Key Research Findings
The analysis revealed several crucial points regarding market and company behavior:
- Profitability, measured by Return on Assets (ROA), has a positive and significant effect on firm value (Tobin’s Q).
- There is a negative influence of profitability on dividend policy (Dividend Payout Ratio), indicating that highly profitable banks prefer to retain earnings for expansion or capital reinforcement rather than distributing them as dividends.
- Dividend policy has a negative impact on firm value, suggesting that investors favor companies that retain earnings for long-term growth.
- Dividend policy acts as a mediating (intervening) variable between profitability and firm value, although its indirect influence is limited.
Implications for Management and Investors
These findings provide important insights for bank management in designing optimal profit-sharing strategies to ensure sustainable company growth. For investors, this research suggests focusing not only on the amount of dividends received but also on the level of profitability and the company's long-term growth strategy. These findings are consistent with signaling theory and residual dividend theory, which explain that retained earnings are often interpreted by the market as a positive signal regarding the company's future prospects.
Author Profiles: This research was conducted by Wulan Sri Hartati, Maiyaliza, and Agustina from Universitas Swadaya Gunung Jati. They specialize in financial management and capital market behavior in the banking sector.
Research Source:
Hartati, W. S., Maiyaliza, M., & Agustina, A. (2026). The Effect of Profitability on Firm Value with Dividend Policy as an Intervening Variable in the Banking sector at the Indonesian Stock Exchange (BEI) for the 2022-2024 Period. Indonesian Journal of Business Analytics (IJBA), 6(3), 767-776. DOI:
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