The Motives behind Dividend Policy

Abstract

The puzzle for dividend policy in Indonesia is still remain since the firms have uncertain distribution for dividends to their shareholders. The objectives of this study are testing the free cash flow theory, life cycle theory, and catering theory with 139 firms as samples which is listed in Indonesia Stock Exchange for period of 2010 to 2015. This study finds that, firms in Indonesia are not at mature level and there is an existence for free cash flow effect on dividend payers with lower debt only, while catering effect is generally exist for firms as dividend payers. Furthermore, since the firms as non dividend payers are on growth level then they are generally use their profit and capital gain includes debts in purposes of investment activities.

Circumstances on Higher, Lower, and Non Dividend Payments

“…Budiarso and Pontoh (2016) and Saerang and Pontoh (2016) prove that, dividend policy in Indonesia have own complexity since public firms are distributing their earnings differently as these firms have their own characteristics. Pontoh (2016) confirms that, dividend policy in Indonesia has been affected by some conditions under cash flow theory as proposed by Jensen (1988), and Kuan, Li, and Liu (2012), life cycle theory as proposed by Grullon, Michaely, and Swaminathan (2002), DeAngelo, DeAngelo, and Stulz (2006), and catering theory as proposed by Wurgler (2004a, 2004b).…”