The Effect Of Dividend Policy, Earning Volatility, And Leverage On Stock Price Volatility In Manufacturing Companies Listed On The Indonesia Stock Exchange

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The Effect of Dividend Policy, Earning Volatility, and Leverage on Stock Price Volatility in Manufacturing Companies Listed on the Indonesia Stock Exchange

Introduction

The Indonesia Stock Exchange (IDX) is one of the largest stock exchanges in Southeast Asia, with a vast array of companies listed on it. Among these companies, manufacturing companies play a significant role in driving the country's economic growth. However, the stock prices of these companies are often subject to volatility, which can be influenced by various factors. This study aims to explore the effect of dividend policy, earning volatility, and leverage on the volatility of stock prices in manufacturing companies listed on the IDX.

Background

Dividend policy, earning volatility, and leverage are three critical factors that can impact a company's financial health and stock price volatility. Dividend policy refers to the company's decision on how to distribute its profits to shareholders. Earning volatility, on the other hand, refers to the fluctuations in a company's income over time. Leverage, or debt, is a common financing tool used by companies to fund their operations and expansion. However, excessive leverage can increase a company's risk and lead to stock price volatility.

Methodology

This study employed a multiple linear regression analysis with panel data to examine the effect of dividend policy, earning volatility, and leverage on stock price volatility in manufacturing companies listed on the IDX. The study involved 156 manufacturing companies listed on the IDX, and after applying certain criteria, the number of samples was reduced to 27 companies through the purposive sampling method.

Analysis of Research Results

The results of this study showed that:

  1. Dividend Policy: The effect of dividend policy on the volatility of stock prices is proven to be negative but not significant. This means that although changes in dividend policy can have an impact on stock prices, these effects are not strong enough to change their volatility significantly. This may be caused by greater market uncertainty, which makes investors more focused on macroeconomic factors than the company's dividend policy.

  2. Earning Volatility: In this study, Earning Volatility has a positive but not significant effect on the volatility of stock prices. This shows that although income fluctuations can affect stock prices, investors do not seem to respond to changes in income volatility sharply. This can happen if the investor is used to the existing fluctuations and consider it as part of a normal business.

  3. Leverage: Finally, leverage has a negative and significant effect on stock price volatility. The high ratio of the company's debt can increase the risk for investors, causing stock prices to be more unstable. This indicates that companies with more risky capital structures tend to face greater stock price fluctuations.

The Link between Variables

Seeing the relationship between these three independent variables, it can be understood that each has a different impact on stock prices. Dividend policy tends to have no significant effect when compared to the effect of leverage, which shows that company debt management has far greater implications for investors. On the other hand, Earning Volatility which has a positive but insignificant impact, shows that income stability is more valuable in the eyes of investors than frequent fluctuations. This gives a signal that companies with more stable income and can be predicted tend to be preferred by investors in general.

Conclusion

This study provides valuable insights on the factors that influence the volatility of stock prices in manufacturing companies in Indonesia. Dividend policies, earning volatility, and leverage not only play a role in determining the company's financial health, but also affects the perception of investors that results in stock price volatility. By understanding these three variables, it is expected that companies can develop more effective strategies to manage stock prices and increase attractiveness in the eyes of investors.

Implications

The findings of this study have several implications for companies, investors, and policymakers. For companies, understanding the impact of dividend policy, earning volatility, and leverage on stock price volatility can help them develop more effective strategies to manage their stock prices and increase attractiveness in the eyes of investors. For investors, this study highlights the importance of considering these factors when making investment decisions. For policymakers, this study suggests that regulatory measures can be implemented to promote more stable and predictable financial markets.

Limitations

This study has several limitations that should be noted. Firstly, the study only examined the effect of dividend policy, earning volatility, and leverage on stock price volatility in manufacturing companies listed on the IDX. Secondly, the study used a multiple linear regression analysis with panel data, which may not capture the complexity of the relationships between these variables. Finally, the study only considered a limited number of independent variables, which may not capture the full range of factors that influence stock price volatility.

Future Research Directions

This study provides a foundation for future research on the factors that influence stock price volatility in manufacturing companies listed on the IDX. Future studies can build on this research by examining the impact of other factors, such as market sentiment, economic conditions, and corporate governance, on stock price volatility. Additionally, future studies can use more advanced statistical techniques, such as machine learning algorithms, to capture the complexity of the relationships between these variables.

References

  • [List of references cited in the study]

Appendix

  • [Appendix materials, such as tables, figures, and additional data, that support the findings of the study]
    Frequently Asked Questions (FAQs) on the Effect of Dividend Policy, Earning Volatility, and Leverage on Stock Price Volatility in Manufacturing Companies Listed on the Indonesia Stock Exchange

Q: What is the main objective of this study?

A: The main objective of this study is to explore the effect of dividend policy, earning volatility, and leverage on the volatility of stock prices in manufacturing companies listed on the Indonesia Stock Exchange (IDX).

Q: What are the independent variables examined in this study?

A: The independent variables examined in this study are dividend policy, earning volatility, and leverage.

Q: What is the significance of dividend policy in this study?

A: The study found that dividend policy has a negative but not significant effect on the volatility of stock prices. This means that although changes in dividend policy can have an impact on stock prices, these effects are not strong enough to change their volatility significantly.

Q: What is the significance of earning volatility in this study?

A: The study found that earning volatility has a positive but not significant effect on the volatility of stock prices. This shows that although income fluctuations can affect stock prices, investors do not seem to respond to changes in income volatility sharply.

Q: What is the significance of leverage in this study?

A: The study found that leverage has a negative and significant effect on stock price volatility. The high ratio of the company's debt can increase the risk for investors, causing stock prices to be more unstable.

Q: What are the implications of this study for companies?

A: The findings of this study suggest that companies can develop more effective strategies to manage their stock prices and increase attractiveness in the eyes of investors by understanding the impact of dividend policy, earning volatility, and leverage on stock price volatility.

Q: What are the implications of this study for investors?

A: The findings of this study highlight the importance of considering dividend policy, earning volatility, and leverage when making investment decisions.

Q: What are the implications of this study for policymakers?

A: The findings of this study suggest that regulatory measures can be implemented to promote more stable and predictable financial markets.

Q: What are the limitations of this study?

A: The study has several limitations, including the use of a multiple linear regression analysis with panel data, which may not capture the complexity of the relationships between the variables, and the consideration of only a limited number of independent variables.

Q: What are the future research directions based on this study?

A: Future studies can build on this research by examining the impact of other factors, such as market sentiment, economic conditions, and corporate governance, on stock price volatility. Additionally, future studies can use more advanced statistical techniques, such as machine learning algorithms, to capture the complexity of the relationships between the variables.

Q: What are the practical applications of this study?

A: The findings of this study can be applied in practice by companies, investors, and policymakers to develop more effective strategies to manage stock prices and increase attractiveness in the eyes of investors.

Q: What are the contributions of this study to the existing literature?

A: This study contributes to the existing literature by providing new insights into the factors that influence stock price volatility in manufacturing companies listed on the IDX. The study also provides a foundation for future research on the topic.

Q: What are the potential risks and challenges associated with this study?

A: The study may be subject to various risks and challenges, including the use of a limited sample size, the consideration of only a limited number of independent variables, and the potential for biases in the data.

Q: What are the potential benefits of this study?

A: The study has the potential to provide valuable insights into the factors that influence stock price volatility in manufacturing companies listed on the IDX, which can be used to develop more effective strategies to manage stock prices and increase attractiveness in the eyes of investors.