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

Author

Listed:
  • Abdul Moin

    (Islamic University of Indonesia)

  • Yilmaz Guney

    (University of Hull)

  • Izidin El Kalak

    (Cardiff University)

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.

Suggested Citation

  • Abdul Moin & Yilmaz Guney & Izidin El Kalak, 2020. "The effects of ownership structure, sub-optimal cash holdings and investment inefficiency on dividend policy: evidence from Indonesia," Review of Quantitative Finance and Accounting, Springer, vol. 55(3), pages 857-900, October.
    • Handle: RePEc:kap:rqfnac:v:55:y:2020:i:3:d:10.1007_s11156-019-00862-z
    DOI: 10.1007/s11156-019-00862-z
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    Cited by:

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    3. Stereńczak, Szymon & Kubiak, Jarosław, 2022. "Dividend policy and stock liquidity: Lessons from Central and Eastern Europe," Research in International Business and Finance, Elsevier, vol. 62(C).

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    More about this item

    Keywords

    Dividend policy; Overcash; Overinvestment; Corporate governance; Ownership structure; Indonesia;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy

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