Determinants of Dividend Policy of Indonesian Companies: A Panel Data Analysis

Abstract

This study aims to investigate the determinants of the dividend policy of Indonesian companies using a sample of 17 listed non-financial Indonesian companies that continuously paid dividends from 2014 to 2018. This study uses several theories to assist readers in better comprehending the concept of dividends and dividend policy, including signaling hypothesis, free cash flow hypothesis, life cycle hypothesis, and capital structure hypothesis. This study applies a panel data analysis to test those hypotheses. The variables used in this study that may explain a company's dividend decisions are selected based on the theories and available empirical research and are determined by data availability. This study uses the dividend payout ratio and dividend yield to represent the dividend policy. The findings suggest that free cash flow, liquidity, and investment opportunity are the major determinants of the dividend payout ratio for Indonesia companies. Furthermore, the results also suggest that asset tangibility and size are major determinants of dividend yield. In general, the results apparently show little support for the signaling and capital structure hypotheses but considerable support for the free cash flow and life cycle hypotheses. This research is expected to have profound implications for future studies on dividend policy in Indonesia and might assist companies and authorities in making effective decisions about dividend policy for Indonesian companies and investors in determining their investment strategies.