Eduardus Tandelilin

Dividend Policy in Indonesia: A Life-Cycle Explanation

This study examines dividend life-cycle hypothesis and propensity to pay dividends of non-financial firms in Indonesia Stock Exchange (IDX) from 1995-2011 in light of a recent notion in IDX to regulate dividend payment. Using several proxies of life-cycle, the results consistently show that Indonesian listed firms follow dividend life-cycle hypothesis. The result also shows that firms’ dividend propensity to pay in IDX is declining over time, and it becomes much more concentrated throughout the observation period. As there has been a view in IDX that regulating dividend payment is necessary, this finding not only provides relatively new empirical evidence of dividend policy in Indonesia, but it also has potential policy contribution. Our results recommend that the regulation take into account the firm life cycle. Firms should only be required to pay dividends when they reach a certain stage and/or meet some characteristics, and action should only be taken towards those firms who do not pay dividends although they should be able to, according to their stage or characteristics.