Dividend Policy, Economic Value Added, Market β, Firm Size and Stock Return

This study aims to analyze the Effect of Dividend Policy, Economic Value Added (EVA), Market β and Firm Size on Stock Return and the existence of Firm Size in moderating these effects of blue-chip stock category listed in Indonesia Stock Exchange (IDX) during 2015 up to 2019 period. This study is a confirmatory research involving secondary data collected from annual report available at IDX website. The sample used is purposive sampling and research object is Dividend Policy, EVA, Market β and Firm Size as independent variables and Stock Return as dependent variable, and Firm Size as moderates variable. The analysis is performed using E-views 11.0 version. The result shows that Dividend Policy has significant negative effects while EVA and Market β has no effect on Stock Return. In addition, Firm Size moderates the relation between Dividend Policy and Stock Return, while having no moderating effect to the relation between EVA, Market β and Stock Return. The findings of this research imply that, for high stock performance like blue-chip stock, Dividend Policy affects the Stock Return and Firm Size moderates this effect.


The Background
Many parties have interest on stock return information, both existing and potential investor, as well as the management and the state. With stock return information, investor could estimate earning while potential investor is more informed on their investment decision and firm management. Stock return information also describes the macro economy movements, when there is a general increase in stock returns of most companies, reflecting the development of economy. In the management side, the knowledge on factors affecting stock return assists management decision making to ensure that the company create value for investors, hence, stock return performance.
Theoretically, stock return is affected by multiple factors. Harper (2019) asserted that there are three factors consisting of fundamental, technical and market sentiment. Fundamental is the basic factor from internal organization. Meanwhile, technical element is the mix of internal and external condition that influence of stock supply and demand. Lastly, market sentiment is related to psychological factor of market players, which tended to be unlogic, bias and subjective. Most studies on stock price ignore the market sentiment factors due to the complexity of measuring such element. Fundamental and technical factors that affected stock return consisted of many variables. Among those factors, there are four variables, which are Dividend Policy, EVA, Market β and Firm Sizes, providing variation in result, hence, inconsistencies in multiple studies.
The effect of Dividend Policy on Stock Return varied, with one stream of studies obtained a positively significant result , Hasan et al, 2013 while the other stream located a negatively significant result (Ahmad, 2018). Even, the effect of Dividend Policy on Stock Return was only relevant in the short run while becoming irrelevant in the long run. In similar manner, Previous studies are divided on the effect of EVA to Stock Return, with one side draw a positively significant result (among others are Putu et al., 2016, Hasheni, 2016, Pedro et al, 2018, Kumar and Subramayan, 2016, and Sang and Ning, 2017, while an opposing outcome were derived from Ela (2018), Eman (2017), Rahmi (2017) and Rizka (2018) studies. On the relationship between market β and Stock Return, the discrepancy of results was also highlighted, with Mpofu (2011) and Xiao (2016) concluded that market β significant positive affect on Stock Return while Rahmi (2017) stated otherwise. Meanwhile, the effect of Firm Size on Stock The Signalling Theory, which are coined by Akerlof (1970) and later developed by Spence (1973) dan Stiglitz ( (1985), is based on the presence of information asymmetry between parties (the individual and the organization, as well as the investor and the management) where a certain party take action to give a signal about a certain situation to mitigate asymmetry condition due to the problems of social selections under condition of imperfect information (Connelly et al, 2011)). In the corporation, the management is a party that is more informed about the firm operation, hence, the outside party level of information, especially shareholder, is determined by information provided by management. The signaling theory explains how management doing a series of action to give a certain information that needed by the shareholder.

Stock Return
Stock Return is the motivating force in the investment process. It is the reward for undertaking the investment (Bodie, Kane, Markus, 2010, Kasmir, 2016 which usually consisting of two components, which are (1) yield that measure cash flow in percentage related stock price like purchase price and market price, and (2) capital gain, which is the difference purchase and sales price or price change during transaction. This is because Stock Return is the sum of total yield and capital gain (Ross et al ,2003). By ignoring the dividend, Stock Return could be measured by the percentage of the difference of the stock price of a certain and previous year, described in the following formula: where SR = Stock Return, P1 = Stock Price year now, P0 = last year stock price

Dividend Policy
The Dividend Policy is a policy related decision for the company to pay dividend to shareholder. If the company decided to pay, it is a policy related to value of the payment, its frequency, and all related policy for dividend decisions. The investor is waited for the information about Dividend policy, providing signal of either 'good' or 'bad' year. by nature, firm's dividend policy will affect stock return either in positive or negative manner. One form of dividend policy is related with the amount that firm pay measured as the proportion of dividend pay divided by profit after tax. The previous researches related the effect of Dividend Policy on Stock Return found on Sharif et al. (2015) and Hasan et al. (2013) which resulted positive significant relationship, while Ahmad (2018) stated negative significant affected with Irandoost et al. (2013) suggest that the positive significant effect is only short term in nature. EVA is a firm financial performance based on the residual wealth calculated by reducing the cost of capital from net profit after tax, which is usually termed as economic profit (Investopedia,2019, Bodie et al, 2011. The EVA formula is Net Operating Profit after Tax -(Invested Capital x WACC), where WACC is weighted average cost of capital (Bishop, 2013 Market β is a measurement of the systematic risk volatility of individual stock from the whole market risk. This shows the reaction change of individual stock from market change. The β coefficient calculated with CAPM formula, which is shown in the equation below: where Re= individual stock return, Rm = market stock return and the Covariance = stock change proportion to market, the Variance = the average of market data variation. Since Market β is related with individual stock reaction on market change, Market β has positive correlation with Stock Return theoretically. Researches by Mpofu (2011) andXiao (2016) (Trigueiros, 2000), where could be seen in sales volume, total asset value or market capitalization (Dang ad Li, 2013). The big company has relative opportunity to record high profit than the small one. The bigger the size of the company means the better opportunity in increasing firm profitability. There are also various researches investigated Firm Size, which assumed Firm Size as something that 'fixed' on firm performance (Kuncova et al, 2016) and is treated as control or moderating variable.

Research Design, Population and Sample
This study is designed as a confirmatory research with the purpose to verify the hypotheses concerning the effect of independent variables (Dividend Policy, Economic Value Added, Market β, Firm Size) on dependent variable (Stock Return) and whether Firm size moderates these effects. The population are blue-chip categorized companies with the best criteria which are (a) big market capitalization, (b) long listed in Indonesia Stock Exchange (IDX), (c) has positive financial performance, (d) becomes stock market leader and (e) has high liquidity during year 2015 up to 2019 data collected from web site IDX. The total amount of companies that consistent become blue-chip company member during observation is 15 companies.

Variable Operationalization Definition
The following table 2.1 is the summary of variable operationalization definition

Method of Analysis
Because the research involves panel data, the analysis uses Regression with E-views program 11 version through the following stages: a) Descriptive Statistical Analysis, b) Panel Data Regression Model Estimation, c) Selection of Regression model Estimation, d) Classical Assumption Test and e) Hypotheses Test. Dividend Policy has a minimum value of 0.120823 which is owned by PT. Astra Argo Lestari (Tbk) in 2016 and a maximum value of 2.014424 owned also by PT. Astra Argo Lestari (Tbk) in 2019. With an average value of 0.544419 and a variation of the average (standard deviation) of 0, 346846. With a mean of 0.544419, it shows that the portion of Dividend paid more than 50% of firm's profit, is a good for business.

Descriptive Statistical Analysis
Economic Value Added has a Minimum value of -1.52E+08 found at PT. Jasa Marga (

Panel Data Regression Model Estimation
In analysis of the panel data regression model estimation there are 3 approaches of the regression model which is the Common Effect, Fixed Effect and Random Effect approaches. The results of each approach appear on table 2.3, 2.4 and 2.5. H0 is rejected if the P-value is smaller than α (5%). Conversely, H0 is accepted if the P-value is greater than the value of α. By using E-views 11 version, the result of data processing is as follows:

Lagrange Multiplier Test
It is executed to find the best model between the common effect or random effect. The hypothesis used is: H0: Common Effect Model

H1: Random Effect Model
With the clauses: H0 is rejected if the value of Prob. Breusch-Pagan (BP-value) is smaller than the value of α (5%) and H0 is accepted if the value is Prob. Breusch-Pagan (BP-value) is greater than the α value.

Classical Assumption Test
Classical assumption test in panel data regression analysis is done to ensure that the panel data analysis is free from violation and biasness of assumption, which caused misinterpretation on panel data regression analysis. There are three primary problems often appears that affects unfulfilled basic assumption known as BLUE (Best Linear Unbiased Estimator) that is Multicollinearity, Heteroscedasticity and Autocorrelation.

Multicollinearity Test
Multicollinearity is a perfect linear correlation between independent variables in regression model. To measure the occurrence of multicollinearity could be seen from coefficient correlation between independent variables, if the coefficient > 0.80 states that multicollinearity occurred, vice versa. As shown on table 2.10 below, there is no coefficient that > 0.80, concluded that multicollinearity does not occur.

Autocorrelation Test
Autocorrelation is a condition where correlation between observation, whether in time series or cross-section observation existed. Usually, autocorrelation collided on time series characterized data. Moreover, there is no features when panel data used on e-views (Ghozali and Ratmono,2016)

Hypotheses Test
All following discussion on this part based on

The Effect of Dividend Policy on Stock Return
The result of hypotheses test is that Dividend Policy affects negatively on Stock Return. This means that the greater the dividend paid by company eventually decreases the Stock Return. The possible reason is that the firm's Dividend Policy precepted as a bad news by the investor, resulting in the decrease of stock return. As statement of signaling theory, management action in the form of Dividend Policy is a signal from management to the investor. The investor reacts based on the nature the signal, good or bad news, reflected in the Stock Price, hence, the Stock Return. The Dividend Policy affects negatively on Stock Return of blue-chip stock during year 2015 up to 2019, which is in line the finding of Ahmad (2018).

The Effect of EVA on Stock Return
The result above suggested that EVA does not significantly affect Stock Return. This means that, when EVA fluctuates, the Stock Return does not follow. It is in opposition to the concept in accounting that profit fluctuation must be followed by the fluctuation of Stock Return as it is not the case. This might be because of the existence of information asymmetry between management that announces the EVA and the investor that does not react accordingly to influence the Stock Price, hence, does not follow the EVA fluctuation. This finding is in line with studies by Ela (2018), Eman (2017), Rahmi (2017) and Rizka (2018).

The Effect of Market β on Stock Return
Hypotheses test resulted that Market β does not significantly affect Stock Return. This means that, as Market β fluctuates, the Stock Return does not follow the movement. It is in line with finding of Rahmi (2017), yet, in opposition from the financial concept related the formula for Market β, which indicates that when Market β fluctuates so does the Stock Return. Statistically, it is because of the value of deviation standard less than its average (mean), made the Stock Return does not follow when Market β fluctuates. This is a condition persist among companies grouped as blue-chip stock during period year 2015 up to 2019. Thus, Market β is not a factor that affect Stock Return.

The Effect of Firm Size on Stock Return
Hypotheses test find that Firm Size does not affect the Stock Return. This is in contrast with the pre-supposed concept that suggest that the larger the firm can be translated as larger opportunity to increase its financial profit to drive up the Stock Return (Than Duy & Phuoc, 2016;Kijoyo,2009). The possible reason is that Firm Size is related with long-term investment, especially capital budgeting. The result of the fluctuation of Firm Size cannot be seen in the short-term. As a result, Firm Size affects Stock Return in negative way for companies grouped in blue-chip stock listed in IDX during year 2015 up 2019.

Firm Size Moderates the effect of Dividend Policy on Stock Return
Statistic test advise this research that Firm Size moderates the relation between Dividend Policy and Stock Return. This means that the larger the amount of dividend paid by the firm eventually affect the Stock Return positively.

Firm Size Moderates the Effect of Economic Value Added on Stock Return
Hypotheses test suggests that Firm Size does not moderate the relation between EVA and Stock Return. This means that Firm Size cannot strengthen or weaken the relation between EVA and Stock Return. In that manner, the EVA does not affect Stock Return.

Firm Size Moderates the Effect of Market β on Stock Return
The resulted from model suggests that Firm Size does not moderate the relation between Market βand Stock Return. This means that Firm Size cannot strengthen or weaken the relation between Market βand Stock Return.

Conclusion
The effect of independent variables represented by Dividend Policy, Economic Value Added, and Market β on Stock Return are not strong. Among all independent variables, Dividend Policy is the only individual factor that has a significant negative effect on Stock Return, while Economic Value Added, Market β and Firm Size do not affect Stock Return. In moderating variable, Firm Size has significant positive effect in moderating the relation between Dividend Policy and Stock Return, while Firm Size has no significant effect in moderating the relation between Economic Value Added, Market β and Stock Return. This study implies that in the preparation of performance improvement strategies in the form of Stock Return, firm management is advised to consider more in Dividend Policy because empirical result promote Dividend Policy as an element to be considered to ensure the Stock Return fluctuation.

Suggestion
Since the effect of Dividend Policy, Economic Value Added, Market β on Stock Return are not strong, it is suggested to future researcher should consider exploring about Stock Return determinant in depth by adding other related variables, which resulted in higher R-square value as proxied of better model of Stock Return determinant. It also suggested that firm management should consider Dividend Policy and Firm Size in their performance improvement strategies in the form of Stock Return given the output of the study.