THE EFFECT OF PROFITABILITY, FREE CASH FLOW, AND LEVERAGE ON DIVIDEND POLICY OF BEI COMPANIES IN THE FINANCIAL SECTOR

Abstract

Dividend policy remains an important corporate finance issue because it reflects how listed firms balance shareholder returns with internal financing needs. This study examines the effect of profitability, free cash flow, and leverage on dividend policy among financial-sector companies listed on the Indonesia Stock Exchange (BEI) during 2021-2024. Dividend policy is measured using the Dividend Payout Ratio, profitability is measured using the DuPont Return on Equity approach, free cash flow is measured using a free-cash-flow ratio, and leverage is measured using the Debt to Equity Ratio. The study uses a quantitative design with secondary data from annual financial reports. From 106 financial-sector companies, purposive sampling produced 26 companies or 104 firm-year observations; after eliminating 16 outlier observations, the final sample comprised 88 observations. Data were analyzed using panel regression with EViews, and the Fixed Effect Model was selected based on Chow and Hausman tests. The findings show that profitability and free cash flow do not significantly affect dividend policy, whereas leverage has a significant effect on dividend policy. These results indicate that dividend decisions in the financial sector are not determined solely by profit generation or available cash, but are strongly related to the firm's debt structure and financial obligations. The study contributes to dividend policy literature by providing empirical evidence from a regulated financial-sector setting in Indonesia.