Dividend Policy in Indonesia: A Life-Cycle Explanation

37 Pages Posted: 15 Feb 2014 Last revised: 19 Jun 2014

See all articles by Leo Wardhana

Leo Wardhana

Universitas Gadjah Mada

Eduardus Tandelilin

Universitas Gadjah Mada (UGM) - Management

I Wayan Nuka Lantara

Universitas Gadjah Mada - Faculty of Economics and Business; Kobe University - Graduate School of Business Administration

Eddy Junarsin

Universitas Gadjah Mada (UGM)

Date Written: June 15, 2014

Abstract

This study examines dividend life-cycle hypothesis and propensity to pay dividends of non-financial firms in Indonesia Stock Exchange (IDX) from 1995-2011 in light of a recent notion in IDX to regulate dividend payment. Using several proxies of life-cycle, the results consistently show that Indonesian listed firms follow dividend life-cycle hypothesis. The result also shows that firms’ dividend propensity to pay in IDX is declining over time, and it becomes much more concentrated throughout the observation period. As there has been a view in IDX that regulating dividend payment is necessary, this finding not only provides relatively new empirical evidence of dividend policy in Indonesia, but it also has potential policy contribution. Our results recommend that the regulation take into account the firm life cycle. Firms should only be required to pay dividends when they reach a certain stage and/or meet some characteristics, and action should only be taken towards those firms who do not pay dividends although they should be able to, according to their stage or characteristics.

Keywords: Dividend life-cycle, propensity to pay dividend, life-cycle index, dividend payment regulation

JEL Classification: G35, G32

Suggested Citation

Wardhana, Leo and Tandelilin, Eduardus and Lantara, I Wayan Nuka and Junarsin, Eddy, Dividend Policy in Indonesia: A Life-Cycle Explanation (June 15, 2014). Asian Finance Association (AsianFA) 2014 Conference Paper. Available at SSRN: https://ssrn.com/abstract=2396267 or http://dx.doi.org/10.2139/ssrn.2396267

Leo Wardhana (Contact Author)

Universitas Gadjah Mada ( email )

Bulaksumur
Yogyakarta, 55281
Indonesia

Eduardus Tandelilin

Universitas Gadjah Mada (UGM) - Management ( email )

Indonesia

I Wayan Nuka Lantara

Universitas Gadjah Mada - Faculty of Economics and Business ( email )

Jl. Humaniora, Bulaksumur
Sleman
Jogjakarta, 55281
Indonesia

Kobe University - Graduate School of Business Administration ( email )

Rokko Campus, Nada-ku
Kobe, Hyogo 657-8501
Japan

Eddy Junarsin

Universitas Gadjah Mada (UGM) ( email )

Bulaksumur, Yogyakarta
Yogyakarta, Special Province of Yogyakarta
Indonesia

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
555
Abstract Views
2,252
rank
50,732
PlumX Metrics