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Ownership structure and dividend policy in Indonesia

Ownership structure and dividend policy in Indonesia PurposeThis research aims at examining the effect of ownership structure on dividend policy using the Indonesian context. The most common ownership structure is concentrated in the hand of family owners except in the UK and US (La Porta, Lopez-de-Silanes, Shleifer, & Vishny, 1998, 2000). Family owners hold more than half of the companies in Indonesia (Carney & Child, 2013; Claessens, Djankov, & Lang, 2000). Family firms play an important role in Indonesia. Another important characteristic that emerges is the rise of government-controlled and foreign-controlled firms in Indonesia. Thus, this research also divides ownership concentration into family firms, government-controlled, and foreign-controlled firms.Design/methodology/approachSamples of this research consist of dividend announcements during 2006 -2012 in IDX. This research is excluding financial data because it has different characteristics with non-financial sectors. The final sample of this research consists of a 710 firm-years observation.FindingsThe result of this research shows that ownerships positively affect on dividend payout. This research divides the sample into family-controlled firms, government-controlled firms, and foreign-controlled firms. This research shows that government and foreign-controlled firms remain have positive impact on dividend payout. However, family firms have a negative effect on the dividend payout. Family firms pay lower dividends because they prefer to control it themselves. Family firms earn benefit from those resources but in the expenses of minority shareholders. Thus, family firms engage in expropriation to minority shareholders. Research limitations/implicationsThis study focuses on ownership structure of Indonesian listed firm. This study does not analyze the impact of other corporate governance mechanism, such as board structure on dividend decisions. The owner of the companies (family, government and foreign firm) has opportunity to put their member as part of board members. However, this study does not analyze the impact of board structure on dividend decisionsOriginality/valueThis study provides evidence that ownership concentration have positively affect dividend payout. However, there is different effect of ownership structure (family-controlled firms, government-controlled firms and foreign-controlled firm). Government and foreign-controlled have positive effect, however family controlled firm have negative effect on dividend payout. Therefore, this study provides evidence the importance of ownership structure on dividend decision. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Asia Business Studies Emerald Publishing

Ownership structure and dividend policy in Indonesia

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Publisher
Emerald Publishing
Copyright
Copyright © Emerald Group Publishing Limited
ISSN
1558-7894
DOI
10.1108/JABS-05-2015-0053
Publisher site
See Article on Publisher Site

Abstract

PurposeThis research aims at examining the effect of ownership structure on dividend policy using the Indonesian context. The most common ownership structure is concentrated in the hand of family owners except in the UK and US (La Porta, Lopez-de-Silanes, Shleifer, & Vishny, 1998, 2000). Family owners hold more than half of the companies in Indonesia (Carney & Child, 2013; Claessens, Djankov, & Lang, 2000). Family firms play an important role in Indonesia. Another important characteristic that emerges is the rise of government-controlled and foreign-controlled firms in Indonesia. Thus, this research also divides ownership concentration into family firms, government-controlled, and foreign-controlled firms.Design/methodology/approachSamples of this research consist of dividend announcements during 2006 -2012 in IDX. This research is excluding financial data because it has different characteristics with non-financial sectors. The final sample of this research consists of a 710 firm-years observation.FindingsThe result of this research shows that ownerships positively affect on dividend payout. This research divides the sample into family-controlled firms, government-controlled firms, and foreign-controlled firms. This research shows that government and foreign-controlled firms remain have positive impact on dividend payout. However, family firms have a negative effect on the dividend payout. Family firms pay lower dividends because they prefer to control it themselves. Family firms earn benefit from those resources but in the expenses of minority shareholders. Thus, family firms engage in expropriation to minority shareholders. Research limitations/implicationsThis study focuses on ownership structure of Indonesian listed firm. This study does not analyze the impact of other corporate governance mechanism, such as board structure on dividend decisions. The owner of the companies (family, government and foreign firm) has opportunity to put their member as part of board members. However, this study does not analyze the impact of board structure on dividend decisionsOriginality/valueThis study provides evidence that ownership concentration have positively affect dividend payout. However, there is different effect of ownership structure (family-controlled firms, government-controlled firms and foreign-controlled firm). Government and foreign-controlled have positive effect, however family controlled firm have negative effect on dividend payout. Therefore, this study provides evidence the importance of ownership structure on dividend decision.

Journal

Journal of Asia Business StudiesEmerald Publishing

Published: Aug 1, 2016

References