Corporate Debt Management Strategy and Dividend Policy in Facing Global Economic Uncertainty: A Review of the Manufacturing Sector on the Stock Exchange
Corporate debt management strategies and dividend policies in the manufacturing sector on the Indonesia Stock Exchange (IDX) in the face of global economic uncertainty tend to focus on prudence and maintaining corporate liquidity . Global uncertainties, such as fluctuations in interest rates and exchange rates, and slowing global economic growth, significantly impact manufacturing companies' external debt burdens, cost of capital, profitability, and cash flow.
Here is the strategic overview:
1. Corporate Debt Management Strategy
Global economic uncertainty can increase funding risks (rising global interest rates) and exchange rate risks (weakening of the Rupiah) for manufacturing companies with foreign currency debt. Strategies include:
Diversification of Funding Sources: Reducing dependence on one type of debt (e.g., bank/foreign debt) by considering other funding options, such as issuing domestic bonds or equity, to minimize interest rate and exchange rate risks.
Exchange Rate Risk Management: Companies with debt in foreign currencies (especially USD) must hedge using derivative instruments (such as forward contracts or swaps ) to mitigate potential spikes in debt burden due to the weakening of the Rupiah (Result 2.1).
Optimal Capital Structure: Review the debt to equity ratio (DER ) to avoid an over -leveraged capital structure , which can reduce growth rates due to high interest expenses, especially when interest rates are high (Result 1.3).
Strengthening Operating Cash Flow: Efficiently manage working capital, accelerate receivables collection, and control production costs to ensure strong operating cash flow. Healthy cash flow is key to meeting short-term debt obligations and investments (Result 1.6).
Maintaining High Liquidity: High liquidity indicates a company's ability to meet its short-term obligations, including debt. Liquid companies are viewed positively by the market and investors (Result 1.4).
2. Dividend Policy Strategy
Dividend policy is a dilemma between retaining cash for investment or paying dividends to shareholders. In the face of uncertainty, dividend policy serves as a signal of corporate stability to the market.
Implementation of Dividend Smoothing : Many companies tend to maintain a stable dividend policy or gradually increase dividends ( dividend smoothing ), even when profits fluctuate. This sends a positive signal to investors that the company is stable and has good future prospects, even amidst crises or uncertainty (Results 1.4, 3.4).
Prudent Pro-Cyclical Dividend Policy: Research shows that manufacturing companies in Indonesia, even during crises such as the COVID-19 pandemic, have been shown to formulate positive dividend policies as a positive signal to the market (Result 3.4). However, under conditions of extreme uncertainty, companies may lower their dividend payout ratio ( DPR ) to retain more retained earnings as a cash cushion (Result 3.3).
Debt vs. Dividend Priority: Increasing debt tends to decrease dividend payments because the company's cash is prioritized for principal and interest payments. This decision reflects the dilemma between meeting shareholder expectations and maintaining long-term financial health (Result 2.2).
Achieving Optimal Balance: The ideal dividend policy is one that strikes a balance between current dividends and future growth. Decisions should consider profitability, internal funding needs for investments, and the company's liquidity, all of which are affected by global economic conditions (Results 3.1, 2.5).
3. The Interaction of Debt and Dividends Amid Uncertainty
In an environment of uncertainty, decisions about debt and dividends become integrated strategies that influence each other:
Market Signal: A consistent dividend policy, supported by effective debt management, serves as a strong signal to investors. Debt reduction and stable dividend payments can increase company value amidst uncertainty (Result 3.2).
Cash Management: The choice between using cash to pay dividends or repay debt is influenced by management's view of investment prospects and the risks posed by debt (interest costs). In times of uncertainty, the tendency to hold cash (retained earnings) is greater as a precaution, which can put pressure on the DPR (Result 3.3).
The Role of Corporate Governance : Strong managerial ownership can moderate the relationship between debt/dividends and firm value, ensuring managerial actions are aligned with shareholder interests, which is particularly important during times of crisis
