RE-EXAMINING DIVIDEND PAYOUT, PROPORTION OF OWNERSHIP AND FIRM’S VALUE IN INDONESIA

Abstract

We re-examine the impact of dividend policy and proportion of ownership on firm value in the
Indonesian Capital Market, which includes 2,712 firm-year observations over the period of
2005-2016. Tobin’s Q measures firm value, and dividend payout over net income is a measure
of dividend policy. We also include proportion ownership for the insider of the company,
foreign owner, and government owner. A panel data regression model is used in our analysis.
After controlling for firm-specific variables – size of company, liquidity, profitability, and
leverage – we find that dividend policy is irrelevant in driving firm value in the Indonesian
capital market. This phenomenon might occur in Indonesia because the market is characterized
by investors’ short-term investment perspective. They are less concern about the dividend
payment and more focused on capital gains. Additionally, it seems that insiders expropriate the
firm cash flows for their benefits at the cost of minority shareholders with their control power,
and consequently values are lowered within the market. However, the greater the foreigner
ownership, the higher the value in the market; this positive reaction emerges possibly because
the firm perceives the application of good corporate governance. Concentrated ownership from
the government does not have a significant relationship with the value of the firm.