The Strategic Role of Dividend Policy in Influencing Profitability Firm Value and Investor Perceptions

Abstract

Dividend policy represents a strategic financial decision that signals corporate financial stability and future performance prospects. This study aims to analyze the role of dividend policy in influencing profitability, firm value, and investor perception through a literature-based approach. A review of twenty scholarly articles sourced from Google Scholar demonstrates that dividend policy functions not only as a mechanism for distributing earnings but also as an informational tool that shapes investor decision-making. The findings indicate that an increase in dividends is generally interpreted by investors as a positive signal of sustainable cash flow, reflecting managerial confidence in the company’s future earnings capacity. Conversely, a reduction in dividends is often perceived as a sign of financial uncertainty or heightened risk, potentially leading to a decline in market valuation. These results affirm the relevance of dividend policy as a strategic element in modern financial management that directly affects market perception, corporate profitability, and firm value. Moreover, the study underscores the importance of balancing dividend distribution and retained earnings to support long-term financial stability and sustainable growth.