THE INFLUENCE OF PROFITABILITY, FREE CASH FLOW AND INVESTMENT OPPORTUNITY SET TO CASH DIVIDEND WITH THE QUALITY OF PROFIT AS VARIABLE MODERATION (Empirical studies in manufacturing companies that divides dividends cash listed on Indonesian Stock Exchange year 2010-2014)

Nani Rohaeni STIE Bina Bangsa, Serang E-mail: nani . rohaeni@ binabangsa.ac.id M.F. Arrozi Adhikara Universitas Esa Unggul, Jakarta E-mail: [email protected]

ABSTRACT Cash dividend policy of the company would have important implications for various stakeholders, including shareholders or investors, management and creditors. The Parties shall require financial information to determine the amount of dividends to be received within a certain period. That information is properly presented in the financial statements prepared in accordance with accounting standards and reflects the quality of financial reporting is good and the quality of the actual profit. The purpose of this study was to examine the effect of Profitability, Free Cash Flow and Investment Opportunity Set to Cash Dividend by Quality Variable Gain As Moderation with simultaneously and partially. The design of this study was to test the hypothesis of causality. The method used in this research is the MRA (Moderated Regression Analysis). The data source used in secondary data. The population in this research is manufacturing companies listed on the Indonesian Stock Exchange (IDX) during period 2010- 2014, used purposive sampling techniques. The sample used is manufacturing companies that distribute a cash dividend of 30 companies. The unit of analysis is the companies. The results of simultaneous profitability, free cash flow and investment opportunity set proved positive and significant impact on the Cash Dividend. Partially profitability and significant positive effect on cash dividends, free cash flow there is no influence and no significant effect on the cash dividend and the investment opportunity set proved negative and significant effect on the Cash Dividend. Earnings quality cannot moderate the effect of profitability, free cash flow and investment opportunity set against Cash Dividend either simultaneously or partially. The findings of this study is proven to attract investors by giving a positive signal from the distribution of cash dividends of companies implementing The Political Cost Hypothesis (Hypothesis Political fee) with the concept of positive accounting theory. Keywords: profitability, free cash flow, investment opportunity set, cash dividend INTRODUCTION Shareholders will need financial information for determine the dividend that would be accepted in a particular period. The information should be presented in the company financial report that arranged in accordance with the accounting standard and reflects the quality of good financial reporting. Accounting standard give companies the opportunity to choose various alternatives a method of accounting that can be used, so creative accounting for interpretation accountant would taking advantage over the choice of an alternative that allows management accountant make some profit. Management practices profit will at last showing the low quality of the profit generated. Profit is an indicator that can be used for measuring operational performance company. Those information will be measured their success or failure on its business an operation that is assigned (Parawiyati, 1996 in Hamonangan and Mas’ud, 2006). Both creditors and investors, using profit to evaluate management, expects earnings power, and to predict profits. Information about corporate profits must be qualified to support an investment decision. If the information about corporate profits has a poor quality and investors already invest to companies that has a high profit but their quality is low. The good quality are reflected to the profit, not the management. Management is a management action profit in the formulation of financial reports, to affect the profit published. The goal is to improve the welfare of certain parties, although in the long term there is no distinction of those who identified as a profit (Fischer and Roseinzweig, 1995). A number of studies alleging manipulation to earning are often done by the management. The preparation of earning done by management more know the state in a company, the condition it was predicted by Dechow (1995) could caused a problem, because management as the party that provides information about the company performance evaluate and valued based on report of his own. The profit lacking in quality is running a business firm, management is not a company owner (Hamonangan and Mas’ud, 2006). Policy of a cash dividend by the company has an important impact on various parties. For shareholders or investors, dividends cash is the rate of return investment of their ownership that shares published other companies. For the management, dividends cash is cash flow out that reduces a cash. For that reason, a chance to do investment with cash that distributed as the dividends, will be diminished. For creditors, dividends cash can be signal about sufficiency of cash to pay interest or even pay off loan principal. Dividend cash policy tend to pay dividends a relatively large number of observers will be able to motivate to buy company shares. The company that has the ability to paid dividends, community will be assumed that enterprise has benefits (Suharli, 2007). Cash dividend often be the subject of shareholders and management of public companies, even likely controversy between shareholders and public companies. Its controversy makes Miller and Modigliani (1961) suggested dividend irrelevance theory namely large or minuteness pay dividends have no

2 influence on the value companies. Return are expected to assets, that can determine the amount of the company, instead of separation become a profit. While Gordon and Lintner (1956) suggested bird-in-the hand theory that investors expect more dividend higher than capital gains, for capital gains expected could lead to greater risks for dividends determined by market, by the determination of stock prices contrast to tax preference theory that was mentioned by Litzenberger and Ramaswamy (1979), that investors prefer a dividend low because a high dividend will taxable higher. This theory shows that investors choose a dividend low so they can save the payment of tax. (Aristantia and Putra, 2015). Investors have aims major things for investing their fund in companies, looking for income or rate of return (investment return) good dividend income (dividend yield) and income from the difference between stock price and the buying price (capital gains). In conjunction with cash dividend, investors generally want the dividends relatively stable, because the stability can increase dividends investor confidence against the company thus reducing uncertainty infuse investors in their funds into the company. On the other hand, the payment of dividends faced with various consideration include the need for one group profit to re-invest that might be profitable, the company funds, liquidity company, the nature of shareholders, specific targets associated with ratio dividend payment and other factors related to dividend policy (Sunarto and Kartika, 2003). The other things to be researched, is the quality of the profit produced by company. Profit is one of potential information contained in a financial filing and a very important for the internal and external company. A financial report served in accordance with the accounting standard (SAK) not necessarily report showed the quality of good financial and quality of good profit, will generate profit quality. Management profit perhaps is the result of accounting the accrued most problematic. The use of assessment and estimation in accounting allows manager to use information for their own to add the uses of accounting. But a few managers use this freedom, to change the numbers accounting, especially profit, for personal gain in order to reduce its quality. (Wild and Subramanyam , 2014 ). Manufacturing companies, specially automotive companies tended to use the operational budget which large enough, and there is the possibility in one accounting year operating costs exceeds its revenue operational, although the money was will irreducible in accounting year next. Based on observation have done by the writer to the financial 2010 up to 2014, found that all the company never done a management profit. It can be seen from the calculation on profit alignment with using formulas index eckel. Some previous studies that tests about factors affecting cash dividend conducted by the researchers before, there are still of research results that contrary to each other so as to cause research gap. That attracts writer’s attention to

3 analyze further information about what factors that can affect cash dividend. For example, research of Sunarto and Kartika (2003) by the testing of hypotheses in partial stated that cash ratio, current ratio, debt to total assets (DTA), return on investment (ROI) not significant to dividends cash. Research conducted by Nurhidayati (2006) find that current ratio (CR), and earnings per share caused significant and positive impact on dividends cash and return on investment (ROI), current ratio (CR), debt to total assets (DTA) and size is not significant impact on dividends cash. Research conducted by Lubis (2009) found that a partial cash ratio, current ratio (CR), and debt to equity ratio significant of cash dividend, while return on investment (ROI), debt to total assets (DTA), earnings per share (EPS) and dividend payout ratio are not significant. Further research conducted by Sandy and Asyik (2013) said that ROA has partial influence to dividends cash policy, while profit margin (PM), return on equity (ROE), current ratio (CR) and quick ratio (QR) no significant influence against dividends cash policy. The research motivation is first at least manufacture enterprises to pay dividends cash and to detect factors that affecting company in making dividend cash policy in terms of profitability, free cash flow and investment opportunity set with regard to the quality of those who owned company. Both detect engineering financial statements as proxy the quality of those who was something new from the study compared with the previous studies. There is a third research gap about the research that motivates an author in doing this research. The purpose of this research is: 1) studying and analyzing whether profitabiltas, free cash flow, the quality of profit and investment opportunity set impact on cash dividend simultaneously and in a partial; 2) studying and analyzing whether quality can prove profitability moderating influence, free cash flow and investment opportunity set against cash dividend simultaneously and partial evaluation.

LITERATURE REVIEW Signaling Theory The theory signal based on the assumption that received information by each parties are not the same. The theory signal showed asymmetrics information between company management and parties that concerned with those information. So, manager needs to give information for the parties concerned through the issue of financial reports. The theory signaling is theory that explains perception outside investors on the prospect of the company because of corporate action (Ross in Hasnawati, 2008). Financial report containing about any information be necessary for investors and the management in decision-making investment, funding and

4 policies dividends. Signals can be a promotion or other information stated that the company better than other companies. Received information by investors first translated as a signal the good news or signal bad (bad news). Dividends used as a signal for prospecting company, thus the increase in dividends are defined by the market as signal positive and vice versa reduction dividends used as signal negative for prospected company. Meanwhile from management side, company might be forced to reduce dividend payment only because it requires additional funds for investment. But once again because of the asymmetric information is leading to what is desired by management not to understood correctly by investors and markets. Therefore thats uncommon to management to reduce the dividend, they will be trying to maintain a stable dividends. (R. Agus Sartono, 2010).

Positive Accounting Theory The positive accounting theory tried to explain a process that uses ability, the understanding and knowledge of accounting policy most be appropriate to get a good condition. The determination of accounting policy and practices is important for companies in financial reporting. So, in relation to determine policy accounting and this was not in spite of authorities parties and have interest in financial report. Scott (2009) mentioned that positive accounting theory is concerned with predicting such as the actions choices of accounting policies by firm managers and how managers will respond to proposed new accounting standards. The positive accounting theory associated with estimated a decision in principle accounting by manager of a company and how manager will give response to a new accounting standards. The positive accounting theory assumed that manager is the description of rational as investors, and manager would choose the accounting policy that give an advantage for himself. There are three hypothesis of the positive accounting theory, Scott (2009), they are: 1. The Bonus Plan Hypothesis Manager of a company would choose of the accounting procedures reported income from the future would come to a period. Manager want a high bonus, if the bonus dependent on the profit reported, so manager will maximize their bonus by reported earnings as high as possible. This concept discuss that the bonus promised by the owner to manager of a company not only motivate manager to work better but also motivate manager to do cheating managerial. In order to reach a bonus performance, manager playing with the size of numbers in a financial and a bonus will always made every year. This is what caused the owner losses double, namely be false information and bring some bonus. 2. The Debt Covenants Hypothesis

5 This hypothesis relating to the conditions must be met by the company in agreement debt. The company has the ratio between debt and equity larger, tending to choose and used accounting methods to report earnings and higher tend to violate the debt if any benefits and certain benefits that can be obtained. The gains in an obligation debts and receivables can wait for the next period that all parties to know the companies condition that obtain information and business decision are wrong, as a consequence there a mistake in allocate resources. 3. The Political Cost Hypothesis Big company with a high profit made an object of the rules and government policy, as the imposition of income tax high, obliged to comply with a higher as the responsibility of the environment and so on. Watts and Zimmerman (1986) in Setijaningsih (2012) revealed that there are three basic reason that shift normative approach to positive, namely: 1) inability approach in theory normative test empirically, because it is based on the premise or a wrong assumption and cannot be tested its validity empirically, 2) normative approach more focused on prosperity investors individually than prosperity of the general public, 3) normative approach not encouraging or allow for allocation of economic resources optimally at the stock market. Positive accounting theory admitting three forms of relationship agency, they are: 1). Management with the owner, 2). Management with creditors, 3). Management with the government. In this context, positive accounting theory used to explain and predict management against the choice of method and of the accounting procedures. Positive accounting theory tried to analyze the cost and benefit of the disclosure of certain financial for communities that requires accounting information. The assumption underlying community is all interested parties with company acting rationally to maximize their interests.

Agency Theory Agency theory said that between management and owners have different interests. Agency model designed a system that involves both management and owners. Next, management and the owner make a deal (contract) to achieve expected benefits (utility). Lambert (2001) said that the agreement is expected to maximize utility (principal owner), and satisfy and ensure (management agent) to receive rewards. Benefits and obtained by both sides based on the company. In general, the company performance in terms of profitability. The difference between the interests and management located at maximization the benefits (principal owner) with an obstacle (constraint) of the benefits and incentives to be received by the management (agent). (Sunarto, 2009 ).

6 The quality of profit and management profit Dechow and Schrand in 2004, define the profit quality at least containing basic characteristics, reflect operational performance of a firm in the country and as an indicator that either the upper persistence performance the operations of a firm in which to come. Sloan (1996) define the profit quality as the profit persistent. Bernard and Stober (1989) said that the profit quality is profit that can be used by users financial report to take the best decision. The quality of profit in the company can be measured by several methods. The first, is the accrual persistence, namely the equation regression between the accrued and cash flows current with operating profit company future. The second, is the error estimation that developed by compared previous cash flow, current cash flow, and future cash flow of a company, to indicate the quality, because it exaggerate profit and vice versa. The third, is detect management profit. Management profit define by Scott (2009) is as the selection of accounting policy by manager. Scott express two events where management can understand the profit. First, as opportunistic infection manager behavior to maximize their utility in the face of a contract compensation, contract debts and political costs. Second, looked at management profit from the perspective of a contract efficient, where profit give management manager a flexibility to protect their position and companies in anticipation of events that is not unexpected for the benefit of the parties in a contract. There are several forms of profit management be made manager, among other (Sott, 2009): 1. Taking a bath Taking a bath done by acknowledging the costs in the period to come and losses period walks so that requires management imposes estimates of the future, as a result of the next period is higher. 2. Income minimization Done at the time when companies experienced level profitability high that if profit next the period is expected to dropped drastic insurmountable by taking profit in the previous period. 3. Income maximization Done at the time when profit decline. Action upon income maximization aims to reported net income high for the purpose of bonus greater.

4. Income smoothing Company did profit by means of flatten reported so as to diminish fluctuations profit was too great because generally investors like those who are relatively stable.

7 The profit management formula used in this research was alignment profit (income smoothing) measured by uisinf index eckel in Syahfandi and Mutmainah (2012), described as follows: Indeks Eckel = CV Δ I : CV Δ S CV ΔI and CV ΔS can be counted as follows:

CV Δ X = Σ ( Δ X - Δ X )2 : Δ X n - 1

Description: CV Δ I = The coefficients variant for change profit CV Δ S = A coefficient variant for changes in operational income CV = A coefficient variant Δ X = Change x between n with n-1 year Δ X = Average of changes X N = The number of the period observed

The practices profit alignment indicated by an index that less than one (<1), while index that is indicative of more than one (>1) or equal to one ( = 1 ) showed that companies did not do practices alignment profit. Status measured by index eckel (1981) criteria that the company considered to have been do the act of smoothing profit when CV Δ S > CVΔ I and an enterprise are not do alignment profit when CV Δ S < CVΔ I.

Cash Dividend Ang (1997) also indicated that cash dividend (cash dividend) is a dividend paid in the form of cash, while dividend of stocks (stock dividend) is a dividend paid in the form of shares with specific proportions. Weygandt and Kimmel (2002) in Ahmad Sandy and Nur Fajrih Asyik, (2013) distinguish some dividend types distributed to its shareholders, they are: a. Cash Dividend Is a dividend distributed in cash. This dividend is the most common and attractive to investors. According to Gitman (2003) cash dividends is investors paid assessment on a share. Cash dividends reflect cash flow to the shareholders and inform the company current and future. Because retained earnings (profit balance) is one types of funding internal, so a decision on the dividend can affect company’s needs to external funding sources. Thus, the bigger cash dividends paid by the company, will increased the number of external funding sources required through debts or stock sales. The total amount of cash dividends

8 The measurement of cash dividends = The number of shares

b. Property Dividend This dividend is dividends distributed in assets companies like merchandise, real estate, investment, and so on. This dividend is generally distributed by companies that always move mine location. c. Liquidating Dividend Dividends distributed in order to restore vision of its investment to shareholders. This dividend is the only one type dividend to pay dividends by reducing agio shares (paid in capital) company. d. Stock Dividend Dividends dispensed in the form of a stake in the company. This dividend is usually to be used by companies that don’t have sufficient cash to distribute dividends but the company would still like to distribute dividends. e. Scrip Dividend Dividends dispensed in the form of notes payable (debentures). This dividend is rarely used currently. f. Liquidity position profit were helm Usually invested in the form of assets needed to keep the business, so that net profit was not deposited in cash money. Although an enterprise have pointed about profit, a company might can not be pay cash dividends because of their liquidity position. A company that developing although have the advantage large, usually has funding need for the most pressing. Under these circumstances it can be decided not to paid dividends. g. The repayment debt When debts of the company due, company can pay the debt with cash or by giving securities other. If his decision is to pay the debt, then this usually need to detention profit. h. Restrictions in agreement debt Agreement debt, especially when is long-term debt company often restricts its ability to pay cash dividend. Cash dividend is the type of dividends that most common and attractive to investors. Retained earnings (profit balance) is one types of funding internal that is a source of funding for dividend, so decision the amount of the dividend can affect needs funding internal and external company. Thus, the bigger cash dividends paid by the company the large also the number of external funding sources required through debts or stock sales. The formula that used for reckoning cash dividend is: The total amount of cash dividends

9 Cash Dividends = (Sandy and Asyik, 2013) The number of shares

Consider the total number of share is the result of the division between the capital stock of with a face value of a share, thus making the proportion private ownership of capital stock from the investor and the number of shares of the company will make a difference between the company of one by another, hence the formula cash dividend as follows: The total amount of cash dividends Cash Dividends = Share Capital

Profitability Profitability is company’s capability to derive profit in conjunction with sales, total assets and their own capital. Thus to investors the long-term are likely very interested from the analysis profitability this for example for shareholders will see profits which it will actually be accepted in the form of dividends (Sartono, 2010). The management will pay dividends to give the signal on the success of company a profit (Wirjolukito at al, 2003 in Suharli 2007) signal concluded that the company to pay dividends is a function of advantage. Profitability can be measured used ROI (return on investment), ROA (Return on assets), ROE (return on equity), and NPM (net profit margin). Return on investment (ROI) is one form of the ratio profitability intended to measures the company with overall funds implanted in any assets that are used to operate company to produce gains (Munawir, 2010). Although ROI often called ROA, ROI referred to in the research is size the effectiveness of company in producing gain by abusing investment used for operation company. If then ROI high net profit of its being obtained from the total asset of second match will be high. If corporate profits high and the proportion of the amount of the dividend cash will be increased. The ratio of this can be calculated by a formula: (Suardi Jacob, Suharsil and Jukfri Halim, 2014).

ROI =

Free Cash Flow Free cash flow is cash flow available to be distributed to investors after the company invested for fixed asset and working capital required to maintain their business continuity (Sartono, 2010). Free cash flow as the amount of cash available from the investment in working capital operational clean and assets fixed. Cash will be distributed to company owner and creditor (Keown et al., 2002). According to Brigham & Houston (2013: 96) cash flow clean (net cash

10 flow) net cash actual, different and its accounting (net profit), produced by an enterprise during a given period. Profit accounting (accounting profit) net profit an enterprise as reported in the report profit to loose. Accounting for calculating free cash flow according to Keown et al. (2002) in Sartono (2010) determined by a formula:

Investment Opportunity Set Investment is a current expenditure with expected results from expenditure will be accepted in which to come. Each company invest a new assets to keep it always in the hope that the company would win back funds embedded from their investment. The term investment opportunity set (IOS) or investment opportunities was first introduced by Myer (1977) in Norpratiwi (2004) who expounds the company as the combination of real assets (assets in place) and options investment in the future. Option investment in the future is then known with the term investment opprtunity set (IOS). Investment opportunity set (IOS) as option future not only demonstrated by the projects company but also to the ability of company that in higher exploitation take an advantage. Hartono (2003) will investment opportunities or investment opportunity set (IOS) with accused of extent opportunity investment for an enterprise. Company that experienced growth would choose many investment opportunities as a way to develop company. Growth of the company can be seen from its sales, a given period sales growth and the ratio investment an increasingly large company did on assets fixed the more high levels investment behavior by the association. Proxy IOS that can be used the price earnings per share (PER), market value to book value of equity (MVE / BVE), and market value to book value of assets (MVA / BVA). IOS is the combination of assets owned and investment options in the future. The formula that used to proxy IOS are (Hastuti , 2013):

Price Earning Ratio (PER) =

a. Market Value to Book Value of Equity (MVE/BVE)

MVE/BVE =

b. Market Value to Book Value of Assets (MVA/BVA)

MVA/BVA =

11 In this research proxy used market value to book value of equity (MVE/BVE).

The relationship between variable The influence of profitability to cash dividend The main attraction for company owner in this case shareholders and the potential investors in the company is profitability, in this term profitability means the results obtained by business management against funds invested by the owner and investors. The bigger the profit or profitability obtained company will result in the bigger dividends and it will be distributed and the contrary (Sunarto and Kartika, 2003). ROI is one form of the ratio profitability intended to measures the company with overall funds implanted in any assets that are used to operate company to produce gains (Munawir, 2010). If ROI increase, so net profit its being obtained from gyrations total assets will be increased too. The higher corporate profits so the proportion of the amount of the dividend cash will also go high, so also on the other hand. The influence of free cash flow to cash dividend Free cash flow is available to be distributed to investors after the company invest for fixed asset and working capital required to maintain their business continuity (Sartono, 2010). According to Keown et al. (2002) free cash flow as the amount of cash that is readily available after working capital investment in operational still clean and assets. Cash will be distributed in company owner and creditor. When free cash flow high hence the higher the number of cash available to be given to the owner and investor so that the cash dividend also increased. The influence of investment opportunity set to cash dividend Investment opportunity set (IOS) as option in the future which has indicated a chance of a new company projects and the company ability that in higher exploitation chance to take an advantage. Company that in higher growth is often said also have the opportunity investment (IOS) the height. That motivates parties managerial to re-investment in large numbers. To further improve the growth, companies tend to use funds derived from internal sources compared with an external source (the issue of shares or bonds). The financial resources internal preferred to fund their reinvestment because these funds have risks and a lesser charge. The growth rates the company high in the future usually followed by a decrease in cash dividends. Dividend policy is highly influenced by investment opportunities and the availability of funds to finance new investment. This means

12 that there was a policy residual (Brigham and Houston, 2006) or residual theory of dividend, the dividends are paid if any remaining income after new investment. The higher investment opportunities owned company can cause to drop cash dividends will be distributed to shareholders. The influence of profitability to cash dividend moderated by the quality of profit Profitability is companies capability derive profit in conjunction with the sale, total assets and their own capital. To shareholders as well as a potential investor (profit creditors) who was featured in a financial filing it is hoped that profit is in good quality, as to be able to describe the truth of company performance. Profitability is needed by the company if he wanted to have paid dividends, with profit moderated quality, then the amount of the cash dividend will increase. The higher the company posted a gains (profitability high) plus the quality of a good profit, the more large amount of cash dividend which were distributed. The influence of free cash flow against cash dividend moderated by the quality of profit Free cash flow is the sum cash free available in the company is as operating results after of investment in working capital and fixed assets. The quality of profit resulting from a financial report quality to show free cash flow strong and sustainable. The company which has the quality of good profit and available free cash sufficient, who will distribute their profit to the shareholders in the form of cash. But if a free cash are not enough then the company management consider dividend to be divided in the form of dividends other than cash dividends. The influence of investment opportunity set against cash dividend moderated by the quality of profit Investment opportunity set (IOS) is investment opportunities as options in which future demonstrated by the plan projects companies and can be seen from the company ability to capitalizing on an opportunity take advantage compared with similar factors. Presentation of the quality of the profit better than a financial report showed quality of data accuracy investment opportunities owned by company. The higher investment opportunities that is occupied the low the possibility of cash dividend and it will be distributed.

The influence of profitability, free cash flow, and investment opportunity set to cash dividend moderated by the quality of profit Research the quality of profit as variable moderator to factor that influences policy cash dividend has not been found by writer on literature in

13 Indonesia. This research is to test whether the quality of profit can strengthen or weakened the influence of profitability, free cash flow, and investment opportunity set to cash dividend paid. The writer think, the company that has the quality of the profit better, will show a financial report truth and not mislead for decision-makers. The profit reported is the actual profit on that period. Free cash flow displayed is cash of which there are in companies that measurable in figures that is in a financial filing. Investment opportunities seen is the real opportunity owned by company that measured in the form of figures in financial report. To companies that a profitability high plus the quality of profit good, so the more probability cash dividend will be distributed. To companies that having free cash flow high supported the quality of the profit have the more probability that cash dividend will be distributed. To companies that invest more funds will cause the cash dividend paid reduced. The profit quality and engineered has no base strong cash and doubt their sustainability. Hypothesis Research Hypothesis advanced in this research are:

H1 : Profitability, free cash flow and investment opportunity set have had a positive impact on cash dividend simultaneously.

H2 : Profitability have had a positive impact on cash dividend in partial.

H3 : Free cash flow have had a positive impact on cash dividend in partial.

H4 : Investment opportunity set have a negative influence on cash dividend in partial.

H5 : The quality of profit can moderating a positive influence profitabiltas, free cash flow, and investment opportunity set to cash dividend simultaneously.

H6 : The quality of profit can moderating a positive influence profitability to cash dividend in partial.

H7 : The quality of profit can moderating a positive influence free cash flow to cash dividend in partial.

H8 : The quality of profit can moderating a positive influence investment opportunity set to cash dividend in partial.

RESEARCH METHODS Types of data, data sources, data collection techniques and data analysis method Types of data is secondary data. Data sources obtained from the Indonesian Stock Exchange by visiting idx.co.id web, plus with the data derived from sahamok.com and web ICMD (indonesian capital markets indonesia). Data collection technique with: 1) documentation a financial report accompanied by ratios that are deals with this research; 2) the literature study of journals and book.

14 This research using MRA (Moderated Regression Analysis) that test the interaction by multiplying variable that is hypothesized as variable moderation variable free (Suliyanto, 2011). Variable moderation raised to test the ability of variable moderation the to strengthen / weakened relations independent variable to dependent variable. The method of analysis data in this research using the tools statistics that is SPSS version 21, to ensure of data accuracy, then done before descriptive analysis then test the data quality, test the classics assumption (heteroscedasticity test, multicollinearity test, and the autocorrelation) then the hypothesis. The Population And Sampel Population in this research is a whole manufacturing companies which is listed in the Indonesia stock exchange (BEI) until the 2014 which consisted of 142 company. Sample techniques used is nonprobability sampling, the sample used is the purposive sampling method. The criteria are chosen in the determination of sample is manufacturing companies who listed in the Indonesia stock exchange (BEI) and perform a division cash dividend for 5 (five) consecutive years that is in 2010, 2011, 2012, 2013, and 2014, which consisted of 30 companies. Hypothesis Testing Test a hypothesis that used is F test and the t test. F test used to know whether variables independent simultaneously significant dependent on variables. Degrees trust used is 0.05. When the value of F count greater than the value of F according to table, so alternative hypotheses holding that all the independent variable simultaneously influential dependent on variables. Rules testing as follows:

If, Fcount < Ftable So Ho received and Ha rejected

If, Fcount > Ftable So Ha received and Ho rejected The t test used to see the influence of each variable free on variables bound (testing in partial). The t test of one variable divided into two categories, namely: a. t - test to one variable with one direction left or right (one tail) b. t - test to one variable with both direction (two tail) Rules of testing as follows:

If, tcount ≤ ttable, So Ho received and Ha rejected

If, tcount ≥ ttable, so Ho rejected and Ha received Moderated Regression Analysis (MRA) Moderating variable is the variable that can strengthen or weakened a direct relationship between the independent variable to dependent variable. Moderating variable is the variable that have leverage against the character or direction the relationship between variable. The nature of the relations between independent variables and dependent variables the possibility of positive or

15 negative depends on variable moderating, hence moderating variable also called as contingency variabel. In this research testing done with pure moderator or variable who can only be moderation variable, testing done with pure moderator done by making regression interaction, but moderating variable cannot function as variable independent. Equation moderated regression analysis (MRA) used in this research is as follows:

Y = a + b1*X1 + b2*X2 + b3*X3 + b4*Z + b5(X1*Z) + b6(X2*Z) +

b7(X3*Z) + e.

CD = a + b1*ROI + b2*FCF + b3*IOS + b4*PL + b5(ROI*PL) + b6(FCF*PL) +

b7(IOS*PL) + e. Description: CD = Cash Dividend ROI = Return On Investment FCF = Free Cash Flow IOS = Investment Opportunity Set PL = Flattening Profit a = constanta b1-b7 = coefficient of regression e = Error

THE RESULTS OF THE STUDY AND DISCUSSION Data Description Manufacturing companies that used in this research composed of different sorts industry with the characteristics in products materials different, the size of the company different and a scale of measurement different companies also between one company with any other company. It is expected that the diversity of sample results of obtained will be represent manufacturing companies as a whole. Sampling techniques used is nonprobability sampling, to technique the sample used by a writer is the method purposive sampling, namely the determination of sample based on certain criteria in accordance with is intended. As for the criteria chosen in the determination of sample is manufacturing companies who listed in the Indonesia stock exchange BEI and perform a division cash dividend for five consecutive years that is in 2010 up to 2014 obtained the number of as many as 30 companies. The number of the data used as many as 150 data. Descriptive Statistics Descriptive statistics made to showed the minimum value, a maximum value, the average value (mean and standard deviations of each variable, with the purpose of giving an overview of the size for the measure of central tendency) and the size of the variation over the sample. Variable measured in this research is return on investment, free cash flow, investment opportunity set and cash

16 dividend, moderating variable namely the quality of profit. Descriptive statistics of variable it can be seen in table follows: Table 1 Descriptive statistics Descriptive Statistics Maximu N Minimum Mean Std. Deviation m Cash Dividend 150 .01 70.70 4.2375 11.40941 Return On Investment 150 .09 71.51 15.0397 11.05176 17714000 Free Cash Flow 150 -2526581.00 1017265.2600 2655728.78743 .00 Investment Opportunity 150 .09 53.59 4.4834 7.99223 Set The quality of profits 150 -24.71 27.84 .6829 4.36308 Valid N (listwise) 150 Source: processing the output SPSS 21 Based on the results of output in table 1 on top can known sample observation 150 data with variables as follows: 1. Cash dividend variable shows that comparison of the total amount of cash dividend with capital shares owned by manufacturing companies a minimum of 0.01 which is found in PT Sumi Indo Cable Tbk in 2010 while a maximum score is 70.70 found in PT Unilever Indonesia Tbk. The average score (mean) comparison the total amount of cash dividend with share capital show 4.24. Deviations standard of 11.41, it means the average total cash dividend per share capital invested in the company is Rp. 4.24. 2. Return on investment (ROI) variable indicate that the company performance seen from the ability firm in use any assets that are used for operation the company has minimum value 0.09 owned by PT Triassic Sentosa in 2014 while maximum value of 71.51 owned by PT Unilever Indonesia Tbk in 2013. The average score (mean) the ability of company produce profit of 15.04 with deviations standard of 11.05. It means the ratio the average firm in gain advantage over investment done of 15.04 %. 3. Free cash flow (FCF) variable is a free cash flow company that is available to be distributed to investors come from the reduction of cash flow operations with working capital expenditure has a minimum value of -2526581.00 owned by PT Gudang Garam Tbk in 2014. It means the existing data showed that in 2014 PT Gudang Garam Tbk having cash flow operational smaller than working capital expenditure. The maximum value of 17714000.00 owned by PT Astra International Tbk in 2014. Average value (mean) free cash flow manufacturing companies worth 1017265.26 with a deviation standard of 2655728.79. It means company has free cash flow to show the existence of

17 cash from operational activities after deducting investment activities is the average Rp.1.017.265.260,-. 4. Investment opportunity set (IOS) variable are proxy with market to book value of equity (MVE / BVE) shows investment opportunities owned by company has value minimum of 0.09 owned by PT Goodyear Indonesia Tbk in 2011 while maximum value of 53.59 owned by PT Unilever Indonesia Tbk in 2014. The average score (mean) investment opportunities to companies manufacturing of 4.48 with deviations standard of 7.99. It means company has investment opportunities to develop company in which to come an average of 4.48 points. 5. Moderating variable, the quality of the profit proxy the flattening profit found that income from minimum of -24.71 owned by PT Indah Maju Tbk in 2011 while the maximum value of 27.84 owned by PT Surya Toto Indonesia Tbk in 2013. The value of flattened profit (mean flattening) of 0.68 with deviations standard 4.36. It means based on the data obtained the average manufacturing companies do management practices profit (income smoothing) can be seen from the value of flattening profit is < 1. This is in accordance with criteria eckel index which states that if the result of reckoning CV∆I divided CV∆S < 1 and flattening of the companies have profit. Normality Data Test The data quality test in this research using normality test. Based on display charts histogram, it can be seen that to scatter data producing curves normal that resembles the form of a bell with either side of the wide infinities are so that can be concluded the distribution pattern normal and can be done the following analysis.

Source: processing the output SPSS 21 Charts 1 Histogram Normality Test Data Research Heteroscedasticity Test Heteroscedasticity test used to see a scatterplot chart between predictive value variable bound (zpred) with residual value (sresid). The following results of the examination of heteroscedasticity test:

18 Source: processing the output SPSS 21 Charts 2 Scatterplot Heteroscedasticity Test The result of heteroscedasticity test shows the heteroscedasticity because charts scatterplot shows that there is a pattern clear, where points formed spread above and under zeros on the y axis, so that this research process can proceed. Multicollinearity Test Problems that might be happen to the use of the regression equation is multicolinearity, namely condition in which independent variable correlate with other variables. A manner used to know the whereabouts of multicollinearity is by seeing value variance inflation factor (VIF) of each variable on variables not free. Based on the results of output test multicolinearity with SPSS statistics 21 seen in table 2, that model regression having value variance inflation factor (VIF) each variable smaller than 10, so that independent variable namely profitability, free cash flow, and investment opportunity set, free from multicollinearity and research process can proceed. Table 2 Multicollinearity Coefficients Test Collinearity Statistics Model Tolerance VIF 1 (Constant) Return On .408 2.450 Investment Free Cash .673 1.486 Flow Investment .219 4.574 Opportunity Set The quality of .325 3.076 profits The quality of .187 5.345 profits*ROI

19 The quality of .717 1.394 profits*FCF The quality of .168 5.948 profits*IOS a. Dependent Variable: Cash Dividend Source: processing the output SPSS 21 Autocorrelation Test Used to detect whether there were any autocorrelation done by Durbin Watson Test. The following results of the examination of autocorrelation test obtained value of 1.786 Durbin Watson, so can be concluded that the coefficients in regression does not occur autocorrelation. Table 3 Model Summary Autocorrelation Task Model Summaryb Model R R Adjusted R Std. Error of Durbin- Square Square the Estimate Watson 1 .903a .815 .812 4.95249 1.786 a. Predictors: (Constant), Investment Opportunity Set, Free Cash Flow, Return On Investment b. Dependent Variable: Cash Dividend Source: processing the output SPSS 21

Testing Simultaneous Influence by F test F test is used to see the influence of independent variable namely profitability (ROI), free cash flow (FCF) and investment, opportunity set (IOS) simultaneously all together on dependent variable namely cash dividend. The results of the F mixed with use SPSS 21 can be seen in table follows: Table 4 Anova task F ANOVAa Model Sum of Squares Df Mean Square F Sig. 15814.560 3 5271.520 214.89 .000b Regression 7 1 Residual 3581.451 146 24.530 Total 19396.011 149 a. Dependent Variable: Cash Dividend b. Predictors: (Constant), Investment Opportunity Set, Free Cash Flow, Return On Investment Source: processing the output SPSS 21 Anova from the table can be explained that the value of 214.897 F count with significant degree 0,000. In a significant degree 0,05 (α = 5%) and n as many as 150 obtained df1= k – 1 (df1 = 4 – 1 = 3 ) and df2 = n – k (df2 = 150 – 4 =

20 146) until they reached dk a numerator 3 and dk the denominator 146 F tabel obtained the value of as much as 2.67 therefrom Fcount > Ftable (214.897>2.67).

Because the value of greater than Fcount and extent of signification 0,000<0,05. So Ha1 received and H01 is rejected, it means profitability, free cash flow and investment opportunity set have had a positive impact on cash dividend simultaneously. Testing Partials Influence by t test t test is used to see the influence of independent variable namely profitability (ROI), free cash flow (FCF) and investment, opportunity set (IOS) partial each independent variable to dependent variable namely cash dividend (CD). Table 5 Coefficients test t Coefficientsa Model Unstandardized Standardize T Sig. Coefficients d Coefficients B Std. Error Beta (Constant) -3.050 .740 -4.122 .000 Return On Investment .142 .055 .138 2.573 .011 1 1.123 .000 .025 .652 .515 Free Cash Flow E-007 Investment Opportunity Set -1.120 .079 -.784 -14.261 .000 a. Dependent Variable: Cash Dividend Source: processing the output SPSS 21 Based on the table can be explained that the results of the second to fourth hypothesis is: 1) The second hypothesis (H2) Profitability variabel the value of 2,573 t count with significant degree 0,011 in a significant degree 0,05 (α = 5%) and n as many as 150 obtained the value

1,65536 t table. Because the value of tcount > ttable (2,573>1,65536) in a significant degree 0,05 so H02 rejected and received Ha2 it means profitability had a positive impact and significant on cash dividend. Therefore second hypothesis means profitability had a positive impact and significant on cash dividend testing partial is received.

2) The third hypothesis (H3) Free cash flow (FCF) variabel the value of 0,652 t count with significant degree 0,515 in a significant degree 0,05 (α = 5%) and n as many as 150

obtained the value 1,65536 t table. Because the value of tcount > ttable (0,652>1,65536) in a significant degree 0,515>0,05 so H03 received and Ha3 rejected, it means Free cash flow (FCF) had not a positive impact and significant on cash dividend. Therefore third hypothesis means Free cash

21 flow (FCF) had a positive impact and significant on cash dividend testing partial is rejected.

3) The fourth hypothesis (H4) Investment opportunity set (IOS) variabel the value of -14,261 t count with significant degree 0,000 in a significant degree 0,05 (α = 5%) and n as many

as 150 obtained the value -1,65536 t table. Because the value of tcount > ttable (-14,261 > -1,65536 ) in a significant degree 0,05 so H04 rejected and received Ha4 it means Investment opportunity set (IOS) variabel had a positive impact and significant on cash dividend. Therefore second hypothesis means Investment opportunity set (IOS) had a positive impact and significant on cash dividend testing partial is received. Testing Hipotesis Moderated Regression Analysis (MRA) MRA by F test Table 6 Anova test F MRA ANOVAa Model Sum of Df Mean F Sig. Squares Square 4719305.386 3 1573101.79 .206 .892b Regression 5 1116644891. 146 7648252.68 1 Residual 715 3 1121364197. 149 Total 101 a. Dependent Variable: Cash Dividend b. Predictors: (Constant), Kualitas Laba*IOS, Kualitas Laba*FCF, Kualitas Laba*ROI Source: processing the output SPSS 21 Anova from the table can be explained that the value of 0,206 F count with significant degree 0,892. In a significant degree 0,05 (α = 5%) and n as many as

150 obtained df1= k – 1 (df1 = 4 – 1 = 3 ) and df2 = n – k (df2 = 150 – 4 = 146) until they reached dk a numerator 3 and dk the denominator 146 F tabel obtained the value of as much as 2.67 therefrom Fcount < Ftable (0,206 < 2.67). Because the value of Fcount smaller than Ftable and extent of signification 0,892>0,05. So H05 received and Ha5 is rejected, it means fifth hypothesis is rejected. This shows that the quality of profit cannot moderating a positive influence profitability (ROI), free cash flow (FCF) and investment opportunity set (IOS) to cash dividends in simultaneously. This proves that whether or not the quality of the income generated will not affect the distribution of cash dividend throughout the interests of the owners to get cash dividend.

MRA t Test

22 Test results of MRA t test can be seen from the results of the analysis in partial by using SPSS statistics 21 of the table 7, so that hypothesis sixth until eighth can be explained as follows:

a. The sixth hypothesis (H6) t count on the variables of the quality of profit *ROI obtained such an amount 1.053 with significance 0.294 in extent of signification 0,05 (α = 5%) and n

150 obtained value of 1.65536 t table. Because tcount < ttable (1.053 < 1.65536) and value significance 0.294 > 0,05 so decisions Ho6 received and Ha6 rejected, this shows that the quality of profit cannot moderating a positive influence profitability to cash dividends in partial.

b. The seventh hypothesis (H7) t count on the variables of the quality of profit*FCF of 1.415 with significance 0.159 in extent of signification 0,05 (α = 5%) and n 150 obtained value of

1.65536 t table. Because tcount < ttabel (1.415 < 1.65536) and value significance 1,59 > 0.05 so Ho7 received and Ha7 rejected, this shows that the quality of profit cannot moderating a positive influence free cash flow to cash dividends in partial.

Table 7 Coefficients of t MRA Test Coefficientsa Unstandardized Standardized Model Coefficients Coefficients T Sig. B Std. Error Beta (Constant) 2.980 .753 3.956 . 000 The quality of .021 .019 .091 1.053 .294 profits*ROI 1 The quality of 2.126E-007 .000 .065 1.415 .159 profits*FCF The quality of -.078 .064 -.112 -1.215 .226 profits*IOS a. Dependent Variable: Cash Dividend Source: processing the output SPSS 21

The Result of Research Discussion

H1: Profitability, free cash flow, and investment opportunity set have had a positive impact on cash dividend simultaneously The results of the study testing simultaneously with this F about profitability (ROI), free cash flow (FCF) and investment opportunity set (IOS) have had a positive impact on cash dividend in manufacturing companies who listed in BEI stated that their level of significance in 0,000, so that concluded that

23 H1 accepted. This show to the management to pay attention to profitability and maintain the stability, free cash flow, and investment opportunity set with the aim of enhancing cash dividend to be divided, so that the community and the investors will choose and or keep investment in the company. The result of this research in line with research conducted by Susanti (2015) who discovered the influence of profitability (ROI), free cash flow (FCF) and investment opportunity set (IOS) impact on cash dividend simultaneously.

H2: Profitability have had a positive impact on cash dividend in partial The results of the study testing partial evaluation through T test about profitability against the influence of cash dividend on manufacturing companies who listed in BEI said that the total amount of significance 0.011, so that it can be concluded that H2 accepted. In other words, profitability in this case proxy with ROI used by a company to become the foundation consideration in a cash dividend on the basis of investment for the repayment of profit. Profitability is the ability of companies in the generate profit, while cash dividends are only some of corporate profits which are distributed to shareholders in the form of cash, hence writers can conclude that profitability has links with cash dividend. A company that can afford manage their assets effectively and efficiently tending to produce good financial performance. This realized with the high profit and the firms are considered to be incapable of to satisfy capital and able to to pay some portions of their profit in the form of cash dividend. The higher the profit capable of produced, the bigger also company probability to pay dividends cash. The result of this research in line with research conducted by Salvatore Wika Phallus Pradana and I Putu Sugiartha Sanjaya (2014), Dwi Hastuti (2013), Yeti Meliany Lubis (2009), Satmoko and Sri Isworo Ediningsih (2009), Michell Suharli in 2007 that concludes that profitability significant policy of cash dividend. The authors found the results of research in contrast to the research Nur Hidayati (2006) and Sunarto and Kartika (2003) who argued that in partial, profitability do not affect significantly to cash dividend.

H3: Free cash flow have had a positive impact on cash dividend in partial The results of the study testing in partial with this t test about the influence of free cash flow to cash dividend in manufacturing companies who listed in BEI said significance value 0.515, concluded that H3 rejected. Writer thought that in the condition of free cash flow high, companies just hold the amount of the dividend. This may be due to company has other policies for example maintain the availability of cash and keep capital adequacy to fund their expansion company. The result of this research in line with research conducted by Salvatore Wika Phallus Pradana and I Putu Sugiartha Sanjaya (2014) which also concluded

24 that free cash flow are not significant to cash dividend policy but contrast with the results of the study Dwi Aristantia and I Made Pande Dwiana Putra (2015).

H4: Investment opportunity set have a negative influence on cash dividend in partial The results of the study testing in partial with this t test on investment opportunity set have a negative influence on cash dividend in manufacturing companies who listed in BEI said significant 0.000, so that concluded that H4 accepted. This proved that the higher investment opportunities owned by the company so company tended to use the derived from internal as profit arrested and funds from accumulated depreciation to fund their new investment, so that caused a decline in dividends cash to be divided to the shareholders. The result of this research in contrast to the research conducted by Dwi Aristantia and I Made Pande Dwiana Putra (2015) but in line with research of Luluk Muhimatul Ifada and Sri Kusumadewi (2014), who also concluded that free cash flow have a negative influence and significantly to cash dividend in partial.

H5- H8: Profit quality can be moderating a positive influence profitability, free cash flow and investment opportunity set against cash dividend simultaneously and partial. The research results testing simultaneously through with F test moderated regression analysis about quality who can profit of moderating influence positive profitability (ROI), free cash flow (FCF) and investment opportunity set (IOS) against cash dividend (CD) on manufacturing companies listed on BEI declare 0.892 extent of signification. So that it can be inferred H5 rejected. It means hypothesis fifth suspected the author was rejected because it turns out that the quality of profit cannot be moderating (strengthens or weakens) a positive influence to profitability (ROI), free cash flow (FCF) and investment opportunity set (IOS) simultaneously. This proved that both are permitted the quality of the profit generated by the company would not affect for dividing the cash dividend along the company has high profitability, available free cash flow and investment opportunities low supported with the policy of amount of the dividends the company owned. So that the profit quality will have no effect of the decision of shareholders to maintain investment along a concern to get cash dividend have been met. The results of research positive measure the impact of profitability, free cash flow and investment opportunity set against cash dividend simultaneously with moderated profit is the quality of new things that a writer of none had found in previous studies. Research who writers find what are basically in line is research in 2011, flattening influence the level of profit against the ratio of payment of the dividend (DPR) that in conclusion that in the event of a rise in profit, profit level alignment have had a positive impact on the ratio the payment of dividends unacceptable.

25 The results of the study testing in partial with this t test and moderated regression analysis on the quality of profit moderating profitability to cash dividend in manufacturing companies who listed in BEI said value significance 0.294, so the decision H6 rejected. This showed that management did not make an issue of whether the quality of the profit produced when decided a cash dividend along the profit produced high. Writer thought this situation in future will put the owner and potential investors. The results of the study that measures a positive influence profitability to cash dividend in partial with moderated the quality of profit a writer of none found in previous studies. Research who writers found was analysis influence management profit and profitability policy of dividends done by Herdiani Restu Ekasiwi and Moh. Didik Ardiyanto (2012). The outcome of this research provide a summary that the management of profit has not been affecting the policy dividend. The results of the study testing partial evaluation through t test and moderated regression analysis terms of the quality of moderating profit free cash flow against cash dividend on manufacturing companies who listed in BEI stated that 0.159 significance, hence the decision is H7 rejected. That means that the quality of profit cannot be moderating a positive influence free cash flow cash dividends against partial evaluation. Are permitted quality free cash flow available in the company had no effect for dividing the cash dividend, along free cash are enough to dispensed in the form of cash dividend. In contrast to research by Luh Made Parama Yogi and I Gusti Ayu Eka Damayanthi in year 2015. The outcome of this research concluded that that free cash flow can have negative effects on management profit. The results of research measure the impact of positive free cash flow against cash dividend partial evaluation moderated with the quality of a writer of no profit had found in previous studies. The results of the study testing in partial with this t test and moderated regression analysis on the quality of profit moderating investment opportunity set to cash dividend in manufacturing companies who listed in BEI stated that their level of significance in 0.226, so the decision H8 rejected. This shows that the quality of profit cannot moderating negative impact investment, opportunity set to cash dividends in partial. The low investment opportunities which is seen from a financial report quality not capable of strengthen or weakened decision a cash dividend. Company tending to will still do a cash dividend although a financial report produced indicated management profit. The results of research measure the impact investment, opportunity set to cash dividend in partial with moderated the quality of profit a writer of no found in previous studies. Research who writers found was analysis influence management policy of profit dividends done by Herdiani Restu Ekasiwi and Moh. Didik Ardiyanto in 2012, the outcome of this

26 research provide a summary that the management of profit has not been affecting the dividend payout ratio. From the analysis that has been done, writer get the result regression as follows:

Y = a + b1*X1 + b2*X2 + b3*X3 + e.

Y = - 3.050 + 0,142 X1 + 1.123.000X2 − 1.120X3 + e. Constant of - 3.050 claimed that if variable profitability, free cash flow, and investment opportunity set worth 0 (zero) and cash dividend the company is of minus 3.050. It means companies should having profitability and free cash flow high so as to have a positive dividends cash. The regression coefficient profitability of 0,142 states that each the addition of 1 points profitability will resulting in a rise cash dividend Rp. 0,142, it means the bigger profitability so will increase the dividend. The regression coefficient free cash flow of 1.123.000 states that each the addition of 1 points free cash flow will not resulting in a rise cash dividend. It means though the having cash flow free high when policy the division of dividend is not present then will not improve the dividend cash divided. The regression coefficient investment opportunity set of -1.120 states that each the addition of 1 points investment opportunity set will reduce the increase in cash dividend. It means the greater investment opportunity set so the less likely the company would pay their cash dividends. Research Findings This research trying to analyze and prove the concept of the theory signaling and the positive accounting theory in practice in the capital market especially in manufacturing companies who listed in BEI. The theory signaling indicated assymmetrics information / imbalance information between company management with the parties concerned of information accounting. The quality of profit in produced from the financial statement in accordance with rule reporting accounting (the accounting standard) is hoped able to minimize the asymmetry information . Based on the research done variable free profitability proxy with return on investment, (ROI) is the variable the most dominant to push motive political cost in policy on a cash dividend. Investment could provide guarantee an advantage to manager, the owner, creditors and the government. Positive signal of the division of cash dividend contains information good news but with the quality of the profit questionable because indicated by the happened management profit (alignment profit). In a condition of assymmetrics information promote moral hazard in the form of efforts the company concealing information by doing management profit approach in profit alignment that the profit obtained tended to be stable. The positive accounting theory provide opportunities to choose of the accounting procedures to changes the profit reported from a period of the future to the present

27 or otherwise with the hope of improving a bonus them on this period with reported net income as high as possible but still in the corridor and character the process of the accrued. Several alternative accounting that can be used by each company to reach efficiency and the effectiveness of company and reach optimal profit. The findings of this research prove to attract investors by providing a signal to the market positive sentiment from a cash dividend company applying the political cost hypothesis (hypothesis the cost of politics) with the concept of positive accounting theory. It was because the manager prefer of the accounting procedures who gives up at a profit which reported from the present into the future, the quality of the profits from the quality of a financial report made no decision can be moderating a cash dividend. The owner of a potential investor or no deal the quality of financial reports along their interests to obtain cash dividend have been met.

CONCLUSION AND RECOMMENDATIONS Conclusion Based on the research processing data and the discussion of the results, it can be inferred as follows: 1. Hypothesis 1 stated that they found a positive influence between profitability (ROI), free cash flow (FCF) and investment opportunity set (IOS) of cash dividend simultaneously. This show to the management in order to watching and guarding stability profitability, free cash flow, and investment, opportunity set with the aim of enhancing cash dividend to be divided, so that the community and the investors will choose and or keep investment in the company . 2. Hypothesis 2 stated that they found a positive influence and significant between profitability (ROI) of cash dividend in partial. Hypothesis companies have been able to manage their assets effectively and efficiently tending to produce the profit high and the company considered to be incapable of to satisfy capital and able to to pay some portions labanya in the form of cash dividend . 3. Hypothesis 3 states that have not is the positive and insignificant between free cash flow to cash dividend in partial. This hypothesis rejected because of the free cash flow high, enabled firms hold the amount of the dividend, that may be company has other policies for example maintain the availability of cash and keep capital adequacy to fund their expansion company. 4. Hypothesis 4 stated that is the negative and welfare between investment opportunity set to cash dividend in partial. Hypothesis received because this

28 proved that the higher investment opportunities owned by the company so company tended to use the derived from internal to fund their new investment, so that caused a decline in dividends cash to be divided to the shareholders . 5. Hypothesis 5, 6, 7 and 8 stating that the quality of profit cannot moderating (strengthening or weakened) a positive influence profitability (ROI), free cash flow (FCF) and investment, opportunity set (IOS) both simultaneously and partial. Hypothesis rejected, this proved that management did not make an issue of whether the quality of the profit produced when decided a cash dividend. Good whereabouts of the quality of the profit produced by the company would not affect for dividing the cash dividends along the company has profitability high, available cash flow free and investment opportunities low supported with the policy of a dividend owned company. So that the quality of the profit produced would not affect of the decision shareholders to maintain investments or potential investors invest along the interests of the owner to get cash dividend fulfilled .

Recommendation Based on a conclusion that described above then the researcher recommendations are: 1. Companies should maintain stability profitability and investment opportunities to maintain the stability of a cash dividend in the hope of a cash dividend a stable can provide signal positive for the owner and potential investors . 2. Expected the leaders management interested in the policy can build culture of good ethics that doesn’t occur the act of moral hazard . 3. So that the results of research obtained diverse and more broadly to next researchers suggested adding the independent variable for example other management behavior and investors. A period of research augmented or renewed with respect there are regulations of OJK (authority financial services) since year 2014 about the amount of the dividend, will make the development of science much better. 4. Investors and prospective investors although results showed no influence of the quality of the profit on the amount of the dividend, should be more careful it was feared that the presentation of financial report misleading the owner and a potential investor in future.

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