Dividend Policy Determination: An Empirical Study of Free Cash Flow, Collateral Assets, and Leverage

Andini Julita; Zainal Zawir Simon

doi:10.58777/efi.v1i1.509

Authors

Andini Julita Faculty of Economics and Business, YARSI University, Jakarta
Zainal Zawir Simon Faculty of Economics and Business, YARSI University, Jakarta

DOI:

https://doi.org/10.58777/efi.v1i1.509

Keywords:

Free Cash Flow, Collateral Assets, Leverage, Dividend Policy

Abstract

This study examines the effect of free cash flow, collateral assets, and leverage on the dividend policy of consumer goods manufacturing companies listed on the Indonesia Stock Exchange (IDX) during 2012–2017. Free cash flow is measured using the free cash flow ratio, collateral assets with the collateral assets ratio, leverage by the debt-to-equity ratio, and dividend policy through the dividend payout ratio. The sample was selected using purposive sampling, consisting of 11 companies, with data sourced from financial statements and annual reports. Multiple linear regression with SPSS version 25 was applied for analysis. The results show that free cash flow, collateral assets, and leverage jointly and significantly affect dividend policy. Individually, free cash flow and leverage have a significant positive influence, while collateral assets show no significant effect. These findings highlight the role of financial flexibility in supporting dividend distribution. Adequate free cash flow ensures liquidity for consistent dividend payments, and sound leverage management strengthens the company’s financial structure. In contrast, the insignificant impact of tangible assets suggests that asset ownership is less relevant in dividend decisions compared to liquidity and capital structure. Management should therefore prioritize cash availability and debt control to build investor confidence and enhance firm value

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