Dividend Policy in Indonesian Companies: Does Corporate Governance Matter?

  • Authors

    • Zaitul .
    • Muhammad Ridwan
    • Hanna Pratiwi
    https://doi.org/10.14419/ijet.v7i3.25.17587
  • Corporate Governance, Dividend Policy, Indonesia.

  • Abstract

    This study investigates whether corporate governance matters with regards to the dividend policy in Indonesian companies. Previous studies on this subject have mostly been done in developed countries, which have adopted the common law, such as in the US and the UK.   This study uses 26 companies operating in the finance industry. Secondary data is used from several sources, such as the annual report and financial statement and related websites. This study uses an independent sample t-test to analyse the data. Corporate governance matters for dividend policy in Indonesian companies. It is evidenced by the fact that there is a significant difference in managerial ownership and board size between dividend paid and dividend not paid. Profitability also differs between dividend paid and dividend not paid companies; companies with higher profitability tend to pay dividend. This study provides empirical evidence that corporate governance matters for dividend policy in Indonesian companies. There are two contributions of this study: the result confirms the resource dependence theory and the convergence governance hypothesis.  

     

  • References

    1. [1] Mehdi M, Sahut J-M, Teulon F. Do corporate governance and ownership structure impact dividend policy in emerging market during financial crisis? J Appl Account Res [Internet]. 2017;18(3):274–97. Available from: http://www.emeraldinsight.com/doi/10.1108/JAAR-07-2014-0079

      [2]. Miller MH, Modigliani F. Dividend policy, growth, and the valuation of shares. J Bus. 1961;34(4):411–33.

      [3] Yarram SR, Dollery B. Corporate governance and financial policies: Influence of board characteristics on the dividend policy of Australian firms. Manag Financ. 2015;41(3):267–85.

      [4] Bhattacharya S. Imperfect Information,Dividend Policy, and “The bird in the hand†Fallacy. Bell J Econ. 1979;10(1):259–70.

      [5] John K, Williams J. Dividends , dilution , and taxes : A signalling equilibrium. J Finance. 1985;40(4):1053–70.

      [6] Miller MH, Rock K. Dividend Policy under Asymmetric Information. J Finance. 1985;40(4):1031–51.

      [7] Jensen M, Meckling W. Theory of the firm: managerial behavior, agency costs, and ownership structure. J financ econ [Internet]. 1976;3(4):305–60. Available from: http://ebooks.cambridge.org/ref/id/CBO9780511817410A032

      [8] Jensen MC. Agency costs of free cash flow, corporate finance, and takeovers. Am Econ Rev [Internet]. 1986;76(2):323–9. Available from: http://www.jstor.org/stable/1818789

      [9] Easterbrook FH. Two Agency-Cost Explanations of Dividends. Am Econ Rev. 1984;74(4):650–9.

      [10] Rozeff MS. Growth, Beta and Agency Costs As Determinants of Dividend Payout Ratios. Vol. 5, Journal of Financial Research. 1982. p. 249–59.

      [11] La Porta R, Lopez-de-Silanes F, Shleifer A, Vishny R. Investor Protection and Corporate Governance. J financ econ. 2000;58:3–27.

      [12] John K, Knyazeva A. Payout Policy, Agency Conflicts, and Corporate Governance [Internet]. SSRN Electronic Journal. 2006. Available from: http://www.ssrn.com/abstract=841064

      [13] Al-Najjar B, Kilincarslan E. Corporate dividend decisions and dividend smoothing. Int J Manag Financ [Internet]. 2017;13(3):304–31. Available from: http://www.emeraldinsight.com/doi/10.1108/IJMF-10-2016-0191

      [14] Nazri SNFSM, Smith M, Ismail Z. The impact of ethnicity on auditor choice: Malaysian evidence. Asian Rev Account. 2012;20(3):198–221.

      [15] Adjaoud F, Ben-amar W. Corporate Governance and Dividend Policy : Shareholders ’ Protection or Expropriation ? J Bus Financ Account. 2010;37(5&6):648–67.

      [16] Brown P, Beekes W, Verhoeven P. Corporate governance, accounting and finance: A review. Account Financ. 2011;51(1):96–172.

      [17] Baker HK, Powell GE. Dividend policy in Indonesia : survey evidence from executives. J Asia Bus Stud. 2012;6(1):79–92.

      [18] Hasan T, Kadapakkam P-R, Kumar PC. Firm Investments and Corporate Governance in Asian Emerging Markets ’. Multinatl Financ J. 2008;12(1):21–44.

      [19] Ilona D. Directors’ Diversity, Ownership Concentration and company performance in Indonesia listed companies. Universiti Utara Malaysia; 2015.

      [20] Gordon MJ. Optimal investment and financing policy. J Finance. 1963;18(2):1963.

      [21] Lintner J. Dividends, Earnings, Leverage, Stock Prices and the Supply of Capital to Coporations. Rev Econ Stat. 1962;44(3):243–69.

      [22] Adjaoud F, Hermassi N. the Impact of Corporate Governance Mechanisms on the Dividend Policy of Canadian Firms: Empirical Study. Int J Business, Accounting, Financ. 2017;11(1):90–106.

      [23] Elmagrhi MH, Ntim CG, Crossley RM, Malagila JK, Fosu S, Vu T V. Corporate governance and dividend pay-out policy in UK listed SMEs. Int J Account Inf Manag [Internet]. 2017;25(4):459–83. Available from: http://www.emeraldinsight.com/doi/10.1108/IJAIM-02-2017-0020

      [24] Brockman P, Unlu E. Dividend policy, creditor rights, and the agency costs of debt. J financ econ. 2009;92(2):276–99.

      [25] Renneboog L, Trojanowski G. Control structures and payout policy. Manag Financ. 2007;33(1):43–64.

      [26] Fenn GW, Liang N. Corporate payout policy andmanagerial stock incentives. J financ econ. 2001;60(1):45–72.

      [27] Gan J, Lemmon M, Wang M. Can firms build capital-market reputation to substitute for poor investor protection? Evidence from dividend policies, Working paper. 2011.

      [28] Berle AA, Means GC. The modern corporation and private property. Macmillan, New York, NY; 1932.

      [29] Fukuyama F. Social Capital and the Global Economy. Foreign Aff. 1995;74(5):89–103.

      [30] Denis DK. Twenty-five years of corporate governance research... and counting. Rev Financ Stud. 2001;10(3):191–212.

      [31] Fama EF, Jensen MC. Separation of Ownership and Control Separation of Ownership and Control. J law Econ. 1983;26(2):301–25.

      [32] Li M, Roberts H. Does mandated independence improve firm performance? Evidence from New Zealand. Pacific Account Rev. 2018;30(1).

      [33] Pfeffer J. Size and Composition of Corporate Boards of Directors: The Organization and its Environment. Adm Sci Q [Internet]. 1972;17(2):218–28. Available from: http://www.jstor.org/stable/2393956%5Cnhttp://about.jstor.org/terms

      [34] Zahra SA, Pearce JA. Boards of directors and corporate financial performance: A review and integrative model. J Manage. 1989;15(2):291–334.

      [35] Yermack D. Higher market valuation of companies with a small board of directors. J financ econ. 1996;40:185–211.

      [36] Abor J, Fiador V. Does corporate governance explain dividend policy in Sub-Saharan Africa? Int J Law Manag. 2013;55(3):201–25.

      [37] Benjamin SJ, Zain MM. Corporate governance and dividends payout : are they substitutes or complementary ? J Asia Bus Stud. 2015;9(2):177–149.

      [38] Jensen MC. The Modern Industrial Revolution , Exit , and the Failure of Internal Control Systems. J Finance. 1993;48(3):831–80.

      [39] Jung K, Kwon SY. Ownership structure and earnings informativeness: Evidence from Korea. Int J Account. 2002;37(3):301–25.

      [40] Morck R, Shleifer A, Vishny RW. Management Ownership and Marekt Valuation: and empirical analysis. J financ econ. 1988;20:293–315.

      [41] Short H, Keasey K, Duxbury D. Capital Structure , Management Ownership and Large External Shareholders : A UK Analysis. Int J Econ Bus. 2002;9(3):375–99.

      [42] Bozec R. Boards of Directors , Market Discipline and Firm Performance. J Bus Financ Account. 2005;32(9):1921–60.

      [43] Cheng S. Board size and the variability of corporate performance. J financ econ. 2008;87(1):157–76.

      [44] Lefort F, Urzúa F. Board independence, firm performance and ownership concentration: Evidence from Chile. J Bus Res. 2008;61(6):615–22.

      [45] Colpan AM, Yoshikawa T. Performance Sensitivity of Executive Pay: The Role of Foreign Investors and Affiliated Directors in Japan. Corp Gov An Int Rev. 2012;20(6):547–61.

      [46] Zaitul, Ilona D. Gender in Audit Committee and Financial Reporting Timeliness : the Case of Unique Continental European Model. Int J Eng Technol. 2018;7(2.29):436–42.

      [47] Arosa B, Iturralde T, Maseda A. Ownership structure and firm performance in non-listed firms: Evidence from Spain. J Fam Bus Strateg [Internet]. 2010;1(2):88–96. Available from: http://dx.doi.org/10.1016/j.jfbs.2010.03.001

      [48] Mak YT, Kusnadi Y. Size really matters: Further evidence on the negative relationship between board size and firm value. Pacific Basin Financ J. 2005;13(3):301–18.

      [49] Foong S-Y, Idris R. Leverage, product diversity and performance of general insurers in Malaysia. J Risk Financ. 2012;13(4):347–61.

  • Downloads

  • How to Cite

    ., Z., Ridwan, M., & Pratiwi, H. (2018). Dividend Policy in Indonesian Companies: Does Corporate Governance Matter?. International Journal of Engineering & Technology, 7(3.25), 306-310. https://doi.org/10.14419/ijet.v7i3.25.17587

    Received date: 2018-08-16

    Accepted date: 2018-08-16