THE EFFECT OF DEBT POLICY AND DIVIDEND POLICY ON FIRM PERFORMANCE MODERATED BY OVERINVESTMENT (Empirical Study on Manufacturing Companies Listed on Indonesia Stock Exchange 2017-2020)

Firm performance reflects the company's success which is measured every
predetermined period. An important factor assessed by the firm performance is its
financial performance. Financial performance reflects a company's ability to profit
from assets, equity, and debt and the company's ability to meet its obligations
when it matures. The performance results will help the company grow and
determine the policies to be taken. Companies that use debt and cannot pay off
debt will face liquidity threats that will ultimately threaten management positions
as company managers and impact the firm's performance. Therefore, intensive
supervision of debt policy is needed to align with the company's goal to improve
the firm's performance. Furthermore, the greater the company's need for funds, the
smaller the company's ability to pay dividends. However, if a company has excess
funds, managers will tend to waste funds so that dividends that will be distributed
are high. This will have an impact on a firm's performance.
This study uses secondary data from manufacturing companies. The data
used includes annual reports and annual financial statements for the 2017-2020
period obtained through the Indonesia Stock Exchange website and the websites
of each company. The sample in the study was 113 manufacturing companies.
The analytical methods used in this study are multiple linear regression models
and Moderated Regression Analysis (MRA).
The results showed that debt policy has a negative effect on firm
performance. This shows that the higher the debt composition, the lower the firm's
performance. Dividend policy has a positive effect on firm performance, and this
shows that a higher dividend proportion will be followed by higher firm
performance. Furthermore, this study shows that overinvestment moderates the
effect of debt policy on firm performance. This means that the interaction between
overinvestment strengthens the relationship between debt policy and firm
performance. And then overinvestment moderates the effect of dividend policy on firm performance. This means that the interaction between overinvestment
strengthens the relationship between dividend policy and firm performance.
The theory tested in this study is agency theory. The results of this study
can confirm agency problems can be caused by two things; the lack of supervision
and excessive free cash flow. The limitations of this study have a problem in the
research population of manufacturing companies is still relatively small to list
companies that issue dividends consecutively and companies that experience
overinvestment, so it is recommended to expand the research population, such as
non-financial companies listed on the Indonesia Stock Exchange. And the advice
for further research is recommended to add underinvestment research variables to
advise investors and managers regarding the firm's performance in companies that
are overinvestment and underinvestment.