THE EFFECT OF CURRENT RATIO, DEBT TO EQUITY RATIO, AND RETURN ON ASSETS ON DIVIDEND PAYOUT RATIO IN IDX HIGH DIVIDEND INDEX COMPANY 20 PERIOD 2017-2019
Serly Maharani1, Ninik Lukiana2, Anisatul Fauziah3
STIE Widya Gama Lumajang Email: serlymahar@gmail.com1 Email: ibundaninik@gmail.com2 Email: anisatulfauziah3@gmail.com3
Abstract
A dividend policy is needed by investors as a consideration in making investments because it involves important company decisions regarding profits to be paid in the form of dividends or retained for additional company capital. This study aims to test and analyze the effect of the Current Ratio, Debt to Equity Ratio, and Return On Assets on the Dividend Payout Ratio in the IDX High Dividend 20 Index Company for the 2017-2019 Period. This study uses a quantitative approach manifold associative with the number of research samples according to the criteria as many as 17 companies consisting of 51 financial statements during 2017-2019. This study uses secondary data with the data analysis technique used is multiple linear regression. The results of this study showed that the Current Ratio and Return On Assets have a positive and significant effect on the Dividend Payout Ratio in the IDX High Dividend 20 Index Company for the 2017- 2019 period. Meanwhile, the Debt to Equity Ratio has no effect on the Dividend Payout Ratio in the IDX High Dividend 20 Index Company for the 2017-2019 period.
Keyword: Current Ratio, Debt to Equity Ratio, Return On Asset and Dividend Payout Ratio.
INTRODUCTION
Indonesia's economic activities have developed quite rapidly, especially in the field of investment made in the capital market. The most popular investment instrument and many investors choose is stocks because it can provide a high amount of profit in the form of dividends. The popularity of shares among investors makes the number of stock investors increase every year. The year 2020 was a year in which the number of stock investors increased dramatically to reach 1,695,268 SID with the highest growth of 590,658 SID of the total number of stock investors in 2019 which amounted to 1,104,610 SID according to the press release of the Indonesia Stock Exchange No:
007/BEI. SPR/01-2021.
Dividends are the main goal and motivational factor for investors to invest in companies that go public. Dividends according to Hadi (2013: 100) are profit sharing for investors or shareholders.
Dividends are an important company policy because they involve investments made by investors (Sugiono, 2009:173). Therefore, the Indonesia Stock Exchange established the IDX High Dividend 20 index so that investors can map the shares of companies with good reputations that have always distributed cash dividends for the last 3 years.
Dividend policy is one of the company's important decisions concerning the decision whether profits will be paid in the form of dividends or retained to increase the company's additional capital (Sawir, 2004: 137). The proxy for measuring dividend policy used in this study is the dividend payout ratio. Guinan (2009:96) defines the dividend payout ratio as the percentage of profit distributed to investors in the form of dividends which is calculated by comparing cash dividends per share to earnings per share. This is supported by the research of Martha & Juliani (2018) which says that the dividend payout ratio is often used in conjunction with dividend policy
because the company needs to make a policy regarding the amount of profit to be distributed to investors.
Before investing, investors will usually compare the financial performance of one company with another by conducting an analysis using financial ratios. The current ratio is a financial ratio used to measure a company's strength in paying its debts or short-term obligations using current assets (Kariyoto, 2018:74). The theory put forward by Sirait (2017:130) states that the higher the current ratio, the better the ability of a company to settle its short-term debt, and vice versa. This theory is supported by research conducted by Rahmadi (2018); Maghfiroh et al., (2019); Solihati (2020);
Simorangkir et al., (2020); and Purnasari et al., (2020) whose results state that the current ratio influences the dividend payout ratio. the higher the company's current ratio, the greater the dividend payout ratio. However, the results of this study are different from those of Wahyuni &
Hafiz (2018); Herawati & Fauzia (2018); Martha & Juliani (2018); Lukiana & Nawangsih (2019);
Maheasy et al., (2019); Angelia & Toni (2020); Rahmadi (2020); Pattiruhu & Paais (2020); and Purwanti et al., (2020) whose results state that the current ratio does not affect the dividend payout ratio.
Debt to equity ratio is a ratio that describes the level of guarantee of the company's debt from the available capital. The higher the debt to equity ratio, the worse the company's solvency level, conversely the lower the debt to equity ratio, the better the company's solvency level (Sirait, 2017:
135). The high debt to equity ratio indicates the smaller the equity or own capital compared to the obligations or debts. A company must have debt that is not greater than the capital it has. Research conducted by Herawati & Fauzia (2018); Wahyuni & Hafiz (2018); Maheasy et al., (2019);
Pattiruhu & Paais (2020); Rahmadi (2020); and Purnasari et al., (2020) with their research results showing that there is a significant effect between the debt to equity ratio on the dividend payout ratio. However, it is different from the research conducted by Setiawan et al., (2018); Martha &
Juliani (2018); Lukiana & Nawangsih (2019); Simorangkir et al., (2020); Angelia & Toni (2020);
and the research of Purwanti et al., (2020) with the results of their research which states that the debt to equity ratio does not have a significant effect on the dividend payout ratio. The debt to equity ratio is important to note because it relates to the strength of a company is paying all its obligations which will reflect the company's profitability.
Return on assets is a ratio of earnings power that describes the company's ability to earn profits from available assets. The assets in question are the entirety of the company's assets. The higher the return on assets, the better the company's strength in earning profits and turning its assets, so as to increase the company's ability to pay dividends (Sirait, 2017:142). The high return on assets shows the company's performance is getting better.The above theory is supported by research conducted by Herawati & Fauzia (2018); Rahmadi (2018); Martha & Juliani (2018); Setiawan et al., (2018); Wahyuni & Hafiz (2018); Lukiana & Nawangsih (2019); Pattiruhu & Paais (2020);
Angelia & Toni (2020); and Purwanti et al., (2020) whose results show a significant influence between return on assets and dividend payout ratio. However, it is different from the research conducted by Simorangkir et al., (2020) whose research results say that the return on assets has no effect on the dividend payout ratio.
Based on this description, the first hypothesis can be formulated, namely, the Current Ratio has a significant effect on the dividend payout ratio in companies that are included in the IDX High Dividend 20 Index for the 2017-2019 period. The second hypothesis is that the Debt to Equity Ratio has a significant effect on the dividend payout ratio in companies that are included in the IDX High Dividend 20 Index for the 2017-2019 period. And the third hypothesis, namely Return on Assets, has a significant effect on the dividend payout ratio of companies that are included in the IDX High Dividend 20 Index for the 2017-2019 period. With this hypothesis, the purpose of this study is to examine and analyze the effect of the Current Ratio, Debt To Equity Ratio, and Return on Assets on the Dividend Payout Ratio of the IDX High Dividend 20 Index company for the 2017-2019 period.
METHOD
This study uses a quantitative approach with the type of associative research that refers to the causal relationship model. This study examines and analyzes the value theory of research variables using statistical methods to determine the existence of a relationship between two or more variables. The objects in this study include the independent variables, namely the current ratio, debt to equity ratio, and return on assets, and the dependent variable, namely the dividend payout ratio. The type of data used in this study is secondary data using internal data sources in the form of annual financial reports, namely balance reports (financial position), income statements, and reports of changes in equity. The population used in this study are publicly traded companies listed on the IDX High Dividend 20 Index which are listed on the Indonesia Stock Exchange (IDX) during the 2017-2019 period, totaling 20 companies with the sampling technique used is nonprobability sampling technique with the purposive sampling method so that a sample of companies according to the criteria was obtained, namely as many as 17 companies consisting of 51 financial statements from 2017-2019 that were included in the IDX High Dividend 20 Index which was determined and published by PT. Indonesia stock exchange. The data analysis technique used in this study is multiple linear regression, by first doing the classical assumption test as a consideration.
RESULTS AND DISCUSSION
Classic Assumption Test
The normality test uses a non-parametric statistical test, namely Kolmogorov Smirnov (K-S) provided that if the significance value is > 0.05 then the residual data is normally distributed. The results of the normality test using the Kolmogorov Smirnov test (K-S) obtained a significant value of 0.096 which is greater than 0.05 (0.096 > 0.05) so that the data in this study were declared normally distributed. The multicollinearity test is seen through the VIF (Variance Inflation Factor) and TOL (Tolerance) of each independent variable with the condition that if the VIF value is < 10 and the tolerance value is > 0.10, it can be said that the regression model is free of multicollinearity between variables. The results of the multicollinearity test can be seen that the three independent variables of the study, namely the current ratio (X1), debt to equity ratio (X2), and return on assets (X3) show the value of VIF (Variance Inflation Factor) less than 10 (VIF < 10) and the value of TOL (Tolerance) is more than 0.10 (TOL > 0.10) so that the regression model is declared free of multicollinearity, meaning that there is no correlation between the independent variables. Furthermore, the heteroscedasticity test uses the Scatter Plot method with the criteria that if there is no clear pattern, such as dots that spread above and below the number 0 on the Y axis, then it is identified that there is no heteroscedasticity. The results of the heteroscedasticity test show that the distribution of points does not exist or does not form a certain clear pattern, such as dots that spread above and below the number 0 on the Y-axis so that the data is declared homoscedasticity or there is no heteroscedasticity. Next, the autocorrelation test uses the Durbin- Watson test (DW test) with the criteria that if the DW or Durbin-Watson value is between -2 and +2 (-2 ≤ DW ≤ +2), it means that the regression model is free of autocorrelation. The results of the autocorrelation test indicate that the Durbin-Watson value of this study is 1.176 so that the equation 2 ≤ 1,176 ≤ 2 is obtained, which is clear that the Durbin-Watson value of 1.176 is between -2 and +2, which means that the regression model is free of autocorrelation. Based on the results described above, the regression model is declared to have met the classical assumption test.
so that it can be continued in the next stage, namely multiple linear regression analysis.
Multiple Linear Regression
Tabel 1. Multiple Linear Regression
Unstandardized Standardized
t Sig. Information Coefficients Coefficients
B Std. Error Beta
(Constant) 0.398 0.172 2.308 0.025 −
Current Ratio (X1) 0.214 0.083 0.365 2.577 0.013
Positive Effect Debt to Equity Ratio -0.010 0.040 -0.043 -0.249 0.804 No Effect
(X2)
Return On Asset (X3) 0.495 0.178 0.402 2.778 0.008
Positive Effect Dependend Variable: Dividend Payout Ratio
Source: Results of data processing(2021)
Multiple linear regression analysis is a regression model used to test the effect of two or more independent variables on one dependent variable. Based on the results of multiple linear regression analysis, the following equation can be arranged:
DPR 0,398 + 0,214CR - 0,010 DER + 0,495 ROA The above equation can be explained as follows:
1. The constant value of 0.398 with a positive value means that the Dividend Payout Ratio (Y) value is 0.398 if each of the independent variables, namely the Current Ratio (X1), Debt to Equity Ratio (X2) and Return On Assets (X3) is 0.
2. The coefficient value of the Current Ratio (X1) of 0.214 is positive, which means that if there is an increase in the Current Ratio variable of 1, it will cause an increase in the value of the Dividend Payout Ratio of 0.214 and vice versa.
3. The coefficient value of the Debt to Equity Ratio (X2) coefficient of -0.010 is negative, which means that if there is an increase in the Debt to Equity Ratio variable by 1, it will cause a decrease in the Dividend Payout Ratio value of 0.010 and vice versa.
4. The coefficient value of the Return On Assets (X3) coefficient of 0.495 is positive, which means that if there is an increase in the Return On Assets variable of 1, it will cause an increase in the value of the Dividend Payout Ratio of 0.495 and vice versa.
Hypothesis Test Results t test (partial)
The t-test was used to test the individual significance of the current ratio, debt to equity ratio, and return on assets variables on the dividend payout ratio with ttable values of 2.01174 and -2.01174.
The results of the t test (partial) in this study are described as follows:
1. The current ratio variable has a significant value of 0.013 and a tcount of 2.577. This indicates that the sig value is 0.013 > 0.05 and the value tcount is 2.577 > ttable is 2.01174. So that the results obtained that the Current Ratio has a positive and significant effect on the dividend payout ratio. That is, the first hypothesis (H1) is accepted.
2. The debt to equity ratio variable has a significant value of 0.804 and a tcount of -0.249. This indicates that the value of sig is 0.804 < 0.05 and the value of tcount is -0.249 < ttable -2.01174.
So that the results obtained that the debt to equity ratio has no effect on the dividend payout ratio. That is, the second hypothesis (H2) is rejected.
3. The return on asset variable has a significant value of 0.008 and a tcount of 2.778. This indicates that the sig value is 0.008 > 0.05 and the value of tcount is 2.778 > ttable is 2.01174. So that the results obtained that return on assets has a positive and significant effect on the dividend payout ratio. That is, the third hypothesis (H3) is accepted.
F Test (Model Feasibility Test)
The model feasibility test was conducted to measure whether all the independent variables intended in the model, namely the current ratio, debt to equity ratio, and return on assets, could be used to predict the dependent variable, namely, the dividend payout ratio, in other words, whether the model analyzed had a high level of model feasibility or not. Based on the model feasibility test, a significant value of 0.000 was obtained where the value was smaller than the significance level used of 0.05 or 5% (0.000 < 0.05) and the Fcount value of 9.761 was greater than the Ftable value of 2.80 ( 9.755 > 2.80). Then it can be obtained that all the independent variables intended in the model can be used to predict the dependent variable. This means that all the independent variables of the study, namely the current ratio, debt to equity ratio, and return on assets, are feasible to explain the dependent variable of the study, namely the dividend payout ratio.
Coefficient of Determination (R²) Results
The coefficient of determination (R²) is used to measure how far the model's ability to explain the variation of the dependent variable is. The results of the analysis of the coefficient of
determination using the value of R Square (R²) in this study obtained a value of 0.384 or 38.4%.
This means that 38.4% of dividend policy through dividend payout ratio in companies included in the IDX High Dividend 20 Index for the 2017-2019 period is influenced by independent variables, namely the current ratio, debt to equity ratio, and return on assets. While the remaining 61.6% of the dependent variable, namely the dividend payout ratio in companies included in the IDX High Dividend Index 20 for the 2017-2019 period, is influenced by other variables not examined in this research including firm size, earnings per share, total asset turnover and asset growth.
Discussion
Current Ratio to Dividend Payout Ratio
The results of the first hypothesis analysis that have been carried out show that the current ratio has a positive and significant effect on the dividend payout ratio. The current ratio is a measure of the liquidity ratio used as a tool to measure the company's ability to pay its short-term debt using available current assets. The higher the current ratio value, the better the company's ability to settle its short-term debt with current assets, so that the cash position will be stronger and the company's ability to pay dividends is also getting bigger. This is because dividends show cash outflows where the stronger the cash position and the overall liquidity of the company, the higher the company's strength is paying dividends. The existence of current assets in the payment of dividends is an important consideration. Availability of cash can be obtained through company cash, accounts receivable, securities, and inventories contained in current assets. Cash can also be obtained through debt or loans, so the higher the availability of cashable assets, the higher dividends can be paid immediately. Therefore, the current ratio has a significant effect on the dividend payout ratio.
Debt to Equity Ratio to Dividend Payout Ratio
The results of the second hypothesis analysis that have been carried out show that the debt to equity ratio does not affect the dividend payout ratio. The debt to equity ratio is the ratio of the company's total debt to its capital. This ratio shows the part of each rupiah of own capital or equity that is used as collateral for the company's debt. The debt to equity ratio does not affect the dividend payout ratio, indicating that an increase in a company's debt to equity ratio will not affect the company's ability to pay dividends to shareholders. This can happen because the company's obligation to pay off its debts is not financed from company profits, but is financed from external sources, namely shareholder capital. The goal is that the newly generated profits can be used to pay dividends to investors or shareholders. This can happen because the company's obligation to pay off its debts is not financed from company profits, but is financed from external sources, namely shareholder capital. The goal is that the newly generated profits can be used to pay dividends to investors or shareholders. When a company borrows funds from creditors, it is not only used to pay its debts but the debt is used to meet the company's needs or finance the company's operational activities. As long as the debt is a reasonable debt, it will not affect the company's net profit. So that the company's net income can be used to pay dividends to shareholders. Therefore, the debt to equity ratio has no significant effect on the dividend payout ratio.
Return On Asset to Dividend Payout Ratio
The results of the third hypothesis analysis that have been carried out show that return on assets has a positive and significant effect on the dividend payout ratio. Return on assets is one measure of the profitability ratio that is used as a tool to measure the ability of a company to earn profits by utilizing available assets. The higher return on assets, the better the company's ability to generate profits and rotate its assets, so as to increase the ability of a company to pay dividends. Return on assets is also the rate of return on investment on the company's investment in assets used for company operations. In each company's operations, it is certain that the company expects profits because with these profits the company can continue its operational activities. The higher return on assets means the higher the amount of net profit generated by each rupiah of funds embedded in total assets. Thus, a higher return on assets indicates better financial performance because the rate of return or return on investment is getting bigger. Thus, the rewards received by shareholders in the form of dividend income are also getting bigger. Therefore, return on assets has a significant effect on the dividend payout ratio.
CONCLUSION
Based on the results of the analysis of the hypothesis testing that has been carried out, it can be concluded that the current ratio and return on assets variables partially have a positive and significant effect on the dividend payout ratio in companies that are included in the IDX High Dividend 20 Index for the 2017-2019 period. Meanwhile, the debt to equity ratio variable partially has no effect on the dividend payout ratio in companies that are included in the IDX High Dividend 20 Index for the 2017-2019 period.
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