The role of dividend yield as agency conflict determinant: case of Indonesia

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This study provides evidence about how stockholders control insiders using dividend policy to prevent overinvestment. This study observes the dividend yield, market risk, profitability, and growth opportunities of 155 public firms listed on the Indonesia Stock Exchange from 2010 to 2017. The dividend yield data were split into quartiles and categorized into the following areas: 1) firms with the lowest dividend yields, 2) firms with lower dividend yields, 3) firms with higher dividend yields, and 4) firms with the highest dividend yields. This study conducts multinomial regression for testing the hypotheses. The results confirm that systematic risk has an insignificant relationship with dividend policy, and profitability has a significant relationship with dividend policy. Consistent with agency theory in supporting free cash flow theory, this study finds that the agency problem exists for firms with high dividend yields relative to firms with low dividend yields in the context of Indonesian public firms. The systematic risk has an insignificant relationship with dividend policy, of which the study sample is limited. The findings also imply that stockholders tend to control insiders in case of overinvestment. Besides, this study also finds that market risk as a systematic risk is insignificant both for firms with high and low dividend yields.

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    • Figure 1. Mean (all data) of dividend yield, stock beta, MBV, and ROE
    • Figure 2. Mean (A1) of dividend yield, stock beta, MBV, and ROE
    • Figure 3. Mean (A2) of dividend yield, stock beta, MBV, and ROE
    • Figure 4. Mean (A3) of dividend yield, stock beta, MBV, and ROE
    • Figure 5. Mean (A4) of dividend yield, stock beta, MBV, and ROE
    • Figure 6. Comparison of mean of dividend yield between A1, A2, A3, and A4
    • Figure 7. Comparison of mean of stock beta between A1, A2, A3, and A4
    • Figure 8. Comparison of mean of MBV between A1, A2, A3, and A4
    • Figure 9. Comparison of mean of ROE between A1, A2, A3, and A4
    • Table 1. Mean of variables
    • Table 2. Results of multinomial regressions