The effect of free cash flow and ownership structure on dividend payout ratio in manufacturing companies in Indonesia

Afandi Suhartono

doi:10.14414/tiar.v5i2.643

Abstract

Dividend policy is used to determine the amount of net profit after tax that will be distributed to shareholders and the amount of equity in the net income that will be used to finance the company's investment. Optimal dividend policy is a dividend policy that creates a balance between current dividends and growth in the future to maximize the company's stock price. The purpose of this study is to analyze the effect of Free Cash Flow (FCF) and Ownership Structure, consisting of Institutional Own-ership, Family Ownership and Foreign Ownership, on Dividend Payout Ratio (DPR) in manufacturing companies listed on the Indonesia Stock Exchange in 2011-2013. The research methodology used is descriptive analysis method and statistical analysis method. The data used is secondary data consisting of 173 research data used as the sample. Hypothesis testing is done by using multiple linear regression analysis. The results of regression analysis show that free cash flow, family ownership and foreign ownership have positive effect on dividend payout ratio, while institutional ownership does not have negative effect on dividend payout ratio.

Highlights

In stock investment, investors always expect to get the yield from the company in the form of dividends and capital gains
This study aims to examine the effect of free cash flow and ownership structure, consisting of institutional ownership, family ownership and foreign ownership, on dividend payout ratio in manufacturing companies listed on the Indonesia Stock Exchange 2011-2013
H0 is rejected, which means that the regression model is fit or good and the variables of free cash flow (FCF), institutional ownership, family ownership and foreign ownership have an effect on dividend payout ratio (DPR). b

Summary

Introduction

Investors always expect to get the yield from the company in the form of dividends and capital gains. The options on dividends and capital gains depend on their needs and goals. The investors who prefer dividends will expect to adjust the level of distribution and the growth of dividend to the corporate profits. According to Levy and Sarnat (1990), dividend policy or dividend decision basically determines the portion of profit that will be distributed to the shareholders and the portion that will be retained as part of retained earnings. The policy of dividend payout ratio uses the indicator of company’s net income. There have been very few researches on ana-

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