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The Simultaneity of Dividend and Capital Structure Decisions: The Case of Indonesian Capital Market

Gadjah Mada International Journal of Business, Vol. 3, No. 1, pp. 23-33, January 2001

11 Pages Posted: 5 Jan 2012  

Ignatius Roni Setyawan

Tarumanagara University

Jogiyanto Hartono

Universitas Gadjah Mada (UGM)

Date Written: January 5, 2012

Abstract

This study explains the simultaneity of dividend and capital structure decisions using the agency cost framework. Noronha, et al. (1996) found that the simultaneity of dividend and capital structure decisions only occurred on low growth and no blockholder firms. Increasing dividend payment and debt simultaneously is used to decrease the agency cost by shifting the monitoring activity to capital market. The findings of this study can be summarized as follows. Simultaneity of dividend and capital structure decisions occurs only on the firms with characteristics of low growth and no block holder. Four variables are tested as determinant of the simultaneity. These variables are; insider holding, number of shareholders, earning volatility and non debt tax shield. Only non-debt tax shield is found to be a significant determinant.

Keywords: agency theory, simultaneity of dividend and capital structure, monitoring activity

JEL Classification: G3, G31, G32

Suggested Citation

Setyawan, Ignatius Roni and Hartono, Jogiyanto, The Simultaneity of Dividend and Capital Structure Decisions: The Case of Indonesian Capital Market (January 5, 2012). Gadjah Mada International Journal of Business, Vol. 3, No. 1, pp. 23-33, January 2001. Available at SSRN: https://ssrn.com/abstract=1977433

Ignatius Roni Setyawan (Contact Author)

Tarumanagara University ( email )

Jl. Letjen S. Parman No.1
Jl. Tanjung Duren Utara No. 1
Jakarta, IN DKI Jakarta 11470
Indonesia
62818459479 (Phone)

Jogiyanto Hartono

Universitas Gadjah Mada (UGM) ( email )

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