The effects of ownership structure, sub-optimal cash holdings and investment inefficiency on dividend policy: evidence from Indonesia

Moin, A; Guney, Y; El Kalak, I

Abstract

We investigate how a firm's decision to hold excessive cash or to overinvest could influence its dividend payout policy in Indonesia. Additionally, we examine the association between corporate ownership structure and cash dividends. Using a data set of Indonesian listed firms for the period from 1995 to 2014, we find that excessive cash holding (overinvestment) positively (negatively) affects a firm's likelihood of paying dividends. Also, we find that family, foreign, state and institutional ownership have significantly negative links with dividends, which suggests the signals of expropriation of firms' wealth by major shareholders. These findings strongly support the expropriation hypothesis that commonly applies to firms with higher level of concentration or to firms in a weak legal environment by which the rights of minority interests are put at risk by large shareholders.

Citation

Moin, A., Guney, Y., & El Kalak, I. (2020). The effects of ownership structure, sub-optimal cash holdings and investment inefficiency on dividend policy: evidence from Indonesia. Review of Quantitative Finance and Accounting, https://doi.org/10.1007/s11156-019-00862-z

• Journal Article Type: Article
• Acceptance Date: Nov 15, 2019
• Online Publication Date: Dec 5, 2019
• Publication Date: 2020
• Deposit Date: Nov 16, 2019
• Publicly Available Date: Dec 6, 2020
• Journal: Review of Quantitative Finance and Accounting
• Print ISSN: 0924-865X
• Publisher: Springer Verlag
• Peer Reviewed: Peer Reviewed
• DOI: https://doi.org/10.1007/s11156-019-00862-z
• Keywords: dividend policy; overcash; overinvestment; corporate governance; ownership structure; Indonesia; JEL Classification: G32, G34, G35
• Public URL: https://hull-repository.worktribe.com/output/3176516
• Contract Date: Nov 16, 2019