The study focuses on three financial factors that can shape how investors value energy companies: profitability, dividend policy, and firm size. Profitability is measured through Return on Equity (ROE), dividend policy through the Dividend Payout Ratio (DPR), and firm size through the natural logarithm of total assets.
The central finding is particularly important for investors: profitability has a significant negative effect on stock prices, while dividend policy does not have a statistically significant effect. At the same time, firm size significantly strengthens the relationship between profitability and stock prices.
Energy Stocks Face a Changing Investment Environment
Indonesia's energy sector has an important role in the national economy because it supplies resources needed for households, transportation, and industrial activity. However, the sector experienced major changes between 2020 and 2024.
The COVID-19 pandemic, fluctuations in global commodity prices, and Indonesia's commitment to achieving net-zero emissions created a more uncertain environment for energy businesses. These developments also affected how investors evaluated companies listed on the stock market.
Against this backdrop, investors increasingly need reliable financial information. Profitability and dividend payments are commonly used to assess a company's financial condition and prospects. Yet the study by Aprilia and Soma shows that these indicators do not necessarily affect stock prices in the same way.
For investors, the findings suggest that looking only at whether an energy company is profitable or pays dividends may not be enough to understand its market valuation.
Researchers Analyzed 95 Company-Year Observations
Aprilia and Soma used a quantitative approach based on secondary financial data from energy companies listed on the IDX between 2020 and 2024.
Companies were selected using specific criteria. They had to remain listed throughout the observation period, publish complete annual financial reports, and provide the financial information required to calculate profitability, dividend policy, stock prices, and firm size.
The final dataset contained 95 observations.
The researchers measured:
Profitability: Return on Equity (ROE), indicating how effectively a company generates returns from shareholders' equity.
Dividend policy: Dividend Payout Ratio (DPR), showing the proportion of profits distributed to shareholders.
Firm size: Natural logarithm of total assets.
Stock price: The market valuation variable examined in the study.
The researchers applied panel-data regression and Moderated Regression Analysis (MRA). Statistical tests were first used to select the most appropriate panel regression model, with the analysis ultimately using the Random Effect Model (REM). The calculations were performed using EViews with a 5% significance level.
Higher Profitability Did Not Mean Higher Stock Prices
The first major finding challenges the assumption that stronger profitability will always result in a higher stock price.
Profitability had a statistically significant relationship with stock prices, but the direction was negative. The regression coefficient was −147,743.8, with a probability value of 0.0006, below the 5% significance threshold.
The result means that, within the companies and period examined, increases in profitability were associated with lower stock prices rather than higher prices.
The researchers argue that profitability alone may not explain investor behavior in Indonesia's energy sector. Investors during 2020–2024 were operating in an environment characterized by post-pandemic recovery, commodity-price volatility, and changes associated with the energy transition.
Consequently, investors may have considered broader factors such as business risks, future growth opportunities, corporate governance, and long-term sustainability rather than relying exclusively on current profitability.
Dividend Policy Had No Significant Effect
The second finding concerns dividend payments.
The study found that dividend policy did not significantly affect stock prices. The regression coefficient was 1,941.069, but the probability value reached 0.7412, considerably above the 0.05 significance threshold.
In practical terms, the dividend payout ratio was not a strong factor explaining movements in energy-sector stock prices during the study period.
The finding suggests that investors may have placed greater emphasis on future growth, capital gains, business prospects, and long-term sustainability than on the amount of profit distributed as dividends.
This result is also relevant for companies deciding how to communicate their financial performance. Simply maintaining or increasing dividend payments may not be sufficient to influence market valuation if investors remain more concerned about the company's future prospects.
Large Companies Strengthen the Profitability Signal
The most notable moderating result concerns firm size.
The study found that firm size significantly strengthened the relationship between profitability and stock prices. The interaction between ROE and firm size produced a coefficient of 6,590.714 and a probability value of 0.0004.
This indicates that profitability information can carry greater weight when it comes from larger companies.
According to the findings presented by Setya Aprilia of Universitas Teknologi Muhammadiyah Jakarta and Mukti Soma of Telkom University, larger firms generally possess greater financial resources, stronger market positions, broader access to financing, and established reputations. These characteristics can make financial information from large companies more credible in the eyes of investors.
The result supports the study's use of Signaling Theory, which views corporate financial information as a signal to investors. A profitability signal from a large and established company may be interpreted differently from the same signal coming from a smaller company.
Firm Size Does Not Strengthen the Dividend Effect
The moderating role of firm size was not found in the relationship between dividend policy and stock prices.
The interaction between DPR and firm size produced a coefficient of −105.6182 with a probability value of 0.6690, meaning the relationship was not statistically significant.
Therefore, being a large company does not necessarily make dividend policy more influential on energy-sector stock prices.
The findings indicate that investors may evaluate dividend payments independently of company size, particularly when assessing companies in an industry undergoing significant structural and economic changes.
What the Findings Mean for Investors and Companies
For investors, the study suggests that financial analysis of energy stocks should go beyond profitability and dividend payments. Company size, market conditions, business risks, growth prospects, and long-term sustainability can also provide important information when evaluating an investment.
For corporate managers, the findings emphasize the importance of strengthening fundamental performance and maintaining investor confidence. Large companies, in particular, may have an advantage because their profitability information can have a stronger relationship with market valuation.
For the capital market, the study highlights the importance of transparent financial reporting and effective corporate governance. Reliable information can help investors assess companies more accurately and reduce information asymmetry.
However, the researchers acknowledge that the study covers only the 2020–2024 period and focuses exclusively on energy companies listed on the IDX. Other factors, including corporate governance, liquidity, leverage, and macroeconomic conditions, may also influence stock prices.
Future studies could therefore expand the observation period, include other industrial sectors, and examine additional financial and non-financial variables.
Author Profile
Setya Aprilia is affiliated with Universitas Teknologi Muhammadiyah Jakarta and is the corresponding author of the study. Her research in this article focuses on corporate finance, profitability, dividend policy, firm size, and stock-price behavior in Indonesia's energy sector.
Mukti Soma is affiliated with Telkom University, Bandung. His contribution to the study centers on corporate financial analysis and capital-market research, particularly the relationship between company characteristics and stock prices.
The source provided for this article does not specify the authors' academic degrees or detailed professional specialties, so no additional credentials are added here.
Research Source
Key takeaway: For Indonesian energy companies, profitability alone does not guarantee a higher stock price. The study shows that firm size changes the strength of the profitability–stock price relationship, while dividend policy remains statistically insignificant during 2020–2024.
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