The Impact of Ownership Structure on Dividend Payout Property and Construction Companies in Indonesia

The development of property and construction activities provides a multiplier effect on the economic development. This makes investors interested to invest their capital in the property as well as construction sectors and expecting returns that are not only capital gains but also dividends. In this study we will measure how ownership structure influences dividend decisions. The population of this research is all property and construction companies listed on the Indonesia Stock Exchange. Of the 55 listed companies only 12 companies met the research requirements to be sampled. The results of this study indicate a significant positive effect of institutional ownership on dividend payout, while measurement of managerial ownership does not affect dividend payout. INTRODUCTION Every economic activity basically needs property and construction products as one of the factors of production. The development of property and construction activities provides a multiplier effect on the development of other sectors that are directly or indirectly related. When there is no demand for property and construction products, it indicates that the economy is in a less developed condition. This makes investors interested to invest their capital in the property as well as construction sectors and expecting returns that are not only capital gains but also dividends. Dividend policy itself is described as one of the difficult challenges for economists in the financial sector, and many researchers still do not fully understand the factors that influence dividend policy and the way these factors interact (Bhattacharyya, 2007). Dividend policy is one of the most controversial topics in financial management research (Mehta, 2012). Dividend is the distribution of the remainder of the company's net profit distributed to shareholders with the approval of the Annual General Meeting/AGM (Darmadji & Hendy, 2001). Several variables have International Journal of Academic Research economics and management sciences Vol. 8 , No. 1, 2019, E-ISSN: 2 226 -3624 © 2019 HRMARS 68 the potential to determine dividend payment decisions in companies. One of the variables used as a benchmark in influencing dividends is the ownership structure. Based on agency theory, managers carry out full-cost activities for shareholders, and even contracts between managers and companies cannot prevent these investors' opportunistic activities. This is because managers must decide how much company profits are allocated for dividends and how much investment in the form of retained earnings is reinvested into the company. As a result, shareholders who lack control of power need a monitoring structure. Institutional ownership has a vital role in minimizing agency conflicts that occur between managers and shareholders. The existence of institutional investors is considered capable of being an effective monitoring mechanism in every decision taken by the manager. On the other hand, managerial ownership has succeeded in becoming a mechanism to reduce managerial agency problems by harmonizing the interests of managers and shareholders (Jensen and Meckling, 1976). Siallagan and Machfoedz (2006) state that the greater management ownership in a company, management will tend to try to improve its performance in the interests of shareholders as well as its own interests. The research conducted by Chen et al. (2005) found a negative correlation between managerial ownership and dividend policy. While Wen and Jia (2010) study the role of dividends in reducing agency costs by examining the relationship between dividends and managerial ownership, institutional ownership, and another set of variables that measure the level of agency costs. The results showed that managerial ownership and institutional ownership were negatively related to dividend policy for companies. The research gap arises because these results are in contrast to the research of Mehrani et al. (2011) in Iran which shows that there is no significant correlation between managerial ownership and dividend payments. LITERATURE REVIEW The theory related to this research is Agency Theory. Jensen and Meckling (1976) define agency relationships as follows: “an agency relationship as a contract under which one or more persons (the principals) engage another person (the agent) to perform some service on their behalf which involves delegating some decision making authority to the agent). ” Rozeff (1982) argues that the dividend is a tool to reduce agency costs. Jensen (1986) argues that dividend payouts are able to reduce conflicts between managers and company shareholders. Managers want to retain resources from companies rather than dividends. They follow the company's growth opportunities because in this case more resources from the company will come under their control. On the other hand, stock-holders want dividends instead of maintaining profits. Therefore, if dividends are not paid, managers can use these resources for their personal benefit or they can invest these resources in unprofitable projects. Dividends are used to reduce conflict with shareholders (Bohren et al, 2012). Dividend Policy Dividends are the amount of income distributed among the company's shareholders. Dividends can be in the form of cash or stock. Share dividends have no effect on shareholders' wealth except for the loss of transaction costs associated with shares (Khalid & Rehman, 2015). Dividend is the distribution of the remainder of the company's net profit distributed to International Journal of Academic Research economics and management sciences Vol. 8 , No. 1, 2019, E-ISSN: 2 226 -3624 © 2019 HRMARS 69 shareholders, with the approval of the AGM (Darmadji & Hendy, 2001). Dividend policy is the decision of a company regarding whether the profits obtained by the company will be shared with shareholders or held in the form of retained earnings for future investments (Sartono, 2010). Dividend policy involves the use of a constant payment ratio, namely the Dividend Payout Ratio. Dividend Payout Ratio is measured by comparing cash dividends per share against profits earned per share. Managerial ownership According to (Suranta et al, 2005) managerial ownership is a good corporate governance mechanism because managerial ownership can limit the opportunistic behavior of managers in the form of earnings management that can harm the interests of other parties (stakeholders). Managerial ownership in the company's financial statements are indicated by the percentage of the company's shares owned by the manager. Abdullah et al. (2012) examined the effect of company ownership structures on dividend payout ratios between 70 companies listed on the Karachi Stock Exchange (KSE) for 2003 to 2010. The results showed that managerial ownership had negatively affected dividend payment in Pakistan. Likewise the research conducted by AlGharaibeh et al. (2013) which examined the relationship between ownership structure and dividend payments in 35 sample companies from Jordan. The results show that there is a negative relationship between managerial ownership and the company’s dividend payout ratio. According to (Wahidahwati, 2002), the ownership of share percentage by management from the board of commissioners and directors who participate in making managerial ownership decisions is managerial ownership whose amount can be calculated from a certain period in percentage units (Wardani and Hermuningsih, 2011). Institutional Ownership Institutional ownership in Veronica and Bachtiar (2004) is the ownership of company shares by financial institutions such as insurance companies, pension fund banks, or asset management funds. The higher the level of institutional ownership is predicted to lead to greater supervision efforts by institutional investors so that it can hinder manager's opportunistic behavior. Companies with large institutional ownership (more than 5%) indicate their ability to monitor management (Susetyo, 2006). This opinion is also reinforced by Barnae and Rubin (2005) which states that institutional shareholders with large share ownership have incentives to monitor corporate decision making. Institutional and concentrated ownership enhances monitoring and helps reduce agency conflict (Khan, 2005). Kouki and Guizani's (2009) study reports that Tunisian companies pay lower dividends when they have higher institutional ownership, consistent with the role of effective institutional investor oversight. In contrast, Abdelsalam et al (2008) found a positive correlation between institutional ownership and dividend policy from Egyptian companies. Similarly, Manos (2002) found the impact of institutional ownership on the ratio of firm payments in India is positive, which is inconsistent with the arguments of institutional capacity in terms of more effective monitoring capable of reducing the need for dividend-induced mechanisms. International Journal of Academic Research economics and management sciences Vol. 8 , No. 1, 2019, E-ISSN: 2 226 -3624 © 2019 HRMARS 70 METHODHOLOGY This study used explanatory research, which is a study that seeks to explain the causal relationship between research variables through testing a particular hypothesis. Sources of data used were secondary data or indirect data, which were taken from the financial statements of property and construction companies in 2010-2016. The population of this study is all property and construction companies listed on the Indonesia Stock Exchange, in the observation period from 2010 to 2016. The samples were taken using purposive sampling method. The criteria for sampling are: (1) Issuers of the property and construction sector which are listed on the IDX between 2010-2016, and having audit financial report data as of December 31. (2) Property and construction companies that distributed dividends at least four times in the study period. (3) Issuers which have ownership composition owned by other institutions or managerial