Professional Documents
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(2016),"The effect of ownership structure on dividend policy: evidence from Turkey", Corporate Governance: The
international journal of business in society, Vol. 16 Iss 1 pp. 135-161 http://dx.doi.org/10.1108/CG-09-2015-0129
(2016),"Family ownership and dividend payout in Malaysia", International Journal of Managerial Finance, Vol. 12 Iss 3 pp.
314-334 http://dx.doi.org/10.1108/IJMF-08-2014-0114
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Universitas Sebelas companies in Indonesia (Carney & Child, 2013; Claessens et al., 2000). Family firms play an important
role in Indonesia. Another important characteristic that emerges is the rise of government- and
Maret, Surakarta,
foreign-controlled firms in Indonesia. Thus, this research also divides ownership concentration into
Indonesia. Lian Kee Phua
family firms, government-controlled and foreign-controlled firms.
is based at School of
Design/methodology/approach Samples of this research consist of dividend announcements
Management, Universiti during 2006-2012 in Indonesian Stock Exchange. This research excluded financial data because these
Sains Malaysia, Penang, have characteristics that are different non-financial sectors characteristics. The final sample of this
Malaysia. research consists of a 710 firm-year observation.
Irwan Trinugroho is Findings The result of this research shows that ownerships have a positive effect on dividend payout.
based at Faculty of This research divides the sample into family-controlled firms, government-controlled firms (GOEs) and
Economics and Business, foreign-controlled firms. This research shows that government- and foreign-controlled firms have a
Universitas Sebelas positive impact on dividend payout. However, family firms have a negative effect on the dividend
Maret, Surakarta, payout. Family firms pay lower dividends because they prefer to control it themselves. Family firms earn
Indonesia. benefit from those resources, but at the expense of minority shareholders. Thus, family firms engage in
expropriation to minority shareholders.
Research limitations/implications This study focuses on ownership structure of Indonesian listed
firm. This study does not analyze the impact of other corporate governance mechanism such as board
structure on dividend decisions. The owner of the companies (family, government and foreign firm) has
an opportunity to put their member as part of board members. However, this study does not analyze the
impact of board structure on dividend decisions.
Originality/value This study provides evidence that ownership concentration positively affects
dividend payout. However, there is a different effect of ownership structure (family-controlled firms,
GOEs and foreign-controlled firm). Government- and foreign-controlled have a positive effect; however,
family-controlled firm have a negative effect on dividend payout. Therefore, this study provides
evidence of the importance of ownership structure on dividend decision.
Keywords Ownership structure, Dividend, Family firms, Foreign-controlled firms, Government-controlled firms
Paper type Research paper
Introduction
We investigated the effect of ownership concentration on dividend policy by studying
Indonesian firms. The most common ownership structure is concentrated in the hands of
Received 1 May 2015
Revised 7 August 2015 families except in the UK and the USA (La Porta et al., 1998, 2000). Family owners control
4 October 2015 more than half of the firms in East Asia (Claessens et al., 2000). Although this number
Accepted 10 October 2015
decreased to 46.1 per cent in 2008 because of significant political changes in the East
The authors would like to
thank Kurniawan Agung and Asian countries (Carney and Child, 2013), family owners still control the greater part of firms
Fany Himawan S for their in Asia.
research assistance and Leo
Indra Wardhana (University of
Limoges) for his constructive
The proportion of family firms in Indonesia, an emerging market and the worlds fourth most
comments. populous country, has also decreased from 68.6 to 57.3 per cent (Carney and Child, 2013);
PAGE 230 JOURNAL OF ASIA BUSINESS STUDIES VOL. 10 NO. 3, 2016, pp. 230-252, Emerald Group Publishing Limited, ISSN 1558-7894 DOI 10.1108/JABS-05-2015-0053
however, they still account for more than half of Indonesian firms, meaning that family firms
still play an important role in Indonesia. The other ownership structures are government-
and foreign-controlled firms. In this study, therefore, we have divided ownership
concentration into the categories of family firms, government-controlled firms (GOEs) and
foreign-controlled firms.
Shleifer and Vishny (1997) have argued that, if controlling shareholders hold almost full
control of firms, they can make decisions based on their best interests. However, such
interests are not always congruent with those of other shareholders. Controlling owners can
make decisions that keep firms resources to themselves through related party transactions
or by investing in affiliated firms. Of course, these behaviors should reduce firms values for
controlling owners, meaning that benefits can be extracted from companies at the expense
of minority shareholders. Therefore, agency conflicts between controlling shareholders and
minority shareholders are mostly found in those firms with concentrated ownership
(Claessens and Yurtoglu, 2013; Shleifer and Vishny, 1997). They are also called principal
principal conflicts (Jiang and Peng, 2011; Peng and Jiang, 2010).
Faccio et al. (2001) focused on controlling shareholders decisions regarding dividends.
Dividends are important because they mean that controlling shareholders have to share
their resources instead of holding onto them. Minority shareholders expect that they will get
dividends as returns from their investments. However, they may also bear higher costs
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because of a higher probability of expropriation. Faccio et al. (2001) found that firms in East
Asia with controlling owners pay lower dividends compared to their counterparts in Western
Europe. Controlling owners in East Asia prefer to hold their resources rather than distribute
them amongst minority shareholders. Therefore, negative effects have been found in the
link between ownership concentration and dividend payouts. This result is confirmed by
other studies (De Cesari, 2012; Gugler and Yurtoglu, 2003; Harada and Nguyen, 2011; and
Manos et al., 2012).
On the other hand, Shleifer and Vishny (1986) argued that large shareholders are more
motivated to monitor managers and are also able to bear costs better. Therefore, it is
expected that large shareholders have a positive effect on firms values. Maury and Pajuste
(2005), studying Finnish firms, showed that multiple large shareholders at firms positively
affected dividend payouts. Berzin et al. (2012) also showed that higher ownership
concentration among Norways private firms was associated with higher dividend payouts
for minority shareholders. Controlling shareholders improved their reputations by paying
higher dividends to minority shareholders.
La Porta et al. (2000) showed that institutional settings could affect decisions about
dividends. In weakly governed countries, shareholders are more likely to receive lower
dividends. Controlling owners use their funds to pursue their own interests rather than
spending them on paying dividends to minority shareholders. This result shows that
dividend payments are an outcome of corporate governance and institutional
development.
As an emerging market, Indonesia has poor governance (Nys et al., 2015). As a result,
minority shareholders may obtain lower dividends because of the expropriation of
resources by controlling owners. On the other hand, Faccio et al. (2001) found that
shareholders receive lower dividends when the ratio of ownership rights to cash flow rights
is lower. Thus, firms with a higher probability of engaging in expropriations pay lower
dividends to keep their resources inside businesses. The findings of La Porta et al. (2000)
and Faccio et al. (2001) revealed that minority interests are weakly protected from
expropriation and subsequently receive lower dividends.
As pointed out by Carney and Child (2013), GOEs and foreign-controlled firms are also the
dominant forms of ownership structure in Indonesia. Therefore, for this present paper, we
have considered three types of ownership concentration which are family-run businesses,
GOEs and foreign-controlled firms.
corporate governance practices in their host countries. Thus, foreign firms have tighter
regulations regarding corporate governance. Therefore, it is expected that foreign-owned
firms will pay more in dividends.
return. Studies by Almeida et al. (2011) and Hwang et al. (2013) on Korean chaebol
(business groups) found that affiliations with chaebol had negative effects on Tobins q
ratio. Family owners have incentives to keep resources within their firms instead of
distributing them to other shareholders. Therefore, minority shareholders of
family-owned businesses may receive lower dividends, as families control funds and
use them for their own interests at the expense of minority shareholders. De Cesari
(2012), studying Italian firms, revealed that family ownership has a negative effect on
dividend payouts. Wei et al. (2011) found similar results in China in spite of its different
institutional setting in which the government holds significant shares of most publicly
traded firms. Some studies have also concluded that family firms in China exploit
dividend payouts to tunnel their resources (Chen et al., 2009). In Austria (Gugler, 2003)
and Germany too (Gugler and Yurtoglu, 2003), family firms have lower dividend payout
ratios than non-family firms do.
The inconsistency of the results on the effects of family ownership on dividend payouts may
be caused by the contention that the relationship between the two is non-monotonic. Huang
et al. (2012) investigated this issue using Taiwan as an example. They concluded that
families with less than 50 per cent ownership of their businesses shares had a negative
effect on dividend payouts. On the other hand, families that controlled more than 50 per
cent of their firms shares had higher dividend payouts than other firms. Family owners
interests are convergent with those of minority shareholders, if they hold more than 50 per
cent of shares.
Prabowo and Simpson (2011) investigated the effect of family ownership on firms
performances in Indonesia. According to their paper, family ownership was found to
have a negative effect on performance. Controlling families may place their members
on the boards to control firms fully (Claessens et al., 2000). Family involvement at the
executive level could be detrimental for firms values (Prabowo and Simpson, 2011).
This result confirmed the findings of Tabalujan (2002a, 2002b) in which family
ownership in Indonesia was reported to weaken corporate governance by allowing
owners to create ineffective monitoring mechanisms that made it easier for controlling
families to expropriate their companies resources. Therefore, it is supposed that
controlling families have more incentives to expropriate funds from minority
shareholders through dividend policies. Thus, we expect that family firms have a
negative effect on dividend decisions:
1. foreign owners may prefer to receive higher dividends, pushing managers to lessen
their retained earnings (Jeon et al., 2011); and
2. foreign owners may tend to reinvest their earnings rather than distribute them (Lam
et al., 2012).
We therefore expect that foreign ownership has a positive and significant effect on dividend
policies. Our fourth hypothesis is formulated as follows:
Research methods
Data
Samples for this study consisted of dividend announcements on the IDX in the period
from 2006 to 2012. We excluded financial firms as they have different characteristics
than others types of businesses. The final sample consisted of 710 firm-year
observations.
The dependent variable was dividend payout which was measured as dividend per
share divided by earnings per share. The main determinant variable was ownership
structure. The first proxy for ownership structure was the percentage of control rights.
We followed the methodologies of Claessens et al. (2000) and Faccio et al. (2001) to
equity. Leverage was measured as the ratio of total debt to total assets. Financial
performance was measured by the return on assets (ROA) and firm size was measured
as the natural logarithm of total assets.
Hypothesis testing
To test the hypothesis, we estimated empirical models as follows:
Divit 1UOit 2FSit 3ROAit 4Growthit 5Levit ei (1)
Divit 1UOit2 2FSit 3ROAit 4Growthit 5Levit ei (2)
Divit 1FOit 2FSit 3ROAit 4Growthit 5Levit ei (3)
Divit 1GOEit 2FSit 3ROAit 4Growthit 5Levit ei (4)
Divit 1FORit 2FSit 3ROAit 4Growthit 5Levit ei (5)
where:
Divit dividend payout, dividend per share divided by earnings per share;
UO controlling ownership, percentage of control right;
UO2 the square of controlling ownership;
FO family ownership, dummy variable, 1 if family owners have 20 per cent or
more control rights;
GOEs government-controlled firms, dummy variable, 1 if government holds 20 per
cent or more control rights;
FOR foreign-controlled firms, dummy variable, 1 if foreign owners hold 20 per cent
or more control rights;
FS firm size, natural logarithm of total assets;
ROA return on assets;
Growth market-to-book value of equity; and
Lev leverage, debt to total assets.
We ran our empirical model using the static panel data technique which was estimated
using least-square and Tobit regressions. However, we could not use any individual
fixed-effect, as our main variables (ownership structure) were not necessarily
time-variant. Therefore, we only included time effect (year dummies).
Descriptive statistics
Tables I and II provide information regarding the descriptive statistics of this study.
Category1 0.6278 0.5937 0.5369 0.1065 0.1065 0.0965 0.2159 0.2045 0.1747
Category0 0.3722 0.4063 0.4631 0.8935 0.8935 0.9035 0.7841 0.7955 0.8253
Notes: FO20 family ownership, 1 if family owners have 20% or more control rights; FO30 family ownership, 1 if family owners have
30% or more control rights; FO50 family ownership; 1 if family owners have 50% or more control rights; GOE20
government-controlled firms, 1 if government holds 20% or more control rights; GOE30 government-controlled firm, 1 if government
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holds 30% or more control rights; GOE50 government-controlled firm, 1 if government holds 50% or more control rights; FOR20
foreign-controlled firm, 1 if foreign owners hold 20% or more control right; FOR30 foreign-controlled firm, 1 if foreign owners hold 30%
or more control rights; FOR50 foreign-controlled firm, 1 if foreign owners hold 50% or more control rights
Tables I and II provide descriptive statistics for our variables. The average dividend
payout was 23.86 per cent, while the value of dividend payouts was close to the median
(22.29 per cent). The dividend payout was lower than in a previous study by Faccio et
al. (2001) for the period from 1992 to 1996. However, this dividend ratio was close to
the dividend payout of 22.49 per cent in China (Wei et al., 2011). The mean (median)
of controlling ownerships in Indonesia was 59.43 per cent (60.00 per cent). This showed
that Indonesian firms are mostly concentrated. This finding was close to that in the work
of Truong and Heaney (2007) who found that ultimate ownership in Indonesia was
around 52.85 per cent. As exhibited in Table II, most Indonesian firms are controlled by
families. Families dominate 62.78 per cent of Indonesian firms when using 20 per cent
as the cutoff point. According to our further analysis using the higher cutoff points of 30
and 50 per cent, family shareholders control 59.37 and 53.69 per cent of Indonesian
firms, respectively. The dominant role of family firms in Indonesia is similar to that in
Italy, as pointed out by Mancinelli and Ozkan (2009), who documented that 61.2 per
cent of their sample was controlled by families. The second largest ownership grouping
in Indonesia is that of foreign-controlled firms; 21.59, 20.45 and 17.47 per cent of firms
are foreign-controlled, using 20, 30 and 50 per cent as cut-off points, respectively.
Government-controlled firms made up 10.65, 10.65 and 9.65 per cent of our sample
using 20, 30 and 50 per cent as cut-off points, respectively.
Table III provides information regarding the correlations between variables.
In Table III, the correlation between controlling ownership and dividend payouts is positive
and significant. The significant result is also found in the correlation between the three
types of ownership (family, government and foreign) and dividend payouts. Further,
Table III also shows that controlling ownership is significantly correlated with family
ownership, but there no significant correlation was found between controlling ownership
and GOEs. Similarly, the correlation between controlling ownership and foreign-controlled
firms was not significant.
Analysis
Table III shows the effect of the types of controlling ownership on dividend payouts.
Div 1.0000
UO 0.1403*** (0.0002) 1.0000
UO2 0.1173*** (0.0018) 0.9730*** (0.0000) 1.0000
FO20 0.1744*** (0.0000) 0.1028*** (0.0063) 0.0402 (0.2866) 1.0000
GOE20 0.1826*** (0.0000) 0.0371 (0.3252) 0.0111 (0.7676) 0.4485*** (0.0000) 1.0000
FOR20 0.1268*** (0.0007) 0.1172*** (0.0018) 0.1371*** (0.0003) 0.6815*** (0.0000) 0.1812*** (0.0000)
FS 0.1045*** (0.0055) 0.0849** (0.0241) 0.1108*** (0.0032) 0.0703 (0.0619) 0.2196*** (0.0000)
ROA 0.1008*** (0.0074) 0.2247*** (0.0000) 0.2282*** (0.0000) 0.2089*** (0.0000) 0.0394 (0.2960)
Growth 0.1505*** (0.0001) 0.1214*** (0.0012) 0.1234*** (0.0010) 0.1295*** (0.0006) 0.0749** (0.0468)
Lev 0.1741*** (0.0000) 0.1195*** (0.0015) 0.1178*** (0.0017) 0.1063*** (0.0047) 0.0777** (0.0393)
(continued)
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Table III
Variable FOR20 FS ROA Growth Lev
Div
UO
UO2
FO20
GOE20
FOR20 1.0000
FS 0.0620 (0.1001) 1.0000
ROA 0.2928*** (0.0000) 0.0752** (0.0459) 1.0000
Growth 0.1467*** (0.0001) 0.2536*** (0.0000) 0.5761*** (0.0000) 1.0000
Lev 0.2013*** (0.0000) 0.1741*** (0.0000) 0.3950*** (0.0000) 0.0450 (0.2325) 1.0000
Notes: *; **and; ***are significant at 10, 5 and 1%, respectively; Div dividend payout, dividend per share divided by earnings per share; UO controlling ownership, percentage
of control rights; FO20 family ownership, 1 if family owners have 20% or more control rights; GOE20 government-controlled firms, 1 if government holds 20% or more control rights;
FOR20 foreign-controlled firm, 1 if foreign owners hold 20% or more control rights; FS firm size, log total assets; ROA return on assets; Growth market-to-book value of equity;
Lev leverage, debt to total assets
Our control variables, which were firm size, growth and leverage, had a significant
effect on dividend payouts, except where ROA was used as a proxy for financial
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performance. The positive effect of firm size on dividend payouts was also seen. Large
firms were shown to pay more dividends than small firms, which was in line with the
findings of previous studies by Setia-Atmaja (2010), Su et al. (2013) and Wei et al.
(2011). Growth was positively associated with dividend payouts. This result was not
consistent with our expectation that the effect should be negative (Gugler, 2003; Gugler
and Yurtoglu, 2003; Jiraporn and Ning, 2006). We found that firms with higher growth
pay higher dividends because of managers beliefs that by paying higher dividends,
they can maintain growth by sending positive signals to markets. In addition, such firms
might need more resources to fund their businesses. Thus, they should pay more
dividends to attract investors. There was a negative effect of leverage on dividend
payouts. More leveraged firms prefer to settle their debts, rather than pay dividends.
This result is consistent with previous research undertaken by De Cesari (2012),
Farinha (2003) and Su et al. (2013).
19.7594*** (0.0001) 17.7201*** (0.0005) 16.6542*** (0.0010) 20.9702*** (0.0000) 19.0228*** (0.0001 18.0363*** (0.0003)
FO20 4.0400*** (0.0001) 4.2062*** (0.0001)
FO30 2.5598** (0.0069) 2.7222*** (0.0042)
FO50 1.3377* (0.0955) 1.5091* (0.0688)
FS 2.1598*** (0.0060) 2.3078*** (0.0034) 2.3356*** (0.0032) 1.9770*** (0.0094) 2.1081*** (0.0059) 2.1218*** (0.0057)
ROA 0.1952** (0.0314) 0.1759 (0.0535) 0.1582 (0.0821) 0.2079** (0.0194) 0.1886** (0.0348) 0.1707 (0.0560)
Growth 0.8839*** (0.0008) 0.8871*** (0.0008) 0.8769*** (0.0009) 0.9009*** (0.0004) 0.9055*** (0.0004) 0.8950*** (0.0005)
Lev 15.9568*** (0.0000) 16.1975*** (0.0000) 16.3226*** (0.0000) 15.6547*** (0.0000) 15.8840*** (0.0000) 15.9996*** (0.0000)
Year dummies Yes Yes Yes Yes Yes Yes
F-value 7.1030*** 6.2518*** 5.8174***
F-prob (0.0000) (0.0000) (0.0000)
Adjusted R2 0.0871 0.0759 0.0700
Notes: This research uses least-square for Columns 1, 2 and 3 and a Tobit test for Columns 4, 5 and 6.; *; **and; ***are significant at 10, 5 and 1%, respectively; Div dividend
payout, dividend per share divided by earnings per share; FO20 family ownership, 1 if family owners have 20% or more control rights; FO30 family ownership, 1 if family owners
have 30% or more control rights; FO50 family ownership, 1 if family owners have 50% or more control rights; FS firm size, log total assets; ROA return on assets; Growth
In the context of Indonesia, Prabowo and Simpson (2011) found that the presence of
independent directors does not work effectively as a corporate governance practice
because family owners tend to take most control at their firms. As controlling owners,
families have an opportunity to make decisions in their own best interests. In cases like
these, family owners may force their senior managers to hold onto resources inside the
firms or to tunnel them away to affiliated firms. Thus, family ownership has a negative
effect on performance (Prabowo and Simpson, 2011), as decisions may be taken that
are not in line with the optimal benefits of stakeholders. Moreover, family firms in
Indonesia also provide disclosure less voluntarily than non-family firms do (Darmadi
and Sodikin, 2013), which may be driven by their instincts to protect their own interests.
As explained earlier, our result shows that family firms pay fewer dividends. It is
therefore suspected that family firms in Indonesia are inclined to expropriate resources
from minority shareholders.
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Further analysis using different cutoff points (30 and 50 per cent) also provided
consistent results. Family ownership was negatively associated with dividend payouts.
The results of Tobit regressions were also consistent with those derived from ordinary
least squares regressions.
As shown in Table VI, GOEs pay more dividends to shareholders. The government, as
a controlling shareholder, pushes managers to pay higher dividends to finance national
development. This result is confirmed in previous studies by Bradford et al. (2013),
Gugler and Yurtoglu (2003) and He et al. (2012), who found that there is a positive effect
on dividend payouts resulting from government ownership. As seen in the descriptive
statistics, there were similar numbers of GOEs when 20 and 30 per cent cutoff points
were used. Therefore, the effect of government ownership on dividend payouts, using
20 and 30 per cent cutoff points, was identical. Further analysis using a 50 per cent
cutoff point also provided a similar result. There is a positive significant effect of
government ownership on dividend payout policies. More analysis using Tobit
regression also provided similar results as those obtained from least-square
regression. GOEs have a positive effect on dividend payouts using any of the 20, 30
and 50 per cent cutoff points. GOEs in Indonesia pay higher dividends to their
shareholders.
Our results illustrated the different characteristics of family-owned firms and GOEs. As
controlling shareholders, families prefer to tunnel dividends to affiliated firms. Thus, the
economic benefits of business resources remain in the charge of families that are
controlling shareholders. By contrast, GOEs distribute a higher proportion of their
resources to their shareholders.
Table VII shows that foreign-controlled firms have a positive effect on dividend payouts.
This could be because foreign owners urge firms to pay more in dividends, as foreign
owners prefer to earn higher returns in dividend form than to reinvest. This is in line with the
finding of Jeon et al. (2011) who concluded that foreign owners positively affected dividend
decisions at local firms.
The number of foreign firms in Indonesia has risen in the past decade (Carney and
Child, 2013). Our results have confirmed that foreign-controlled firms have different
decision policies regarding dividends compared with family-controlled firms. Family
ownership has a negative effect on dividend payouts, while foreign ownership has a
20.0848*** (0.0001) 20.0848*** (0.0001) 19.4841*** (0.0001) 21.2051*** (0.0000) 21.2051*** (0.0000) 20.6497*** (0.0000)
GOE20 7.9010*** (0.0000) 7.8616*** (0.0000)
GOE30 7.9010*** (0.0000) 7.8616*** (0.0000)
GOE50 7.8292*** (0.0000) 7.8933*** (0.0000)
FS 1.6180** (0.0415) 1.6180** (0.0415) 1.7168** (0.0302) 1.4349 (0.0630) 1.4349 (0.0630) 1.5246** (0.0477)
ROA 0.1610 (0.0714) 0.1610 (0.0714) 0.1594 (0.0746) 0.1754** (0.0456) 0.1754** (0.0456) 0.1729** (0.0491)
Growth 0.8814*** (0.0007) 0.8814*** (0.0007) 0.8871*** (0.0007) 0.9094*** (0.0004) 0.9094*** (0.0004) 0.9118*** (0.0003)
Lev 17.1958*** (0.0000) 17.1958*** (0.0000) 17.1341*** (0.0000) 16.9302*** (0.0000) 16.9302*** (0.0000) 16.8671*** (0.0000)
F-value 7.9384*** 7.9384*** 7.7240***
F-prob (0.0000) (0.0000) (0.0000)
Adjusted R2 0.0979 0.0979 0.0951
Notes: This research uses fixed effect for Columns 1, 2 and 3 and a Tobit test for Columns 4, 5 and 6. *; **and; ***are significant at 10, 5 and 1%, respectively; Div dividend
payout, dividend per share divided by earnings per share; GOE20 government-controlled firms, 1 if government holds 20% or more control rights; GOE30 government-controlled
firms, 1 if government holds 30% or more control rights; GOE50 government-controlled firms, 1 if government holds 50% or more control rights; FS firm size, log total assets;
Table VIII Random effect: The effect of controlling ownership on dividend payouts
Least Square Tobit
1 2 3 4
23.2861*** (0.0003) 23.2861*** (0.0003) 22.4522*** (0.0004) 21.2051*** (0.0000) 21.2051*** (0.0000) 20.6497*** (0.0000)
GOE20 7.1552*** (0.0007) 7.8616*** (0.0000)
GOE30 7.1552*** (0.0007) 7.8616*** (0.0000)
GOE50 6.5421*** (0.0020) 7.8933*** (0.0000)
FS 1.4470 (0.1518) 1.4470 (0.1518) 1.5893 (0.1138) 1.4349 (0.0630) 1.4349 (0.0630) 1.5246** (0.0477)
ROA 0.3464*** (0.0001) 0.3464*** (0.0001) 0.3428*** (0.0001) 0.1754** (0.0456) 0.1754** (0.0456) 0.1729** (0.0491)
Growth 0.8007*** (0.0020) 0.8007*** (0.0020) 0.7952*** (0.0021) 0.9094*** (0.0004) 0.9094*** (0.0004) 0.9118*** (0.0003)
Lev 17.8371*** (0.0000) 17.8371*** (0.0000) 17.7742*** (0.0000) 16.9302*** (0.0000) 16.9302*** (0.0000) 16.8671*** (0.0000)
F-value 8.1546*** 8.1546*** 7.7444***
F-prob (0.0000) (0.0000) (0.0000)
Adjusted R2 0.0484 0.0484 0.0457
Notes: This research uses least square for Columns 1, 2 and 3 and a Tobit test for columns 4, 5 and 6. *; **, and; ***are significant at 10, 5 and 1%, respectively; Div dividend
payout, dividend per share divided by earnings per share; GOE20 government-controlled firms, 1 if government holds 20% or more control rights; GOE30 government-controlled
firms, 1 if government holds 30% or more control rights; GOE50 government-controlled firms, 1 if government holds 50% or more control rights; FS firm size, log total assets;
Robustness checks
We undertook some robustness checks to ensure the consistency of our results. First,
instead of using time-fixed effects, we ran our models using random effects. With
regard to our variables for interest, the results remained unchanged (Tables VIII-XI).
Second, as one might argue that ownership structure may be endogenously
determined, we ran our empirical models using a dynamic panel, more specifically
using a two-step generalized method of moments (GMM). We found consistent results,
especially for our main variables.
Conclusions
We investigated the effect of ownership structures on dividend payouts. As an
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emerging market, Indonesia is mostly dominated by family firms (Carney and Child,
2013; Claessens et al., 2000; La Porta et al., 2000). However, there is evidence that the
percentage of foreign-controlled firms and GOEs has increased as well. Our empirical
results show that ownership concentration has positive effects on dividend payouts.
The higher the percentage of ownership of controlling shareholders, the greater are the
incentives to monitor managers and to ensure that returns on investments are realized.
This result could be explained by Shleifers and Vishnys (1986) contention that large
shareholders are more willing to bear monitoring costs to assure returns on their
investments. The higher the percentages of ownership, the higher are the dividends
received by shareholders.
Going deeper, looking at the effect on dividends of government and foreign ownership
provided consistent results. There was shown to be a positive effect of both government
and foreign ownership on dividend payouts. GOEs and foreign-controlled firms
distribute more dividends than others.
Our findings have several policy implications. First, investors should consider ownership
structures before making investment decisions. This study has found that controlling
ownership has a positive effect on dividend payouts. Therefore, higher percentages of
ownership are positively correlated with dividend policies. Second, the effect of there being
controlling ownership of a business depends on the type of owner. GOEs and
foreign-controlled firms tend to pay more dividends, while family owners have a negative
effect on dividend payouts.
Note
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Corresponding author
Doddy Setiawan can be contacted at: doddy.setiawan@staff.uns.ac.id
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