ANALYSIS THE INFLUENCE OF TOTAL DEBT TO ASSET RATIO, TOTAL DEBT TO EQUITY RATIO, FIRM’S SIZE, EARNING PER SHARE, AND RETURN ON INVESTMENT TO DIVIDEND PAYOUT RATIO (Empirical Study in Banking Companies Listed in Indonesia Stock Exchange 2007-2011)

MUHAMMAD, TEGUH T.C.H. (2013) ANALYSIS THE INFLUENCE OF TOTAL DEBT TO ASSET RATIO, TOTAL DEBT TO EQUITY RATIO, FIRM’S SIZE, EARNING PER SHARE, AND RETURN ON INVESTMENT TO DIVIDEND PAYOUT RATIO (Empirical Study in Banking Companies Listed in Indonesia Stock Exchange 2007-2011). Masters thesis, Universitas Andalas.

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Abstract

Research Background Indonesia is one of the countries with the fastest growing economy in the world. This condition is supported by the existence of the good development in various industries. One of the industries which contribute positively to the advancement of these various sectors of industries is the banking industries. Banking industries in Indonesia has been growing rapidly. The increasing numbers of banks is one of the evidence, that the banking industries attract a lot of parties. The development of this industry can be measured in many ways, one of the way is measuring the level of development of the capital market and securities within the industries in the country. Investing is putting one or more assets owned and usually timed a long with the expectation of profit periodically. Alternative investments that can be embedded in the capital markets may be stocks, bonds, or a variety of other securities. In General, investors have the main purpose in implementing their funds in the capital market, namely to seek income or dividend income either return as well as income from the difference between the selling price of the stock price of purchasing (capital gains). On the other hand, the company wants to grow its going concern as well as provide greater welfare to its shareholders (Damayanti and Achyani, 2006). This will be interesting because on the one hand the company wants to prosper shareholders, but on the other hand the company 3 also had to think about growth. Therefore, the management policy of the company is very needed to perform the distribution of profits. The point that financial statement information must be considered as a whole applies also to the prediction of stock returns. There are many purported anomalies documented in trading strategies built around accounting numbers cannot be cumulative, given the correlation between those numbers. Dividend policy of the company is reflected by dividend payout ratio (DPR), which is a percentage of the profits distributed in the form of dividends in cash. Dividend policy is to determine the portion of the profits will be distributed to the shareholders, and the profits will be retained as part of the profit retained (Levy and Sarnat, 1990). Dividend policy is very important because it affects investment decision, stock quotes, financial structure, financial flows and positions liquidity. Therefore, each company sets dividend policy differently because the dividend policy affects the value of the company to pay dividends to shareholders, then the company may not be able to maintain sufficient funds to finance its growth in the future. Therefore, the company should be able to consider the profits to be retained to develop the company. Dividend policy of a company involves two contrary parties, which are the interest of shareholders who expects dividends and the interest of a company which expects retained earnings. The amount of dividend that will be distributed by the company depends on the dividend policy of each company (Arilaha, 2009). Dividend policy affects the value of a company in maintaining its substantial funds to finance growth in the future. Conversely, if the company can’t provide 4 large amount of dividend to shareholders, then the company’s stocks become unattractive to investors. Therefore, in order to keep these two interests between company and shareholders, the company should perform a dividend policy. Financial analysts use ratio analysis to measure the performance of a company. Ratio analysis is a summary of accumulated knowledge necessary for the preparation of financial statements that are designed to report the performance of the companies to shareholders (Agung Hardinugroho, 2012). Dividend Payout Ratio (DPR) is a comparison between the Dividend per Share (DPS) to Earning Per Share (EPS). DPR is the ratio between the amount of dividends distributed in any one financial year with total outstanding shares (total of all shares issued). It can be seen in the DPS component dividends contain elements, so the greater the dividend distributed to shareholders, the greater the DPR. The company's dividend policy can be judged from financial ratios, such as profitability ratio, leverage ratio, liquidity ratio and the size of the company. Profitability of companies is one way to assess accurately the extent where the rate of return to be gained from its investment activities. Leverage or debt ratio is a ratio that is used to measure the company's ability to meet its long-term obligations. An insolvability company is a company where a company’s total debt is bigger than its total asset. This ratio focuses on company’s liability. A higher leverage or debt ratio, it will increase profitability, and also higher debt can increase risk. If the sales are high, the company can get high profit because company only pays fix interest. Conversely, if the sales low, then the company 5 will be lost because of the fix interest that should be paid (Hanafi dalam Kadir, 2010). Liquidity ratio is used to measure a company’s ability to meet its shortterm obligations. This ratio compares short-term obligations with current resources which are available to meet the obligations. From this point, there are many views about current financial of a company and company’s ability to stay competent if a problem occurs (Van Horne dan Wachowicz, 2005). In addition to these factors, the factor to be considered in dividend policy is the size of the company or enterprise scale. A well-established company with a high profit level and stability of earning tends to have an opportunity to enter the capital market. A well-established company tends to have Dividend Payout Ratio (DPR) higher than a new or evolving company. The size of the company can be calculated by using the natural logarithm of sales (sales). So, the higher the natural logarithm of net sales, it can be predicted that dividend payout ratio will also higher (Damayanti and Achyani, 2006). Therefore, from the description above, the researcher is interested in conducting a research with a title "Analysis the Influence of Debt to Total Assets Ratio, Debt to Total Equity Ratio, Firm’s Size, Earning per Share, and Return on Investment to Dividend Payout Ratio".

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