Does Liquidity Shape Dividend Policy? Evidence From Public Firms In An Emerging Market
Keywords:
Dividend Policy, Multidimensional Liquidity, Free Cash Flow, Agency Theory, Indonesia Stock Exchange, Emerging Market
Abstract
This research aims to re examine the relationship between liquidity and dividend policy by introducing a multidimensional liquidity framework. While traditional studies often rely on single indicators, this study integrates Agency Theory and the Liquidity Hypothesis to explain how distinct liquidity dimensions comprising internal, short term, and structural aspects dictate the Dividend Payout Ratio within an emerging market context. The study employs a quantitative approach with a causal associative design. The sample includes 82 nonfinancial public firms with 272 firm year observations listed on the Indonesia Stock Exchange from 2019 to 2023. Data were analyzed using three separate Random Effect panel regression models to prevent measurement bias and capture the specific impacts of Free Cash Flow for internal liquidity, Current Ratio for short term liquidity, and Cash to Total Assets for structural liquidity on the Dividend Payout Ratio. Results demonstrate that all three liquidity dimensions exert a positive and statistically significant influence on the Dividend Payout Ratio. Specifically, firms with abundant internal cash generation, robust short term solvency, and high structural cash reserves are significantly more inclined to distribute earnings to shareholders. These findings provide strong support for Agency Theory where dividends serve as a disciplining mechanism to mitigate potential management misallocation of excess cash. This research contributes to the literature by addressing the research gap of unidimensional liquidity measurement through a comprehensive multidimensional framework. It offers practical insights for corporate management to balance various liquidity dimensions and provides investors with robust parameters for evaluating the sustainability of dividend distributions in emerging markets.References
Abdullah, S. (2002). Free cash flow, agency theory dan signaling theory: konsep dan riset empiris. Jurnal Akuntansi Dan Investasi, 3(2), 151–170. https://doi.org/https://journal.umy.ac.id/index.php/ai/article/view/
Agustina, P., Praningtyas, E., Subekti, R., & Mirayani, L. (2022). Factors Affecting Dividend Policy in Indonesian State-Owned Enterprises. Studi Akuntansi Dan Keuangan Indonesia, 5(1), 87–117. https://doi.org/https://doi.org/10.21632/saki.5.1.87-117
Al-Fasfus, F. S. (2020). Impact of free cash flows on dividend pay-out in jordanian banks. Asian Economic and Social Society, 10(5), 547–558. https://doi.org/https://doi.org/10.18488/journal.aefr.2020.105.547.558
Al-Najjar, B., & Hasan, F. (2024). Green investment and dividend payouts: An intercontinental perspective. Journal Of Environmental Management, 370(2).
Anggraeni, A. R., & Soliha, E. (2020). Kualitas produk, citra merek dan persepsi harga terhadap keputusan pembelian (studi pada konsumen kopi lain hati lamper kota semarang). Journal Unida Gontor, 6(3), 96–107. https://doi.org/https://doi.org/10.21111/tijarah.v6i3.5612
Armelia, I., & Syah, M. J. (2025). Pengaruh return on assets, arus kas bebas, firm size, dan price earnings ratio terhadap dividend payout ratio. Jurnal Penelitian Manajemen Dan Inovasi Riset, 3(2), 252–268. https://doi.org/https://doi.org/10.61132/lokawati.v3i2.1655
Arsyad, M., Haeruddin, S. H., Muslim, & Pelu, M. F. (2021). The effect of activity ratios, liquidity, and profitability on the dividend payout ratio. Indonesia Accounting Journal, 3(1), 36–44. https://doi.org/https://doi.org/10.32400/iaj.30119
Borges, A., Vieira, E., & Monteiro, A. paula. (2024). Workshop Accounting And taxation (ISAG - EUROPEAN BUSINESS SCHOOL. Workshop Accounting And Taxation (ISAG - EUROPEAN BUSINESS SCHOOL 3rd Edition. https://doi.org/https://doi.org/10.58869/02
Chairunisa, S., Karyatun, S., & Digdowiseiso, K. (2023). The effect of total assets turnover, debt to assets ratio, cash ratio and current ratio on financial performance of companies the hotel, restaurant and tourism subsector in IDX for the period 2016-2020. Jurnal Syntax Admiration, 4(3), 548–558. https://doi.org/https://doi.org/10.46799/jsa.v4i3.907
Cuñat, V., G., & Guadalupe, M. (2020). No Title. Journal Of Tthe American Finance Association, 75(5), 2591–2629. https://doi.org/https://doi.org/10.1111/jofi.12908
Das, S., & Dhole, S. (2025). Dividend cuts and a firm’s investment opportunity set. Journal of Business Finance and Accounting, 5(2), 91–126. https://doi.org/https://doi.org/10.1111/jbfa.12801
Fauziah, R. L. (2022). The effect of return on Investment, basic earning power and investment opportunity set on dividend payout ratio (study of infrastructure firm listed at indonesia stock exchange In 2017- 2021). Journal Of Internasional Conference Proccedings, 5(2), 564–573. https://doi.org/https://doi.org/10.32535/jicp.v5i2.1719
Hendayani, N., Mursalin, A., Judijanto, L., Durya, N., & Tama, N. (2023). Analysis Of The Influence Of Dividend Payout Ratio, Investment Opportunity Set And Return on asset on the value of manufacturing companies. Jurnal Ekonomi, Manajemen, Dan Akuntansi, 9(5), 2558–2563. https://doi.org/https://doi.org/10.35870/jemsi.v9i6.1681
Hutabarat, M. I., Silalahi, H., Samosir, H., Siregar, M., & Damanik, H. (2023). Analysis current ratio, return on asset and debt to equity ratio on dividend payout ratio. Enrichment: Journal of Management, 13(2), 1552–1559.
Irsutami, & Fortuna, D. (2024). The effect of institutional ownership, free cash flow (FCF), and profitability on dividend policy on registered basic and chemical manufacturing companies on the indonesia stock exchange. Journal Management, 5(2), 1–16. https://doi.org/https://doi.org/10.4108/eai.5-10- 2022.2325890
Jani, S. N., & Gandakusuma, I. (2022). The effect of dividend premium and free cash flow on dividend policy: evidence from indonesia. Global Business And Management Research: An International Journal, 14(3), 674–687.
Jensen, M., & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 10(1), 305–360. https://doi.org/10.1016/0304-405x(76)90026-x
Kosasih, J., Toni, N., & Sari, W. (2022). The effect of debt to asset ratio, cash position and firm size on dividend payout ratio with profitability as mediation variables in the property and real estate sector in the indonesia stock exchange in 2016-2019. Journal of Industrial Engineering & Management Research, 3(3), 253–261. https://doi.org/https://doi.org/https://doi.org/10.7777/jiemar
Kristanti, F. T., & Ardiningrum, A. (2022). Determinants of dividend policy on indonesia non-family companies listed in LQ45 index. Asia Pasific International Conference On Industrial Engineering And Operations Management, 9(3), 1–22. https://doi.org/https://doi.org/10.46254/ap03.20220499
Lohonauman, H., & Budiarso, N. S. (2021). The effect of free cash flow and profitability on dividend payout ratio (case of lq-45 indexed firms in indoneisa stock exchange for period 2011-2018). Journal Accounttibility, 10(1), 1–6. https://doi.org/https://doi.org/10.32400/ja.32071.10.1.2021.1-6
Nurmahfudi, D., & Yuniningsih, Y. (2024). Examining dividend policy as a mediating variable in stock price trends: evidence from the indonesian basic materials. International Journal of Scientific Research and Management (IJSRM), 12(7), 6727–6735. https://doi.org/https://doi.org/10.18535/ijsrm/v12i07.em01
Rahayu, N. K., Harymawan, I., Ekasari, W. F., & Nowland, J. (2021). Risk management committee, independent commissioner, and audit fee: an update. Journal Cogent Economics and Finance, 9(1). https://doi.org/https://doi.org/10.1080/23322039.2021.1892926
Ratnaningsih, D., & Hartono, J. (2003). Total and individual efffects of an agency cost explanation for dividend paymennts. Journal of Indonesian Economy and Business, 18(1). https://doi.org/https://doi.org/https://doi.org/10.22146/jieb.6616
Santosa, P. W., Aprilia, O., & Tambunan, M. E. (2020). The intervening effect of the dividend policy on financial performance and firm value in large indonesian firms. International Journal of Financial Research, 11(4), 408–420. https://doi.org/https://doi.org/10.5430/ijfr.v11n4p408
Saribu, H. D., & Januardin. (2021). The effect of company growth, current ratio and leverage ratio on dividend policy (trade, services & investment IDX. Journal Of Social Science, 2(2), 144–151.
Shabrina, W., & Hadian, N. (2021). The influence of current ratio, debt to equity ratio, and return on assets on dividend payout ratio. International Journal of Financial, Accounting, and Management, 3(3), 193–204. https://doi.org/https://doi.org/10.35912/ijfam.v3i3.221
Siahaan, A., Bustaman, Y., & Sari, I. L. (2020). Ownership concentration, corporate liqudity, adn dividend paymant policy: evidence from indonesian financial industries. International Journal of Business and Society, 21(3), 1310–1321. https://doi.org/ijbs.unimas.my+2Open Journal+2
Sugiono, E. (2025). Study of financial ratios and market performance in Idx high dividend 20 companies: dividend payout ratio as an intervening variable. Internasional Journal Of Management Sicence And Information Technology, 5(1), 130–138. https://doi.org/https://doi.org/10.35870/ijmsit.v5i1.376
Susilowati, D. (2025). Factors affecting dividend payment policy in indonesian banking sectors moderated by return on assets. Jurnal Ilmiah Ekonomi Kita, 14(1), 379–398. https://doi.org/https://doi.org/10.46367/iqtishaduna.v14i1.2461
Wijaya, H. (2022). Cash holdings, dividend payout, and corporate value: the role of institutional investors. Journal of Accounting and Strategic Finance, 5(2), 302–315. https://doi.org/https://doi.org/10.33005/jasf.v5i2.307
Wirama, Dewa Gede Krisnadewi, K., Artini, L. G. S., & Ardiana, P. A. (2024). Dividend policy and residual dividend theory: evidence from Indonesia. Asian Journal Of Accounting Research, 9(3), 201–216. https://doi.org/https://doi.org/https://doi.org/10.1108/AJAR-10-2023-0347
Xu Feng, J. L., & Zang, Y. (2022). Month end effect on chinese stock returns: explanation of the liquidity hypothesis. Asia-Pasific Journal OF Accounting & Economics, 29(5), 1283–1298. https://doi.org/https://doi.org/https://doi.org/10.1080/16081625.2020.1726190
Agustina, P., Praningtyas, E., Subekti, R., & Mirayani, L. (2022). Factors Affecting Dividend Policy in Indonesian State-Owned Enterprises. Studi Akuntansi Dan Keuangan Indonesia, 5(1), 87–117. https://doi.org/https://doi.org/10.21632/saki.5.1.87-117
Al-Fasfus, F. S. (2020). Impact of free cash flows on dividend pay-out in jordanian banks. Asian Economic and Social Society, 10(5), 547–558. https://doi.org/https://doi.org/10.18488/journal.aefr.2020.105.547.558
Al-Najjar, B., & Hasan, F. (2024). Green investment and dividend payouts: An intercontinental perspective. Journal Of Environmental Management, 370(2).
Anggraeni, A. R., & Soliha, E. (2020). Kualitas produk, citra merek dan persepsi harga terhadap keputusan pembelian (studi pada konsumen kopi lain hati lamper kota semarang). Journal Unida Gontor, 6(3), 96–107. https://doi.org/https://doi.org/10.21111/tijarah.v6i3.5612
Armelia, I., & Syah, M. J. (2025). Pengaruh return on assets, arus kas bebas, firm size, dan price earnings ratio terhadap dividend payout ratio. Jurnal Penelitian Manajemen Dan Inovasi Riset, 3(2), 252–268. https://doi.org/https://doi.org/10.61132/lokawati.v3i2.1655
Arsyad, M., Haeruddin, S. H., Muslim, & Pelu, M. F. (2021). The effect of activity ratios, liquidity, and profitability on the dividend payout ratio. Indonesia Accounting Journal, 3(1), 36–44. https://doi.org/https://doi.org/10.32400/iaj.30119
Borges, A., Vieira, E., & Monteiro, A. paula. (2024). Workshop Accounting And taxation (ISAG - EUROPEAN BUSINESS SCHOOL. Workshop Accounting And Taxation (ISAG - EUROPEAN BUSINESS SCHOOL 3rd Edition. https://doi.org/https://doi.org/10.58869/02
Chairunisa, S., Karyatun, S., & Digdowiseiso, K. (2023). The effect of total assets turnover, debt to assets ratio, cash ratio and current ratio on financial performance of companies the hotel, restaurant and tourism subsector in IDX for the period 2016-2020. Jurnal Syntax Admiration, 4(3), 548–558. https://doi.org/https://doi.org/10.46799/jsa.v4i3.907
Cuñat, V., G., & Guadalupe, M. (2020). No Title. Journal Of Tthe American Finance Association, 75(5), 2591–2629. https://doi.org/https://doi.org/10.1111/jofi.12908
Das, S., & Dhole, S. (2025). Dividend cuts and a firm’s investment opportunity set. Journal of Business Finance and Accounting, 5(2), 91–126. https://doi.org/https://doi.org/10.1111/jbfa.12801
Fauziah, R. L. (2022). The effect of return on Investment, basic earning power and investment opportunity set on dividend payout ratio (study of infrastructure firm listed at indonesia stock exchange In 2017- 2021). Journal Of Internasional Conference Proccedings, 5(2), 564–573. https://doi.org/https://doi.org/10.32535/jicp.v5i2.1719
Hendayani, N., Mursalin, A., Judijanto, L., Durya, N., & Tama, N. (2023). Analysis Of The Influence Of Dividend Payout Ratio, Investment Opportunity Set And Return on asset on the value of manufacturing companies. Jurnal Ekonomi, Manajemen, Dan Akuntansi, 9(5), 2558–2563. https://doi.org/https://doi.org/10.35870/jemsi.v9i6.1681
Hutabarat, M. I., Silalahi, H., Samosir, H., Siregar, M., & Damanik, H. (2023). Analysis current ratio, return on asset and debt to equity ratio on dividend payout ratio. Enrichment: Journal of Management, 13(2), 1552–1559.
Irsutami, & Fortuna, D. (2024). The effect of institutional ownership, free cash flow (FCF), and profitability on dividend policy on registered basic and chemical manufacturing companies on the indonesia stock exchange. Journal Management, 5(2), 1–16. https://doi.org/https://doi.org/10.4108/eai.5-10- 2022.2325890
Jani, S. N., & Gandakusuma, I. (2022). The effect of dividend premium and free cash flow on dividend policy: evidence from indonesia. Global Business And Management Research: An International Journal, 14(3), 674–687.
Jensen, M., & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 10(1), 305–360. https://doi.org/10.1016/0304-405x(76)90026-x
Kosasih, J., Toni, N., & Sari, W. (2022). The effect of debt to asset ratio, cash position and firm size on dividend payout ratio with profitability as mediation variables in the property and real estate sector in the indonesia stock exchange in 2016-2019. Journal of Industrial Engineering & Management Research, 3(3), 253–261. https://doi.org/https://doi.org/https://doi.org/10.7777/jiemar
Kristanti, F. T., & Ardiningrum, A. (2022). Determinants of dividend policy on indonesia non-family companies listed in LQ45 index. Asia Pasific International Conference On Industrial Engineering And Operations Management, 9(3), 1–22. https://doi.org/https://doi.org/10.46254/ap03.20220499
Lohonauman, H., & Budiarso, N. S. (2021). The effect of free cash flow and profitability on dividend payout ratio (case of lq-45 indexed firms in indoneisa stock exchange for period 2011-2018). Journal Accounttibility, 10(1), 1–6. https://doi.org/https://doi.org/10.32400/ja.32071.10.1.2021.1-6
Nurmahfudi, D., & Yuniningsih, Y. (2024). Examining dividend policy as a mediating variable in stock price trends: evidence from the indonesian basic materials. International Journal of Scientific Research and Management (IJSRM), 12(7), 6727–6735. https://doi.org/https://doi.org/10.18535/ijsrm/v12i07.em01
Rahayu, N. K., Harymawan, I., Ekasari, W. F., & Nowland, J. (2021). Risk management committee, independent commissioner, and audit fee: an update. Journal Cogent Economics and Finance, 9(1). https://doi.org/https://doi.org/10.1080/23322039.2021.1892926
Ratnaningsih, D., & Hartono, J. (2003). Total and individual efffects of an agency cost explanation for dividend paymennts. Journal of Indonesian Economy and Business, 18(1). https://doi.org/https://doi.org/https://doi.org/10.22146/jieb.6616
Santosa, P. W., Aprilia, O., & Tambunan, M. E. (2020). The intervening effect of the dividend policy on financial performance and firm value in large indonesian firms. International Journal of Financial Research, 11(4), 408–420. https://doi.org/https://doi.org/10.5430/ijfr.v11n4p408
Saribu, H. D., & Januardin. (2021). The effect of company growth, current ratio and leverage ratio on dividend policy (trade, services & investment IDX. Journal Of Social Science, 2(2), 144–151.
Shabrina, W., & Hadian, N. (2021). The influence of current ratio, debt to equity ratio, and return on assets on dividend payout ratio. International Journal of Financial, Accounting, and Management, 3(3), 193–204. https://doi.org/https://doi.org/10.35912/ijfam.v3i3.221
Siahaan, A., Bustaman, Y., & Sari, I. L. (2020). Ownership concentration, corporate liqudity, adn dividend paymant policy: evidence from indonesian financial industries. International Journal of Business and Society, 21(3), 1310–1321. https://doi.org/ijbs.unimas.my+2Open Journal+2
Sugiono, E. (2025). Study of financial ratios and market performance in Idx high dividend 20 companies: dividend payout ratio as an intervening variable. Internasional Journal Of Management Sicence And Information Technology, 5(1), 130–138. https://doi.org/https://doi.org/10.35870/ijmsit.v5i1.376
Susilowati, D. (2025). Factors affecting dividend payment policy in indonesian banking sectors moderated by return on assets. Jurnal Ilmiah Ekonomi Kita, 14(1), 379–398. https://doi.org/https://doi.org/10.46367/iqtishaduna.v14i1.2461
Wijaya, H. (2022). Cash holdings, dividend payout, and corporate value: the role of institutional investors. Journal of Accounting and Strategic Finance, 5(2), 302–315. https://doi.org/https://doi.org/10.33005/jasf.v5i2.307
Wirama, Dewa Gede Krisnadewi, K., Artini, L. G. S., & Ardiana, P. A. (2024). Dividend policy and residual dividend theory: evidence from Indonesia. Asian Journal Of Accounting Research, 9(3), 201–216. https://doi.org/https://doi.org/https://doi.org/10.1108/AJAR-10-2023-0347
Xu Feng, J. L., & Zang, Y. (2022). Month end effect on chinese stock returns: explanation of the liquidity hypothesis. Asia-Pasific Journal OF Accounting & Economics, 29(5), 1283–1298. https://doi.org/https://doi.org/https://doi.org/10.1080/16081625.2020.1726190
Published
2026-02-12
How to Cite
Poluan, S. D., & Prayanthi, I. (2026). Does Liquidity Shape Dividend Policy? Evidence From Public Firms In An Emerging Market. Kontigensi : Jurnal Ilmiah Manajemen, 13(2), 1405-1420. https://doi.org/10.56457/jimk.v13i2.927
Section
Articles
Copyright (c) 2025 Kontigensi : Jurnal Ilmiah Manajemen
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.
By exercising the Licensed Rights, You accept and agree to be bound by the terms and conditions of this Creative Commons Attribution-NonCommercial 4.0 International Public License.