Abstract
Dividend policy has been puzzling for researchers for decades. The level of dividend varies not only across industries, but also across countries. This research analyzes the dividend policy of Indonesian public companies, in particular it examines the partial effect of cash ratio, debt ratio, company size, profitability, and asset growth on cash dividend policy in Indonesia Stock Exchange from 2008 to 2015. A total of 102 companies was used as a sample. The samples are divided into four groups: (1) a group of companies paying changeable dividends (Change group), (2) a group of companies paying continuous dividends, but then stop paying dividend (Omission group), (3) a group of companies that initially do not pay the dividends, but then continuously paying dividend (Initiation group); and (4) a group of companies paying constant dividends (Constant group). Results of hypotheses testing using multiple regression analysis show that profitability and asset growth affect dividend policy in all company groups. Company size affects dividend policy in the Change, Initiation, and Constant groups. Debt ratio influences dividend policy only in the Change group.
Highlights
Dividend announcement made by the company management is a signal of company development (Miller & Rock, 1985)
This research examines the fundamental factors underlying the dividend policy made by the companies listed on the Indonesia Stock Exchange
Previous studies found that liquidity, profitability, capital structure, company growth, and company size are the factors affecting the decision of cash dividend payment
Summary
Dividend announcement made by the company management is a signal of company development (Miller & Rock, 1985). An increased dividend payment compared to the previous year’s payment is a signal that the company has a good prospect in the future. A sophisticated investor needs to analyze information about the increased dividends as a basis for the market participants to evaluate a company’s prospect in the future. The announcement of increased dividend by the prospective companies gives an economic signal to the market. If it is announced by the non-prospective companies, the information has no economic value. It happens because dividend payment requires a high cost. Sophisticated investors will react positively on the good news of increased dividend as announced by the prospective companies, and they will react negatively on the announcement of increased dividend as announced by non-prospective companies
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