Company Liquidity Risk Management: Agency Cost Theory And Its Effect On Dividend Policy In Public Companies

Erni Zulfa Arini; Prasetia Adiputra; Aula Nurul Ma’rifah

doi:10.63922/ijebir.v5i04.5264

Erni Zulfa Arini Universitas Islam Negeri Syekh Wasil Kediri, Indonesia
Prasetia Adiputra Universitas Ciputra, Indonesia
Aula Nurul Ma’rifah Universitas Islam Negeri Syekh Wasil Kediri, Indonesia

DOI: https://doi.org/10.63922/ijebir.v5i04.5264

Keywords: Liquidity Risk, Agency Cost, Dividend Policy, Dividend Payout Ratio, Indonesia Stock Exchange

Abstract

This study examines the influence of liquidity risk management and agency cost theory on dividend policy of publicly listed companies on the Indonesia Stock Exchange (IDX). Drawing on Jensen and Meckling's (1976) agency cost framework and Jensen's (1986) free cash flow hypothesis, the study investigates how current ratio, managerial ownership, free cash flow, leverage, and profitability jointly shape dividend payout ratios. Using panel data from 139 non-financial IDX-listed companies spanning 2019–2023 (n = 695 observations), random-effects regression results show that current ratio (β = 9.16, p < 0.01), free cash flow (β = 31.47, p < 0.01), and return on equity (β = 0.51, p < 0.01) significantly predict dividend payout, while managerial ownership (β = −0.68, p < 0.05) and leverage (β = −4.83, p < 0.01) exert significant negative effects. The model explains 61.4% of variance in dividend policy. The findings underscore the centrality of liquidity management in moderating agency conflicts and support the substitution hypothesis: dividends serve as a disciplining mechanism when internal governance is weak. Practical implications are discussed for corporate governance reform and investor protection in emerging capital markets.

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