INFLUENCE OF NET INCOME AND OPERATING CASH FLOW ON DIVIDEND POLICY

Research Background An investor doing investment in the form of stock to get return on their investment which are dividend and capital gain. Dividend is the value of the company's net income after tax to retained earnings. While capital gains are income from the difference between the selling and puechase price of stock. The dividend from the operational income of company will be issued to the investor. Dividends have lower ratio rather than capital gains, because dividends received based on the current period. While to get the capital gain we should consider that the stock price will be more profitable. Dividend policy is an integral part of corporate financing decisions as it provides internal financing. Source of internal financing is the use of retained earnings. Decision made by the director of a company about the amount and timing of any cash payment, those are made to the company stockholders and it depends on the type of policy. For companies, the information contained in the dividend payout ratio (DPR) is used as a consideration in determining the amount of the dividend distribution. For the shareholders, it will be used as consideration in the investment decision to determine whether to invest or not in a company. Some companies give dividends to amount in different each year. Since there are times for declining profits in the company, the dividend by the company are bigger than the previous year. It makes the resulting profit is not the only factor considered in determining the amount of the management of the DPR. There are many factors that influence a company's dividend policy (Manurung, 2009). According to Ariani (2010) that income is very important to provide information for external and internal parties. Information published by the earnings management is more relevant to the conditions of the company. Information about the performance of company, mainly on profitability are required to make decision about economic resources that will be managed in the future. In distribute the dividends, management need to consider many things and sometimes there will be some conflicts when dealing with investors. The shareholders would expect to get a high dividend, while the company have a policy that tends to distribute the amount of dividend that is relatively stable considering the survival and growth of the company in the future. According to Rasyid, (2001 as citied in Irawan and Nurdhiana), the problems in dividend policy have significant implications for investors and for companies that will pay dividends. In general, the investor has the main objective to increase the welfare in expecting the issue of dividend or capital gains. On the other hand, the member of company needs to get greater prosperity to its shareholders. Certainly its very important that the development of dividends policy to meet the expectations of shareholders, and the dividend on the other hand did not limiting the growth of the company. Thus, dividends called the division of property for the benefit of shareholders. Dividend policy determines the placement of earnings paid to shareholders by reinvesting in the company. Retained earnings are one of the important sources of funds to finance the company's growth, but the dividend is a cash flow paid to shareholders or equity investors (Brigham and Houston, 2001). Dividend policy will be determined by management and management must consider the income of company and cash from that are available in the company. The total cash flow from operating activities is an indicator to determine whether the operation of company generating sufficient cash flow to pay dividends. Furthermore, cash flows also affect the gross profit and be able to predict future cash flows. In investment activity its also affects the cash flow. So cash flow and net income in the dividend policy can be determined from operating and investment activities, depending the source of fund. A company distribute dividends to shareholders every year because the company continually get income every year, while the company does not distribute dividends when the the company wants to allocate these funds as additional capital to fund the company. There are several researches which are conducted by other researcher about dividend policy and Manurung (2009) as my replication research. The research found evidence that net income and cash flow have a positive effect on dividend payout ratio, cash flow and operating activity have a more significant influence. In other period the results of dependent and indpendent variables are different and there are some factors affecting dividend policy. Ariani (2010) stated that gross profit has the best ability to compare with operating income and net income in predicting the future of cash flows. The study found that simultaneously gross profit, operating profit, and net earnings have predictive ability for future cash flows. Amran (2013) conducted a research about the influence of growth, capital structure, the value of share, and net cash flow on dividend policy. From the result, it shows that income growth has a significant influence on negative effect on dividend policy, value of share has a significant influence on positive effect on dividend policy, capital sturucture and net cash flow have no significant influence on dividend policy. Teguh (2013) studied about analysis the influence of total debt to asset ratio, total debt to equity ratio, firms size, earning per share, and return on investment to dividend payout. The study found that Firms size, EPS, ROI, have negative influence to DPR, all independent variable have no significant influence to dividend. This research further examines the effect of manufacturing company on dividend policy in Indonesia. The different of research are the the period of research (Manurung, 2009), variable used, number of companies and year, and also place of research (Teguh, and Amran (2013), and Ariani (2010). So the researcher of this research using the indicator are as follows: net income is measured by EPS, operating cash flow is measured by CFPS, and dividend policy is measured by DPR