MODEL OF FIRM VALUE – INDONESIAN STOCK EXCHANGE CASE

John Elim

doi:10.32479/ijefi.8036

Abstract

Aim of the research is to investigate whether cash dividend tax, institution ownership and retained earning influence on dividend policy and their implications on the firm value. Based on panel data of 73 companies that listed in Indonesian Stock Exchange, the results of research using Eviews 10 version application as follows: Institution ownership has positive dan significant influenced on dividend policy. However, cash dividend tax has negative influence on dividend policy insignificantly and retained earnings has positive and insignificant influenced on dividend policy. Cash dividend tax, institution ownership and retained earning together have significant influence on dividend policy. Cash dividend tax has positive and significant influence on firm value. Institution ownership and retained earnings have negative and significant influence on firm value. Cash dividend tax, institution ownership, retained earnings, dividen policy have significant influence on firm value. Cash dividend tax, institutional ownership, dan retained earnings have direct connection on firm value while dividend payout ratio fails to be as intervening variable on firm value. Keywords: Cash dividend tax, institutional ownership, retained earnings, dividend policy, firm valueJEL Classifications: E10, E32, E60DOI: https://doi.org/10.32479/ijefi.8036

Highlights

Research of dividend policy has been done by a lot of empirical studies
Dividend policy question has been a controversial issue since the introduction of irrelevance of dividend policy theory by (Modigliani and Miller, 1961) when they believed in the world of perfect capital market assumptions where dividend policy does not affect the shareholder’s wealth
The first model tries to investigate whether cash dividend tax, institutional ownership and retained earning (RE) as independend variables has influenced on dividend payout ratios (DPR) as dependen variable

Summary

INTRODUCTION

Research of dividend policy has been done by a lot of empirical studies. there is still no consensus that has yet been achieved. Some researchers who disagree with MM’s dividend irrelevance theorem are Farrar and Selwyn (1967), Brennan (1970), and DeAngelo and DeAngelo (2006) They argue that the perfect market assumption cannot be found in real world. Dividend revenue and capital gain usually being taxed with different tariffs. Tax tariff on capital gains tends less than that on dividend revenue. Tax Preference Theory (Baker and Powell, 1999) argue investors are more profitable if company does not pay dividend. Gordon (1959) argued that investors prefer receive dividend to capital gains because it is certain. The argumentation is known as “the bird in hand” theory Another argument was came from Bernheim (1991) who argued that dividend payment is a signal of profitable company. Based on the data derived from Indonesian stock exchange (IDX) 2010– 2014 for all companies listed excluding banking and financial institutions, the graphic shows companies that pay dividends and their FV (Figure 1)

LITERATURE REVIEW

METHODOLOGY

AND DISCUSSION

Findings

CONCLUSION