The Effect of Current Ratio, Debt to Equity Ratio and Liquidity on Dividend Policy for the Banking Sector Listed on the Indonesia Stock Exchange for the 2020-2024 Period

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FORMOSA NEWS - Medan - High Debt Ratios Reduced Banking Dividend Payouts in Indonesia Between 2020 and 2024. Corporate debt structure significantly determines how much profit Indonesian banks distribute to shareholders, whereas short-term cash reserves and general liquidity levels exert no direct influence on dividend decisions. This conclusion comes from a comprehensive financial study published in 2026 by researchers Nadila Agustina, Yusnia Betti Dame Marpaung, and Tantri Octora Dwi Syah Putri from Universitas Prima Indonesia, alongside Zuwina Miraza from Universitas Harapan Medan. Analyzing financial data from banks listed on the Indonesia Stock Exchange between 2020 and 2024, the research team found that capital leverage specifically the debt-to-equity ratio serves as the primary financial constraint on dividend payouts. These findings provide crucial insights for equity investors, financial analysts, and bank management operating in emerging markets.

The Financial Balancing Act in Commercial Banking
Commercial banks serve as essential financial intermediaries by gathering public funds and allocating capital to productive economic sectors. Following global economic disruptions and market volatility between 2020 and 2024, financial institutions in Indonesia faced increasing pressure to maintain operational stability while delivering competitive returns to investors. Determining a bank's dividend policy represents a delicate strategic balance. Corporate leaders must decide how much net profit to retain as capital reserves for future operations and how much to distribute as cash dividends to equity holders. Dividends directly shape investor sentiment and corporate valuation, making understanding the exact financial metrics that drive payout decisions vital for market participants.

Examining Five Years of Banking Performance

To investigate the drivers of bank dividend payouts, the research team implemented a quantitative empirical design based on audited financial reports from the Indonesia Stock Exchange.

• Sample Selection: The researchers used a purposive sampling strategy to select 21 qualified commercial banking institutions.
  
• Data Scope: The dataset comprised 105 total observations collected over a five-year period from 2020 through 2024.
  
• Analytical Framework: The team evaluated three core financial metrics Current Ratio (CR), Debt-to-Equity Ratio (DER), and general Liquidity against the Dividend Payout Ratio (DPR).
  
• Statistical Method: Data processing was performed using multiple linear regression analysis via IBM SPSS Statistics after verifying classical statistical assumptions.
  

Core Findings on Banking Dividends and Financial Ratios
The statistical analysis revealed distinct roles for leverage and liquidity in shaping corporate dividend distributions:

• Debt Ratio Drives Payout Reductions: The Debt-to-Equity Ratio showed a statistically significant negative relationship with dividend payouts. Higher debt burdens force banks to prioritize interest expenses and debt repayments over shareholder payouts.
  
• Cash Reserves Do Not Guarantee Dividends: The Current Ratio demonstrated no statistically significant individual effect on dividend policy. Accumulating short-term liquid assets does not automatically lead to higher cash dividends, as banks often retain excess cash for precautionary reserves rather than distributing it.
  
• General Liquidity Has Minimal Individual Impact: Standalone liquidity levels showed no significant individual correlation with the dividend payout ratio.
  
• Combined Factors Exert Strong Influence: When tested simultaneously, the Current Ratio, Debt-to-Equity Ratio, and Liquidity exerted a statistically significant joint effect on corporate dividend policies.
  
• Explanatory Power: The model yielded an Adjusted R Square value of 0.239, confirming that these three financial factors collectively account for 23.9 percent of the variance in banking dividend payouts.
  

Real-World Impact for Investors and Bank Executives
The study's insights carry direct practical implications for capital market strategy and banking governance in Southeast Asia. For stock market investors, the research highlights that evaluating a bank's debt leverage offers a far more reliable indicator of future dividend yields than examining cash balances or short-term liquidity metrics alone. For banking executives and board members, the findings emphasize the necessity of maintaining optimal capital structures. Effective management of debt obligations protects corporate solvency while preserving the bank's capacity to reward shareholders consistently over time.

Author Profiles
Nadila Agustina: Researcher at the Center of Excellence in Finance and Accounting (PUI Keuangan dan Akuntansi), Universitas Prima Indonesia. Her research focuses on corporate financial management and equity markets.
Yusnia Betti Dame Marpaung: Financial researcher at the Center of Excellence in Finance and Accounting (PUI Keuangan dan Akuntansi), Universitas Prima Indonesia, specializing in financial reporting and corporate accounting.
Tantri Octora Dwi Syah Putri, S.Si., M.Si.: Academic and lead corresponding researcher at Universitas Prima Indonesia's Center of Excellence in Finance and Accounting, with expertise in quantitative statistical modeling and corporate valuation.
Zuwina Miraza: Senior academic and researcher at Universitas Harapan Medan, specializing in banking management and corporate financial strategies.

Source
Nadila Agustina, Yusnia Betti Dame Marpaung, Tantri Octora Dwi Syah Putri, Zuwina Miraza. The Effect of Current Ratio, Debt to Equity Ratio and Liquidity on Dividend Policy for the Banking Sector Listed on the Indonesia Stock Exchange for the 2020-2024 Period. Asian Journal of Management Analytics (AJMA). Vol. 5, No. 3, Tahun 2026 (Halaman 713–724)
DOI : https://doi.org/10.55927/ajma.v5i3.16667
URL:  https://journal.formosapublisher.org/index.php/ajma