An Analysis of Agency Costs and Dividend Payout Ratio of Non-financial Companies

Abstract

This study aim to analyze the effect of Insider Ownership, Institutional Ownership, Dispersion of Ownership, Debt to Total Assets, Collateralizable Assets and Free Cash Flow on the Dividend Payout Ratio. These independent variables are proxies of agency costs. This study uses panel data of 90 non-financial companies in the period of 2009-2011. The findings indicate that (1) All independent variables (Insider Ownership, Institutional Ownership, Dispersion of Ownership, Debt to Total Assets, Collateralizable Assets and Free Cash Flow) have significant effect on the dependent variable (Dividend Payout Ratio) simultaneously; (2) Institutional Ownership and Collateralizable Assets have a significant positive effect on Dividend Payout Ratio; (3) Insider Ownership, Debt to Total Assets, and Dispersion of Ownership have a significant negative effect on Dividend Payout Ratio; (4) Free Cash Flow has no significant positive effect on Dividend Payout Ratio.