The Role of Dividend Policy in Profitability Moderation and Return on Stock Price Valuation in the Indonesian Financial Sector

Abstract

This study aims to analyze the influence of profitability and stock returns on stock price valuation with dividend policy as a moderation variable. Profitability indicators are measured through the ratio of earnings to assets, stock returns are measured from the annual rate of return, stock price valuations are measured using the Price to Book Value (PBV) ratio, while dividend policies are proxied through the Dividend Payout Ratio (DPR). This study uses a descriptive quantitative approach with purposive sampling techniques, involving 48 observations from financial sector companies for the 2021–2024 period. Data analysis was carried out using SPSS 26 through t-test and moderation analysis. The results of the study show that profitability and stock returns do not have a significant effect on stock price valuation, while dividend policy has a significant negative effect. In addition, dividend policy does not moderate the effect of profitability on stock price valuation but is almost significant in moderating the relationship between stock return and stock price valuation. Theoretically, these findings broaden the understanding of the role of dividend policy as a factor that can influence the market's assessment of companies, particularly in the context of signal theory and valuation theory. Practically, these results provide insight for management and investors to consider dividend policy as a market signal in investment decision-making. In terms of originality, this study integrates dividend policy variables as a moderator in the relationship between financial performance and stock valuation in the financial sector in Indonesia. The limitations of this study lie in the relatively small sample size and focus on only one industry sector. Further research is recommended to expand the cross-sector sample as well as use a data panel approach to obtain more general results.