A Mechanism and Determinants of An Agency - Cost Explanation for Dividend Payments  

Oleh:

Hartono, Jogiyanto ; Ratnaningsih, Dewi

Jenis: Article from Journal - ilmiah nasional - tidak terakreditasi DIKTI
Dalam koleksi: International Journal of Business vol. 5 no. 2 (May 2003), page 145-166.
Topik: investment; agency - cost; agency theory; dividend puzzle; dividend mechanism; instrumental variable; investment opportunity set; shareholders; wealth

Ketersediaan

Perpustakaan Pusat (Semanggi) Nomor Panggil: II51.2 Non-tandon: 1 (dapat dipinjam: 0) Tandon: tidak ada

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Isi artikel

This study explains the dividend puzzle using the agency cost framework suggested by easterbrook (1984). Easterbrook hypothesized that shareholders in firms, who increase cash dividend payout and simultaneously raise debts to dinance their investments are likely to be wealthier than those in firms who only increase their cash dividend payout. He provided the mechanism that shareholders use the dividend payments to force managers to go to the capital markets to raise funds. Therefore, he argued that dividend policy influences the financing policy. A system of simultaneous equation using three - stages generalized least square method is used to test the hypotheses. Among the variables to proxy the investment opportunity set, market - to - book ratio, market - to - book assets ratio and accounting earnings - per share to price ratio are the best proxies. Attempt is made to obtain better proxies for the investment opportunity set using an instrument variable method. The system is robust to alternate investment opportunity variables as well as to the instrumental variables. The findings are a sfollows. For the firms that increase cash dividend payout and raise debt simultaneously : a. dividend policy is not a shareholders' mechanism, but a manager's accounting - based decision with accounting earnings and retained earnings as the major determinants b. dividend policy influences financing policy, but not the other way around c. increasing dividend payment decreases shareholders' wealth, but increasing debt subsequently increases shareholders' wealth with a net effect positive to shareholders' wealth, and d. dividend policy is independent from investment policy.

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