Dividend policy in Indonesia: survey evidence from executives
| DOI | https://doi.org/10.1108/15587891211191399 |
| Pages | 79-92 |
| Published date | 13 January 2012 |
| Date | 13 January 2012 |
| Author | H. Kent Baker,Gary E. Powell |
| Subject Matter | Strategy |
Dividend policy in Indonesia: survey
evidence from executives
H. Kent Baker and Gary E. Powell
Abstract
Purpose â This study aims to survey managers of dividend-paying ïŹrms listed on the Indonesian Stock
Exchange (IDX) to learn their views about the factors inïŹuencing dividend policy, dividend issues, and
explanations for paying dividends. The study also aims to focus on Indonesia, the largest national
economy in Southeast Asia, because relatively few studies examine why Indonesian ïŹrms pay
dividends.
Design/methodology/approach â The primary means of gathering data is a mail survey. The two-page
survey instrument consists of three main sections: 22 factors for determining a ïŹrmâsdividend policy; six
questions that provide background information about the respondents and their ïŹrms; and 27
statements about dividend policy in general. Of the 163 ïŹrms surveyed, 52 ïŹrms responded, resulting in
a response rate of 31.9 per cent.
Findings â The evidence shows that managers view the most important determinants of dividends as
the stability of earnings and the level of current and expected future earnings. They also believe that the
effects of dividends on stock prices and needs ofcurrent shareholders are important determinants. The
evidence shows that managers of Indonesian ïŹrms perceive that dividend policy affects ïŹrm value.
Managers seem to agree that multiple theories including signaling, catering, and life cycle explanations
help to explain why their ïŹrms pay dividends.
Research limitations/implications â The study focuses on a limited number of factors and issues
involving dividend policy. While non-response bias could potentially limit making generalizations to the
population of IDX ïŹrms, statistical tests show no signiïŹcant differences between respondents and
non-respondents on various ïŹrm characteristics.
Practical implications â The evidence suggests that no universal set of factors is likely to be applicable
to all ïŹrms when setting dividend policy.
Originality/value â This study presents new evidence on the perceptions of manage rs of
dividend-paying IDX-listed ïŹrms about the factors inïŹuencing dividend policy, dividend issues, and
explanations for paying dividends.
Keywords Dividend policy, Dividend puzzle, Dividends, Business policy, Indonesia
Paper type Research paper
Introduction
Since Black (1976) referred to the interest in dividends by shareholders and the practice of
ïŹrms paying dividends as the ââdividend puzzle,ââ researchers have tried to understand the
determinants of dividend policy. Dividend policy remains a topic of ongoing debate among
ïŹnancial economists (Baker et al., 2002). Although most studies focus on US ïŹrms, a
growing body of evidence exists on dividend policy outside of the US. These studies
generally rely on economic modeling approaches instead of obtaining direct evidence about
how investors and managers behave and perceive dividends. Researchers cannot fully
identify factors inïŹuencing dividend policy by merely modeling market data, but must also
use interactive tools such as interviews and surveys. As Bruner (2002, p. 50) notes, ââThe
task must be to look for patterns of conïŹrmation across approaches and studies much like
DOI 10.1108/15587891211191399 VOL. 6 NO. 1 2012, pp. 79-92, QEmerald Group Publishing Limited, ISSN 1558-7894
j
JOURNAL OF ASIA BUSINESS STUDIES
j
PAGE 79
H. Kent Baker is University
Professor of Finance and
Kogod Research Professor
at Kogod School of
Business, American
University, Washington DC,
USA. Gary E. Powell is
based at the McColl School
of Business, Queens
University of Charlotte,
North Carolina, USA.
Received: 10 March 2009
Accepted: 18 November 2009
To continue reading
Request your trial