The Effect of the Rupiah Exchange Rate and Dividend Policy on the Price to Earnings Ratio: the Mediating Role of Profitability

Abstract

This study aims to examine the effect of the Rupiah exchange rate and dividend policy on the Price-to-Earnings Ratio (PER), with profitability serving as a mediating variable, in Basic Materials sector companies listed on the Indonesia Stock Exchange during the 2021–2025 period. This research employed a quantitative approach using secondary data obtained from the companies' annual financial reports and the exchange rate data published by Bank Indonesia. The research sample was selected using a purposive sampling technique, resulting in 16 companies. Data were analyzed using multiple linear regression and the Sobel test with the assistance of IBM SPSS Statistics 26. The findings indicate that neither the Rupiah exchange rate nor dividend policy has a significant effect on profitability or the Price-to-Earnings Ratio (PER). Furthermore, profitability does not have a significant effect on the Price-to-Earnings Ratio and is unable to mediate the relationship between the Rupiah exchange rate and the Price-to-Earnings Ratio, as well as between dividend policy and the Price-to-Earnings Ratio. These findings suggest that the Price-to-Earnings Ratio of Basic Materials companies during the observation period is influenced more by other factors beyond the research model, such as corporate growth prospects, industry conditions, commodity prices, and other firm-specific fundamentals. This study provides empirical evidence regarding the limited influence of macroeconomic factors and corporate policies on market valuation in Indonesia's Basic Materials sector.