EFFECT OF LIQUIDITY, PROFITABILITY, LEVERAGE AND FIRM SIZE ON DIVIDEND POLICY

Abstract

This study investigates the effect of liquidity, profitability, leverage, and firm size on dividend policy among listed companies. Dividend policy remains a critical financial decision that reflects a firm's stability and future outlook. The research aims to determine how key financial indicators—liquidity, profitability, leverage, and firm size—influence a firm’s decision to distribute earnings as dividends.

Using a quantitative research design, data were collected from a sample of firms over a defined period, and multiple regression analysis was employed to test the relationship between the independent variables (liquidity, profitability, leverage, and firm size) and the dependent variable (dividend policy). The findings reveal that liquidity and profitability have a significant positive impact on dividend policy, indicating that firms with stronger cash flow and higher earnings are more inclined to pay dividends. Conversely, leverage shows a significant negative relationship with dividend payout, suggesting that firms with higher debt obligations tend to retain earnings to meet their financial commitments. Firm size was also found to positively influence dividend policy, as larger firms are more likely to have stable cash flows and investor pressure to maintain consistent dividend payments.

The study concludes that these financial metrics play a vital role in shaping dividend policy decisions. The findings have implications for corporate managers, investors, and policymakers in understanding the determinants of dividend distribution practices. It is recommended that firms maintain healthy financial structures to ensure sustainable dividend payments that align with shareholder expectations.