The effects of ownership structure, sub-optimal cash holdings and investment inefficiency on dividend policy: evidence from Indonesia

Abdul Moin (), Yilmaz Guney and Izidin El Kalak ()
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Abdul Moin: Islamic University of Indonesia
Izidin El Kalak: Cardiff University

Review of Quantitative Finance and Accounting, 2020, vol. 55, issue 3, No 3, 857-900

Abstract: Abstract We investigate how a firm’s decision to hold excessive cash or to overinvest could influence its dividend payout policy in Indonesia. Additionally, we examine the association between corporate ownership structure and cash dividends. Using a data set of Indonesian listed firms for the period from 1995 to 2014, we find that excessive cash holding (overinvestment) positively (negatively) affects a firm’s likelihood of paying dividends. Also, we find that family, foreign, state and institutional ownership have significantly negative links with dividends, which suggests the signals of expropriation of firms’ wealth by major shareholders. These findings strongly support the expropriation hypothesis that commonly applies to firms with higher level of concentration or to firms in a weak legal environment by which the rights of minority interests are put at risk by large shareholders.

Keywords: Dividend policy; Overcash; Overinvestment; Corporate governance; Ownership structure; Indonesia (search for similar items in EconPapers)
JEL-codes: G32 G34 G35 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (3)

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DOI: 10.1007/s11156-019-00862-z

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