The Role of Profitability in Mediating the Effect of Dividend Policy on Firm Value in Industrial Sector Companies in the Automotive Sub-Sector and Its Components Listed on the Indonesia Stock Exchange for the 2019-2023 Period

Abstract

This study investigates the mediating role of profitability in the relationship between dividend policy and firm value among automotive sub-sector companies listed on the Indonesia Stock Exchange (IDX) during the 2019-2023 period. The research addresses the inconsistent findings in prior studies regarding the direct effect of dividend policy on firm value by proposing profitability as a potential mediating mechanism. Employing a quantitative approach with purposive sampling, the study selected 13 companies that met the specified criteria, resulting in 65 firm-year observations. Data analysis was conducted using Structural Equation Modeling through WarpPLS version 8.0. The findings reveal that dividend policy and capital structure do not significantly affect firm value directly. Conversely, liquidity demonstrates a significant negative effect on firm value, while dividend policy positively and significantly influences profitability. Furthermore, profitability exhibits a significant positive effect on firm value. Most importantly, the results confirm that profitability successfully mediates the relationship between dividend policy and firm value, providing empirical support for the Signaling Theory and Bird-in-the-Hand Theory. These findings contribute to the ongoing debate in corporate finance literature and offer practical implications for financial managers in formulating dividend policies that enhance shareholder wealth through improved profitability.