Agent, Steward, and Dividend Policy

Abstract

Purpose: The main objective of this study is to examine whether the dividend policy of Indonesian firms is based on agency theory or stewardship theory. The study investigates the relationship between profitability, non-discretionary accruals, discretionary accruals and dividend policy. Design/Methodology/Approach: The final sample of this study is a total of 28 firms of consumers‘ goods industries listed in Indonesia Stock Exchange during the period of 2010 to 2017 and conducts logistic regression for hypotheses testing. Findings: The result of the first model shows that ROA and non-discretionary accruals (non-disc) have positive sign and they are significant on dividend policy. The second model shows that ROA has a positive and significant effect on dividend policy, while non-disc is insignificant on dividend policy. The third model shows that ROA and non-disc are consistently positive and significant, while discretionary accruals are consistently insignificant on dividend policy. The fourth model shows that ROA and non-disc have positive sign and significant on dividend policy, while disc is insignificant on dividend policy. The fifth model shows that ROA and non-disc have a positive and significant sign on dividend policy, while DAR, AG and disc are insignificant on dividend policy. The results of profitability on all models also indicate that the objective of managers for most Indonesian dividend payers are align with the objective of stockholders in context of stewardship. The findings imply that most of firms as payers tend to increase dividends when their profitability increases. Practical Implications: It appears that dividend payers with strong profitability as based on their policy, generally do not engage in managing its earnings while reporting the accounting information. Originality/Value: The study provides empirical evidence for dividend policy in context of agency and stewardship perspectives. This study also identifies the behavior of firm insiders whether play as an agent or steward in relationship with their principals.