IJSEGCE VOL 2, No.2 July 2019 ISSN: 2656- 3037 http://www.journals.segce.com/index.php/IJSEGCE DOI: https://doi.org/10.1234/ijsegce.v3i1.90

DETERMINANTS INSIDER OWNERSHIP IN TO INITIATION OF POLICY IN

Author I Dewa Made Endiana [email protected] Economic and Business Faculty of Mahasarawati Denpasar University

Made Laksmi Sena Hartini [email protected] Economic and Business Faculty of Mahasarawati Denpasar University

ABSTRACT Policy dividend initiation is related policy decisions about the amount and timing of the dividend payout of the first post-IPO. IPO is an initial public offering by the company to the public and signifies that the company has gone public. Dividend policy regarding the use of profits to the rights issue shareholders or a decision whether the profits from the company will be distributed to shareholders as or detained in order to finance future investments. This research aims to test variable capital structure to the initiation of a dividend with insider ownership as a moderating. The population used in this study is a company IPO on the during the period 2008- 2016. The sampling technique is done by using purposive sampling method, the technique determination of sample to be based on certain criteria in order to get a total of 33 sample companies as a sample of this research. The data analysis technique used is PLS Moderation The results of this study prove that the capital structure variables positively affects the initiation of dividend policy. While insider ownership is not able to influence the relationship between capital structure at the initiation of dividend policy.

Keywords: dividend initiation Policy, Insider Ownership, capital structure, and the Initial Public Offering (IPO).

I. INTRODUCTION Mgbame 2011). Companies should strive to make a dividend policy that will maximize shareholder wealth First listing companies on the Indonesia Stock (Wachowic Horne, 2007). In general, want the Exchange must have more strategies to improve dividend distribution may increase confidence performance and enhance shareholder value. in the company, thereby reducing the uncertainty of Companies that have a good value of investors is investors in making an investment into the company. reflected in its share price. Investors who invest in the Dividend policy is a financial decision that is company would expect to get a return on the made by the company after the company's operations investment shares. Return the stock to the form of and profit. Dividend policy comes to the use of profits to dividends and capital gains. The company mainly new be the rights of shareholders or a decision whether the companies listing on the Indonesia Stock Exchange in profits from the company will be distributed to dividends to shareholders would have some shareholders as dividends or detained in order to consideration, despite the dividend distribution finance future investments (Gill, Biger, and Tibrewala mechanism decided by the general meeting of 2010). Instead, if you choose to hold the profits from the shareholders (AGM). Corporate dividend policy will ability of the formation of internal funds will be even greatly affect the well-being of the owner, so that the greater. Thus, the dividend policy should be analyzed in necessary pooling of interest between the management terms of investment decision or determination of capital company and other parties that include shareholders structure (Rauh and Sufi 2010). and stakeholders in the decision making of the Initiation of dividends is a dividend payment that company (Hussainey, Oscar Mgbame, and Chijoke- was first performed by the company after the Initial

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IJSEGCE VOL 2, No.2 July 2019 ISSN: 2656- 3037 http://www.journals.segce.com/index.php/IJSEGCE DOI: https://doi.org/10.1234/ijsegce.v3i1.90

Public Offering (Officer 2011). While the initiation of shareholding that is directly related to the activity of the dividend policy is related policy decisions about the company, as manager and blockholder. Indirect amount and timing of the dividend payout of the first shareholding (non affiliated shareholder) is ownership post-IPO. IPO is an initial public offering by the by institutions or individuals. Shareholding by company to the public and signifies that the company management to provide benefits in the distribution of has gone public. The initiation of a dividend policy dividends. Companies that have a direct share adopted by the company brings financial consequences ownership structure will tend to use the dividends for of corporate responsibility which is quite fundamental, reinvested (reinvestment) into the company,(De Miguel, because once a company decides to start paying Pindado, and De La Torre 2004), Ownership structure dividends periodic (regular), then he demanded to used in this study is the ownership of the shares owned maintain the consistency of the periodic dividend by commissioners and directors (insider ownership). payments are already. Dividends paid are not so sharp Initiation of a dividend is the first public indication fluctuations either in decline or vice versa, because it of the willingness of managers to distribute excess cash will affect the reputation of the manager. Relatively to shareholders than to invest in new projects (Kale, stable dividend distribution will reflect the company's Kini, and Payne 2012). Policy dividend initiation is a financial performance. financial policy that is more strategic than the regular Dividend is a very interesting phenomenon to dividend policy. The initiation of a dividend policy study, in addition to the reasons stock dividend adopted by the company to bring corporate indicates that the company is expressing confidence responsibility financially fairly fundamental, because (confident) to the shareholders, but on the other hand once a company decides to start paying dividends the company does not distribute dividends because the periodic (regular), then he demanded to maintain company is experiencing interest cash or reason consistency periodic dividend payments are already. companies increase retained earnings to do Dividends paid are not so sharp fluctuations both in a reinvestment (Gill, Biger, and Tibrewala 2010), The decrease or increase, because it will affect the focus of this research is the study of the initiation of the reputation of the manager. Relatively stable dividend dividend policy (dividend initiation policy). The initiation distribution will reflect the company's financial of a dividend policy is one of the policies issued by the performance. company. Initiation of dividend policy is a policy related Based on the description of the background to the company manager's decision to initiate or start described, the researchers wanted to know whether the paying dividends regularly. capital structure can increase the chances of dividends Dividend initiation policy is measured using the distributed and if insider ownership is able to support the Dividend Payout Ratio. DPR is the percentage of profits effect of capital structure on opportunities to increase distributed as dividends, where the greater the dividend payments. Parliament smaller portion of funds available to reinvest retained earnings (Gill, Biger, and Tibrewala 2010). II. LITERATURE REVIEW Companies with a high DPR preferable Parliament otherwise provides an indication that the market / Agency Theory investors prefer the attitude of company managers who The manager is empowered by the owner of the are committed to give priority to the portion of the company, the shareholders, to make decisions, and it is dividend from the earnings portion for reinvestment then to create a potential conflict over the interests.This interest. Investment by the company is very important condition called agency theory. In the context of because one of the sources of income of companies is financial management, the main agency relationship from investing activities. Sources of investment funding that is: (a) advance of managers and lenders (Brigham can be sourced from the company's retained earnings and Houston, 2006: 26). Agency theory states that the or loans from third parties. This capital structure would company is or intersection point for contractual also determine the company's investment activity and relationship occurring between management, owners, will affect the company's ability to earn a profit (Endiana creditors, and government (Harahap, 2011: 532). 2017), This profit will certainly impact on the chances of dividends distributed to shareholders. Signaling Theory The ownership structure illustrates the Symmetric informationa situation where investors shareholding of a company. The ownership structure and managers have identical information about the explains the commitment of the owner to manage and company's prospects. However, in reality managers run the company(Lin, Ma, and Xuan 2011), Derived often have better information than the outside investor from the ownership of shares in the company or outside is referred to as asymmetric information (asymmetric the company. There are two types of ownership are information), and he had an important influence on the direct share ownership (affiliated shareholder) and optimal capital structure (Brigham and Houston (2011: indirect shareholdings (non affiliated shareholder). 186). Direct share ownership (affiliated shareholder) is a

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IJSEGCE VOL 2, No.2 July 2019 ISSN: 2656- 3037 http://www.journals.segce.com/index.php/IJSEGCE DOI: https://doi.org/10.1234/ijsegce.v3i1.90

Goddess (2011) declared a dividend payment asset structure, rate of growth, profitability, variable used by companies as a costly signal to inform the income and tax protection, the scale of the company, public investors about the company's prospects. and the company's internal conditions and Dividend is a heavy burden, and only the big macroeconomic. companies and good condition that is able to bear the burden by signaling theory, a strong and healthy HYPOTHESIS company will distribute dividends to shareholders for differentiate itself from other companies. Weak Capital Structures to Policies Dividend Initiation companies are trying to give a false signal by using the dividend will surely go bankrupt. That is, the use of The Higher use of debt in the capital structure of dividend regarded as a signal that expensive. the company, the company has a great opportunity to earn income through business activities that use debt in Ownership Structures its activities. The higher the income opportunities, the The composition of the ownership structure of higher the initiation of dividends distributed to issuers. the companies listed in Indonesia have differences with This same was found Paulina (2009), which gives the the company in Europe or America. The ownership results of Debt to Total Asset (DTA) has positive structure in companies incorporated in some capital influence on the initiation of a dividend. The markets in Europe and the United States have spread presentation is based on the hypothesis can be properties (dispered ownership) so that the agency formulated as follows: Capital structure positively conflict could occur between managers and affects the initiation of dividend policy. shareholders (owner). In contrast to Indonesia that most companies listed companies have shareholders in Insider Ownership to Capital Structure in Initiation of the form of a business entity such as Company Limited Dividend Policy which sometimes is a representation of the founding of Businesses in investment activities with many the company. using loans or financing from third parties in order to gain the maximum economic potential in the form of the Insider Ownership revenue and is supported by a high ownership or According to Dewi (2011) insider ownership is the management by internal parties, the greater the potential owner and manager of the company or all of the parties initiation of dividends distributed to shareholders. Insider have the opportunity to manage the company or all Ownership is the owner and manager of the company or parties have the opportunity to be involved in policy- all of the parties have an opportunity to be involved in making and have direct access to information in the policy-making and have direct access to information company (Lin, Ma, and Xuan 2011). Based on the within the company. One of the factors that influence the explanation of Law of the Republic of Indonesia No. 8 of decisions of managers in ownership of shares is the 1995 Article 95, on the capital market defines Insider as dividend policy (Katrina 2006). Based on the follows: (a) A Commissioner, Director, Employee presentation, it can be formulated hypotheses as affiliated companies, (b) the main shareholder in the follows: insider ownership is able to influence the company or affiliated companies, and (c) A person who relationship between capital structure at the initiation of by his position or relationship the company or its dividend policy affiliated companies aware of inside information. Insider ownership is a measure of the percentage of shares III. RESEACH METHOD held by the directors, management, Mollah et al. (2000) in the Goddess (2011) states that if the level of insider Operational Definition of Variables ownership by the larger, then the manager will pay 1) Dividend initiation Policy in this study were the huge dividends, but will increase his salary. profits of companies that will be distributed to shareholders as a dividend for the first time after an Capital Structures IPO (Initial Public Offering / IPO). Policy dividend Capital structures are at permanent financing initiations measured using the Dividend Payout Ratio company that consists of long-term debt and equity is the percentage of profits distributed as dividends. capital (Rauh and Sufi 2010). The capital structure is 2) Insider Ownership is the ownership of shares by the balancing the number of -term debt that is company or management at companies that IPO in permanent, long-term debt, preferred stock and Indonesia Stock Exchange 2008-2016 period divided . Meanwhile, the financial structure is the by the total shares outstanding. balance between total debt with its own capital. In other 3) Capital structures are at in this study is the words, the capital structure is part of the financial composition of the capital shows the portion of the structure (the Goddess, 2011). Determining the optimal company's capital is sourced from debt capital to capital structure, financial managers need to consider companies whose IPO on the Indonesia Stock some important factors as follows: the level of sales, Exchange period 2008-2016.

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IJSEGCE VOL 2, No.2 July 2019 ISSN: 2656- 3037 http://www.journals.segce.com/index.php/IJSEGCE DOI: https://doi.org/10.1234/ijsegce.v3i1.90

IO 0,000 0,000 1,000 -0,000 IO * SM -0,000 0,000 0,000 1,000

Sampling Method Based on the analysis in Table 1, the value Populasi used in this study are all companies loading factor> 0.7 so that the model is valid. whose IPO on the Stock Exchange over the period Discriminant Validity 2009-2017 some 187 companies. The sampling Based on the results of cross loading in Table 1 above, technique is done by using purposive sampling method. the value of the indicator constructs has a value higher The criteria used in the selection of the sample is as than the indicator of the kontruknya, the discriminant follows: 1) The companies IPO period 2009-2017, 2) validity is high. Companies that perform initiation dividend policy in the first year after going public or IPO.3) Companies that Composite Reliability have data on the percentage of shares owned by Value Composite Reliability shown in Table 2 below directors and commissioners (insider ownership). Based on these criteria obtained 33 samples. Table 2 Data Analysis Composite Reliability Coefficients The analysis technique used is PLS moderation. ------PLS moderation can be used to test the effect of SM DPR IO IO * SM moderating the model of two-way interactions in the 1,000 1,000 1,000 1,000 model that assumes that there is only one variable called simple moderator or moderators. Model equation Based on Table 2 above, the value of is as follows: Composite Reliability > 0.7 then the value of DPR = α + β1SM + β2IO + β3SM * IO + e reliability is considered high.

Measurement Model (Outer Model) AVE (Average Variance Extracted) Outer model is a model that specifies the AVE value shown in Table 3 below relationship between the latent variables with the indicator or it can be said that the outer model defines Table 3 how each indicator relates to the latent variables. Average Variances Extracted a. Convergent Validity ------Convergent validity value is the value of the loading SM DPR IO IO * SM factor in laten variabel on the indicator. Values 1,000 1,000 1,000 1,000 expected loading factor > 0.7. b. Discriminant Validity Based on Table 3 above, the value of AVE > 0.5 Comparing indicator correlation to contructs that so that the model is worth using. must be greater than the correlation between the Inner Test Model indicator with other constructs. a. R2 c. Composite Reliability The results of the analysis in Table 4 below shows Data that has composite reliability > 0.7 have a the value of R2 high reliability values. d. Average Variance Extracted (AVE) Table 4 AVE expected value is > 0.5. R-squared coefficients Structural Model (Inner Model) ------Structural models can be evaluated by looking at R2 SM DPR IO IO * SM (coefficient of determination) the endogenous variables 0391 and coefficients of track parameters. Based on the analysis in Table 4 shown that R2 value of 0.391, which means that 39.1% of the IV. RESEARCH RESULT variation up and downs of the company's value is affected by the SM and IO while the remaining convergent Validity 60.9% is influenced by other variables outside the Results of loading factor shown in Table 1 below model. Table 1 Combined and Cross-Loadings Loadings b. Hypothesis **************************************** The results of hypothesis testing analysis is shown SM DPR IO IO * SM in Table 5 below SM 1,000 0,000 -0,000 -0,000 Table 5 DPR 0,000 1,000 -0,000 -0,000 Path Coefficient and P Value

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IJSEGCE VOL 2, No.2 July 2019 ISSN: 2656- 3037 http://www.journals.segce.com/index.php/IJSEGCE DOI: https://doi.org/10.1234/ijsegce.v3i1.90

path Coefficients ------Recommendations Based on the conclusions of the research SM DPR IO IO * SM results, the next researcher is expected to use the SM structure of managerial ownership, institutional DPR 0477 -0180 ownership, family ownership as a moderating variable so IO that it can be seen clearly whether the ownership IO * SM structure is able to influence the capital structure on dividend initiation policies P Values ------REFFERENCES SM DPR IO IO * SM SM DPR <0.001 0128 Endiana, I Dewa Made. (2017). “Implikasi Mekanisme IO Corporate Governance, Struktur Modal Terhadap IO * SM Nilai Perusahaan.” Jurnal Riset Akuntansi, 167–79.

Based on the analysis in Table 5 above, the results Gill, Amarjit, Nahum Biger, and Rajendra Tibrewala. of hypothesis testing as follows: 2010. “Determinants of Dividend Payout Ratios: a. Effect of Capital Structure on Dividend Initiation Evidence from United States.” The Open Business Policy Journal. P value indicates a value <0.001 with a coefficient of https://doi.org/10.2174/1874915101003010008. 0.477 so that the positive effect on the capital structure of the initiation of dividend policy means that Hussainey, Khaled, Chijoke Oscar Mgbame, and H1 is accepted. This indicates that the greater Aruoriwo M. Chijoke-Mgbame. (2011). “Dividend percentage of the debt or financing by the company Policy and Share Price Volatility: UK Evidence.” to finance investment or operational activity, the Journal of Risk Finance. greater the potential profits to be earned by the https://doi.org/10.1108/15265941111100076. company. Thus, the potential for increasing the dividend distributed. Companies that IPO tendency to Kale, Jayant R., Omesh Kini, and Janet D. Payne. need funds for the development of business activities (2012). “The Dividend Initiation Decision of Newly which would likely increase the percentage of Public Firms: Some Evidence on Signaling with funding. Dividends.” Journal of Financial and Quantitative b. Insider Ownership on the Capital Structure of the Analysis. Initiation of Dividend Policy https://doi.org/10.1017/s0022109012000063. P Value interaction between IO with SM showed a value of 0.128> 0.05 thus unable to affect the internal Lin, Chen, Yue Ma, and Yuhai Xuan. (2011). “Ownership ownership relations of capital structure on initiation Structure and Financial Constraints: Evidence from dividend policy, so this means that the hypothesis is a Structural Estimation.” Journal of Financial rejected. This means that the internal ownership by Economics. management is not able to influence decisions in https://doi.org/10.1016/j.jfineco.2011.06.001. the company paying the dividends. This is possible because a small percentage of internal ownership Miguel, Alberto De, Julio Pindado, and Chabela De La so that the management did not have a strong Torre. (2004). “Ownership Structure and Firm position in decision making dividend payments at Value: New Evidence from Spain.” Strategic the general meeting of shareholders Management Journal. https://doi.org/10.1002/smj.430. V. CONCLUSIONS AND RECOMMENDATIONS Conclusions Officer, Micah S. (2011). “Overinvestment, Corporate Based on the results of the analysis showed that Governance, and Dividend Initiations.” Journal of the greater use of debt in financing investment and . operational activities, then the chances of increasing the https://doi.org/10.1016/j.jcorpfin.2010.06.004. dividend distributed. This is because of the investment or operational activities provide economic benefits for Rauh, Joshua D., and Amir Sufi. (2010). “Capital the benefit of the company. While the magnitude of Structure and Debt Structure.” Review of Financial insider ownership is not capable of affecting relations on Studies. https://doi.org/10.1093/rfs/hhq095. the capital structure of the initiation of dividend policy.

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