THE EFFECT OF OVERINVESTMENT ON FIRM PERFORMANCE WITHDIVIDEND POLICY AS A MODERATING VARIABLE

Abstract

Mining in Indonesia is an industry that fluctuates due to demand and supply factors. Overinvestment is a positive error term derived from the investment demand function. Overinvestment indicates that the company will tend to increase the size of the company and undertake several projects with a net value of a negative impact that harms the company's shareholders because of the company's interests. To reduce the effect of overinvestment, the company applies a dividend policy to minimize the negative impact on company performance. This study aims to see how the effect of overinvestment on company performance, how the effect of dividend policy on company performance, and how the impact of dividend policy moderates the relationship between overinvestment and company performance in the mining sub-sector listed on the Indonesia Stock Exchange in 2018 - 2022. The method used in this study uses panel data regression analysis. This study uses quantitative causal research with a unit of analysis of the mining sub-sector group from 2018-2022. The data collected are cross-sectional and time series data obtained from the Indonesia Stock Exchange (BEI), Yahoo Finance, and the website of each mining subsector that provides research data. Based on the results of research and discussion in the previous chapter, overinvestment has a positive and significant effect on the performance of mining companies; this shows that the higher the overinvestment, the higher the performance of mining companies. Likewise, the dividend policy has a significant positive effect on company performance; this shows that the higher the dividend policy of mining companies, the higher the company's performance. A dividend policy can moderate the effect of overinvestment on the performance of mining companies, with the adverse effects of overinvestment being suppressed by a reasonable and appropriate dividend policy. Recommendations for mining companies to carefully consider dividend payments because dividend policy significantly impacts company performance, and companies must be careful to avoid investments that result in overinvestment, which can later reduce company performance. Recommendations for regulators, especially the head of the company and finance, also need to be careful in determining dividend policy because the wrong dividend policy risks reducing company performance. Academics and further researchers can also re-examine this research by providing more detailed specifications for the sample taken, especially the specific characteristics of investment, company performance, and dividend policy.Keywords:          Dividend Policy, Firm Performance, Overinvestment