Debt policy, free cash flow hypothesis, and balancing of agency theory through ownership: evidence from Indonesia

Mahadwartha, Putu Anom; Ismiyanti, Fitri

doi:10.22495/cocv5i2c2p2

Cited by 7 publications

(3 citation statements)

References 22 publications

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“…Other empirical results contradicting with Leland and Pyle (1977) and Kim and Sorensen (1986) are Friend and Lang (1988), Jensen et al (1992), Mahadwartha and Hartono (2002), Ismiyanti and Hanafi (2004), and Mahadwartha and Ismiyanti (2006) who find that leverage policy is negatively influenced by ownership structure. Increasing managerial ownership will lead to a stronger tie between management personal wealth and the company wealth; consequently, the management will strive for reducing the risks of losing job and personal wealth by decreasing debt which also means decreasing the company's financial risk.…”

Section: Interdependence Of Leverage Policy and Managerial Ownershipmentioning

confidence: 96%

INTERDEPENDENT ANALYSIS OF LEVERAGE, DIVIDEND, AND MANAGERIAL OWNERSHIP POLICIES: Agencies Perspectives

Hardjopranoto

2006

GADJAH MADA INT. J. BUS.

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This paper attempts to investigate interdependent mechanism among leverage, dividend, and managerial ownership policies. This paper considers firm size and economic conditions to control their effect on the relationship among the three policies. The interrelationship between leverage, dividend, and managerial ownership policies will be tested using two-stage least squares. Five exogenous variables are employed in simultaneous equation: current assets and structure of assets as leverage determinants, book to market and return on investment as dividend determinants, and relative return to risk as managerial ownership determinant. The research employs year 1994-2004 data, with 1717 firm years. The research findings can be summarised as follows. First, there is a negative relationship between managerial ownership and leverage policies as suggested by agency theory. Second, there is a relationship between managerial ownership and dividend policies, but the relationship between leverage and dividend is insignificant. Third, the relationship between leverage and dividend is insensitive to economic condition and firm size. Fourth, all exogenous variables have significant effect on endogenous variables, except relative return. Fifth, the effects of exogenous variables are not sensitive to control variables. Sixth, we find that managers show self-interest behaviours by reducing managerial ownership when the economic condition worsens.

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Section: Interdependence Of Leverage Policy and Managerial Ownershipmentioning

confidence: 96%

INTERDEPENDENT ANALYSIS OF LEVERAGE, DIVIDEND, AND MANAGERIAL OWNERSHIP POLICIES: Agencies Perspectives

Hardjopranoto

2006

GADJAH MADA INT. J. BUS.

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“…Some empirical findings for developing countries show that the majority owners or insiders do indeed influence the dividend policies (Fairchild et al 2014;Hamill and Al-Shattarat 2012;and Mitton 2004). Mahadwarta and Ismiyanti (2008);and Carney and HamiltonHeart (2015) show that the majority ownership on the IDX is dominated by corporate ownerships that are related to the founding family, which may exacerbate the expropriation risk. The current situation implies that Indonesia has promising growth opportunities, while investors may perceive the expropriation risk is still relatively high.…”

Section: Introductionmentioning

confidence: 99%

Do We Need a Regulation on Dividends for Indonesia Stock Exchange?

Wardhana

Tandelilin

2018

GADJAH MADA INT. J. BUS.

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This study examines the dividend life-cycle hypothesis and the propensity of non-financial firms listed on the Indonesia Stock Exchange (IDX) to pay dividends, in light of a recent idea by the IDX to regulate dividend payments. Using several proxies of the life cycle, the results consistently show that Indonesian listed firms follow the dividend life-cycle hypothesis. Our results recommend that if the authority insists on regulating dividend payments, the regulation should take into account the firms' life cycles. Firms should only be required to pay dividends when they reach a certain stage and/or meet defined characteristics, according to their stage or characteristics.

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“…To be more specific, quick ratio is used, because it includes the most liquid current assets that can be used for this settlement in the short run. Empirically, a positive correlation between leverage and cash was observed by Mahadwartha and Ismiyanti (2008), and a negative one by Mouline and Sadok (2021).…”

Section: Variablesmentioning

confidence: 93%

Capital Structure and Its Determinants—A Comparison of European Top-Rated CSR and Other Companies

Krištofík

Medzihorský

Musa

2022

JRFM

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Corporate social responsibility (CSR), ethics, and sustainability have become an inseparable part of the discourse of modern business. Applying linear regression and comparison of intervals of beta-coefficients, we focused on the mediating role of CSR in the relations between capital structure and its determinants. Examining the sample of European large caps, we observed that CSR companies are significantly more leveraged than non-CSR ones. The influence of the corporate income tax rate and depreciation and amortization on leverage does not differ significantly between CSR and non-CSR companies. Moreover, tax shields seem to be insignificant for both CSR and non-CSR companies. However, we should stress that, for depreciation and amortization, the beta coefficient has a different significance in the model of CSR companies, compared to the model of non-CSR companies. Also, the difference between the models regarding the relations of leverage and asset tangibility is worth noting. Non-CSR companies with a higher proportion of fixed assets have lower leverage. This result was not confirmed for CSR companies. The hypothesis that CSR replaces the role of collateral cannot be confirmed. Available cash influences leverage negatively in both models, supporting the pecking-order theory. This result is much stronger for non-CSR companies compared to CSR ones. This study found fewer statistically significant differences between CSR and non-CSR companies regarding capital structure determinants than were expected.

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Debt policy, free cash flow hypothesis, and balancing of agency theory through ownership: evidence from Indonesia

Cited by 7 publications

References 22 publications

INTERDEPENDENT ANALYSIS OF LEVERAGE, DIVIDEND, AND MANAGERIAL OWNERSHIP POLICIES: Agencies Perspectives

INTERDEPENDENT ANALYSIS OF LEVERAGE, DIVIDEND, AND MANAGERIAL OWNERSHIP POLICIES: Agencies Perspectives

Do We Need a Regulation on Dividends for Indonesia Stock Exchange?

Capital Structure and Its Determinants—A Comparison of European Top-Rated CSR and Other Companies

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