Dividend and debt policy as corporate governance mechanism

Indonesian evidence

Syafaruddin Alwi, Ruzita Abdul Rahim

Research output: Contribution to journalArticle

5 Citations (Scopus)

Abstract

This study examines the effectiveness of dividend and debt policies as corporate governance mechanisms to reduce agency conflict. Indonesia is significant for such a study because it provides a setting where the tendency for agency problems is high. Using purposive sampling method, this study selects 187 firms which stocks are listed on Indonesia Stock Exchange between 2002 until 2006. This study employs event study method and regression analysis to test its hypotheses. The results suggest that dividend policy can be used as a corporate governance mechanism to mitigate agency conflict as far as its impact on market performance is concerned, in all firms and particularly so in firms with high concentrated ownership structure. Debt policy fails to serve as a corporate governance mechanism except in firms with high concentrated ownership structure and when concerns profitability. With the viability of financial policies' function as effective corporate governance mechanisms have yet to be verified, the Indonesian Capital Market Regulatory Board needs to rely on and/or formulate other corporate governance mechanisms to regulate the conducts of the firms.

Original languageEnglish
Pages (from-to)111-125
Number of pages15
JournalJurnal Pengurusan
Volume29
Publication statusPublished - Dec 2009

Fingerprint

Dividend policy
Debt policy
Corporate governance mechanisms
Indonesia
Agency conflict
Ownership structure
Concentrated ownership
Viability
Regression analysis
Capital markets
Hypothesis test
Sampling methods
Event study
Profitability
Stock exchange
Agency problems
Market performance
Policy function
Financial policy

ASJC Scopus subject areas

  • Business, Management and Accounting (miscellaneous)
  • Accounting
  • Business and International Management

Cite this

Dividend and debt policy as corporate governance mechanism : Indonesian evidence. / Alwi, Syafaruddin; Abdul Rahim, Ruzita.

In: Jurnal Pengurusan, Vol. 29, 12.2009, p. 111-125.

Research output: Contribution to journalArticle

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