Study on Dividend Policy: Antecedent and its Impact on Share Price

29 Pages Posted: 3 Oct 2010

Date Written: October 1, 2010


This research aims to test dividend signaling theory in an Indonesian capital market. Signaling theory states that dividend policy has information content that can influence to share price. Examination of theory of signaling is related to research phenomena in other countries indicating that by percentage there is degradation of company which is pay dividend and there even exist mentioning this as phenomenon of disappearing dividend. Examination of theory of signaling is also related to the research result showing the existence or inexistence of the influence of dividend policy to share price. Besides, in this research is also conducted by examination of agency theory. This research of agency theory tests the influence of: (1) Free Cash Flow to share price, (2) Structure of Ownership to share price, and (3) Structure of ownership to dividend policy. This research also tests life cycle theory, seen influence of cycle of company life to dividend policy. Companies which enter in growth phase tend not to pay a lot of dividend, compared to company at matured step.

This research use quantitative approach by using method of path analysis. This research use samples in the form of company allocating dividend for period 1995-2005 which listed on PT Jakarta Stock Exchange. Final samples which are utilized in this research are equal to 1052 year observation. This research also tests sensitivity, widened time of even from 1 day at especial model, becoming 5 and 10 day. Besides test of sensitivity is also conducted changed approach of market model become mean adjusted model in determining expected return.

Research finding indicates that signaling theory still relevant in influencing movement of share price. Besides, research finding also supports agency theory told by Jensen in seeing influence of free cash flow to share price. For the influence of structure of ownership to share price, the result supports entrenchment argument. While influence of structure of ownership to dividend policy found by result which do not support agency theory. Life Cycle theory in this research is obtained by result which is research confirmation before all, where there are influence of cycle step of company life to dividend policy.

Keywords: signaling theory, agency theory, life cycle theory

JEL Classification: G14, G32, G35

Suggested Citation

Murhadi, Werner Ria, Study on Dividend Policy: Antecedent and its Impact on Share Price (October 1, 2010). Available at SSRN: or

Werner Ria Murhadi (Contact Author)

Universitas Surabaya ( email )

Jl. Ngagel Jaya Selatan 169
Surabaya, Jawa Timur 60284
+62312981139 (Phone)
+62312981239 (Fax)


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