Foreign institutional investors and the contribution of cash and dividend to firm's value

Abstract

PurposeThe aim of this study is to investigate the effect of foreign institutional investors (FII) on the contribution of cash and dividend to firm's value in the context of Japan.Design/methodology/approachThis study used a sample of 1,929 nonfinancial firms listed in Tokyo Stock Exchange in the period from 2002 to 2016. For data analysis, pooled OLS regression with firm and year fixed effect is applied. Further, the p-value of difference is used to test the null hypothesis of equal coefficients.FindingsThe findings depict that cash holdings contribute more to firm's value when ownership by FII is high. Contrarily, dividends contribute more to firm's value when ownership by FII is low. The results remain consistent after using excess cash holdings instead of cash holdings and after re-estimating the main regression model in the presence of top 30% and bottom 30% ownership level.Research limitations/implicationsThis study is limited to Japanese nonfinancial sector. The results implied that firms where the probability of managerial agency cost and expropriation of cash is high, the presence of FII mitigates the agency cost and positively influences the contribution of cash to firm's value. Overall, this research highlighted the disciplinary and monitoring role of FII in Japan.Originality/valueThis study provides new insights on the monitoring and governance role of foreign institutions, showing that FII promote better cash management and utilization, which significantly affects the contribution of cash holdings to firm's value.

Institutional investors and the value of excess cash holdings: empirical evidence from Pakistan

“…This finding is in line with the arguments that foreign institutional investors have a greater inclination towards monitoring the firm's decisions and play a positive role in corporate governance in emerging economies (Aggarwal et al, 2011;Huang and Zhu, 2015). Moreover, the finding complements the earlier studies of Loncan (2020) and Karim and Ilyas (2020), who reveal that foreign institutional investors, through their monitoring role, reduce the potential devaluation of firm cash holdings, thereby increases its marginal contribution to the firm value. Further, we identify that the positive valuation effect by the FIO is mainly driven by the COMM, while the effect of CIV is insignificant, indicating that the value associated with excess cash accumulation is mainly triggered by investors from countries where the common law legal system is predominantly in practice.…”

“…However, the stand-alone coefficient of the DIV is positively significant, which implies that without accounting for the effect of FIO, dividends positively contribute to firm value. These findings are consistent with Karim and Ilyas (2020). Overall, the results imply that the dividends' contribution to firm value reduces when FIO increases.…”

“…Recently, Loncan (2020) finds that foreign institutional investors affect firm financing decisions by reducing their propensity to accumulate excess cash holdings and promote the efficient utilization of cash holdings. In the context of Japan, Karim and Ilyas (2020) find that cash accumulation is valued at a premium in firms having higher foreign institutional ownership. These studies suggest the importance of foreign institutional investors in cash management and in controlling its misutilization.…”

Tata Kelola Perusahaan, Keuangan, Merger dan Akuisisi, dan Efisiensi Modal Manusia Sebagai Variabel Moderasi

“…Pembayaran dividen menjadi keputusan dewan yang penting (Sanan, 2019). Dividen tunai dapat digunakan sebagai pengganti perlindungan hukum pemegang saham di perusahaan dengan lingkungan hukum yang buruk untuk memperlakukan yang baik dari investor melalui kebijakan deviden (Karim & Ilyas, 2021).…”

“…Manajer menjadikan dividen sebagai alat untuk memberikan informasi kepada pemegang saham serta keuangan perusahaan ke pasar modal (Sanan, 2019). Untuk meningkatkan kompensasi perusahaan, manajer mengeluarkan dividen tunai untuk mengurangi kepemilikan kas dibawah kendali manajemen dan dapat mengurangi konflik keagenan (Karim & Ilyas, 2021). Penggunaan dividen akan bertambah cepat meningkatkan modal melalui biaya yang relatif rendah pada saat dibutuhkan dengan mengurangi pembayaran dividen (Chireka & Fakoya, 2017).…”