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

Abdul Moin, Yilmaz Guney, Izidin El kalak

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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.
Original languageEnglish
Pages (from-to)857-900
Number of pages44
JournalReview of Quantitative Finance and Accounting
Volume55
Issue number3
Early online date5 Dec 2019
DOIs
Publication statusPublished - 1 Oct 2020
Externally publishedYes

Keywords

  • Corporate governance
  • Dividend policy
  • Indonesia
  • Overcash
  • Overinvestment
  • Ownership structure

ASJC Scopus subject areas

  • Accounting
  • Business, Management and Accounting(all)
  • Finance

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