Exploring the Link Between Profitability and Dividend Policy in Manufacturing Firms

Abstract

Purpose – This paper aims to examine the moderating effect of ownership structure on the connection among profitability and dividend policy in manufacturing entities listed on the Indonesia Stock Exchange during the period 2012–2021.

Methodology/approach – A quantitative approach was employed using secondary data from 141 purposively selected manufacturing firms, totaling 1,117 firm-year observations. The analysis utilized Pure Moderation and Moderated Regression Analysis (MRA) to test the interactions between profitability, ownership structure, and dividend policy.

Findings – The results show that profitability and liquidity significantly and positively influence dividend policy, while leverage has a negative effect. Managerial ownership weakens dividend distribution, suggesting a preference for internal financing through retained earnings. In contrast, institutional ownership strengthens the connection among profitability and dividend policy, acting as a monitoring mechanism that supports shareholder-aligned dividend decisions.

Novelty/value – This study contributes to the literature by highlighting the differentiated roles of ownership structure in shaping dividend policy outcomes. It underscores the strategic importance of aligning governance mechanisms with financial performance to ensure sustainable dividend practices.