The Role of Profitability in Linking Free Cash Flow and Operating Cash Flow to Dividend Policy: Evidence from Indonesian Food and Beverage Manufacturing Firms
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Abstract
This study aims to examine the effect of Free Cash Flow (FCF) and Operating Cash Flow (OCF) on dividend policy, with profitability serving as an intervening variable, among food and beverage manufacturing companies listed on the Indonesia Stock Exchange during the 2021–2023 period. A quantitative approach with a causal research design was employed. Secondary data were collected from annual financial statements obtained from the Indonesia Stock Exchange and the official websites of the sampled companies. The sample consisted of 22 firms (66 firm-year observations) selected using a purposive sampling technique. Data were analyzed using multiple linear regression and path analysis with IBM SPSS Statistics. The findings indicate that Operating Cash Flow and profitability have a significant effect on dividend policy, whereas Free Cash Flow does not significantly influence dividend policy. Furthermore, both Free Cash Flow and Operating Cash Flow do not significantly affect profitability. Nevertheless, profitability is found to mediate the relationship between Free Cash Flow, Operating Cash Flow, and dividend policy. These findings imply that dividend decisions are driven more by a firm's ability to generate operating cash flows and sustainable earnings than by the amount of free cash flow available. The novelty of this study lies in examining the mediating role of profitability in explaining the relationship between Free Cash Flow, Operating Cash Flow, and dividend policy in Indonesian food and beverage manufacturing firms during the post-pandemic period.
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