Searching for Determinants of Pay or Not to Pay Cash Dividend in Indonesia

Abstract

One of the primary subjects of corporate finance is the firm’s dividend policy, which has usually been considered in association with a firm’s financing and investment decisions. The relation amongst these two decisions has arised essential questions: Should companies pay cash dividend? How much should they pay as cash dividend? What are the variables that affect pay or not to pay cash dividend? Researchers have attempted to provide answers to those questions but still, consistent answers remains undiscovered. Lintner (1956) claims that firms target their dividend payout ratio in consequence of current earnings and past dividends, so that firms have stable dividend policies. Miller and Modigliani (1961) on the contrary state that dividend policy is irrelevant to firm value based on rigid assumptions of market perfections, zero transaction costs, and indifferent behaviour of investors. However, Miller and Scholes (1982) argue that in the real world, dividend decision is determined more by high taxes on dividends than capital gains and the imperfections of capital market. This research becomes an alternative research for studies of deteminant of dividend policy, that have been done in several emerging countries. Boanyah et al. (2013) evaluates variables that affect dividend pay out policy for all 10 manufacturing companies listed on Searching for Determinants of Pay or Not to Pay Cash Dividend in Indonesia