THE IMPACT OF TOP MANAGEMENT TEAM CHARACTERISTICS AND

COMPANY PERFORMANCE ON DIVIDEND POLICY

JUNE 2018
 ABSTRACT

THE IMPACT OF TOP MANAGEMENT TEAM CHARACTERITICS AND

COMPANY PERFORMANCE ON DIVIDEND POLICY

Using data panel analysis, this research aims to find the impact Top Management
Team Characteristics (TMT) and company performance on dividend policy. An
observation of 45 companies in IDX LQ45. TMT characteristics (Board Size, Board
Composition of Independent commissioner, Independent Director, Women Existence,
Tenure and Return on Assets) as dependent variable, TMT as independent variable,
and to see the joint impact of TMT characteristics and company performance on
dividend policy. This research found the significant relationship between TMT
characteristics and company performance. However, the research found there is no
significant relationship between company performance and dividend policy.
Furthermore, the research found the significant relationship between the joint impact
of TMT characteristics and company performance on dividend policy.

Keywords: TMT Characteristics, Company Performance, LQ45, Dividend Policy.

 DEDICATION

I dedicate this works for my parents and Indonesia

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 LIST OF TABLES

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 CHAPTER 1 – INTRODUCTION

1.1 Background
The study on corporate governance is increasing rapidly with the opening of
large-scale financial scandals such as Enron, Tyco, WorldCom, Maxwell,
Polypec and others. Therefore, the current issue of good corporate governance
becomes very important. In Indonesia, the low quality of industry in the
company is reflected in the weak internal conditions, the bad moral of Human
Resources (HR), the effectiveness of supervision by the board, and the weak
management (Abid G, 2014).
The board in the organization is very interesting to discuss over the past few
decades, the board stands as an important line of defense to keep the company
going well. The collapse of these public companies was due to fraud of top
management that lasted long enough due to the lack of independent oversight
by the directors. In addition to monitoring, the board's focus is to provide
advice and provide oversight and support to the organization. (Finkelstein &
Moony, 2003).
The global financial crisis of 2008 has provided government motivation to
raise awareness and prevention of potential threats that caused the crisis for
the Indonesian economy as a whole. One example of the impact of the world
crisis on Indonesia's economic condition is the decline in exchange
performance and the rupiah exchange rate. This is because investors exchange
their Rupiah to US Dollars, they feel unsafe with the ongoing crisis conditions
(Rasaningrum, 2015). One of the Indonesian government's reaction to stabilize
the market is to issue Government Bonds in the form of Government
Securities (SUN) with a repurchase policy if foreign parties withdraw their
money. Meanwhile, Bank Indonesia (BI) is trying to maintain the stability of
the Rupiah exchange rate (Murti, 2011). Investors as shareholders expect to
get a large or minimum dividend relatively stable from year to year, in order to
improve the welfare of shareholders (Ritha and Koestiyanto, 2013).
The board is an important tool or structure for controlling agents in the
organization thereby reducing agency costs (Fama & Jensen, 1984). The most
important task of the board is to monitor the CEO and lower agency costs
(Jensen & Meckling, 1976 in Pelt, 2013). The task is due to the increased costs
needed by executives in the form of money and assets, moreover bonuses and
benefits with ethical practices that are still being debated. The public considers
that there is an injustice in compensating CEOs with other employees, which
is why agency costs get enough attention from academic literature and
practitioners (Gray & Benson, 2003; Lin, Kuo, & Wang, 2013; Wilmers,
2014). This can lead to the creation of agency problems as mentioned by
Jensen and Meckling (1976). Managers or executives may use wisdom in
many ways for their own benefit (Shleifer & Vishny, 1997). Mueller (2012)
argues that CEOs are involved in building empires and they avoid investing in
positive NPV projects. Therefore, the important role of the council is
indispensable.

By 2016, the industrial conditions that do not have a Board in this case the top
management team will get worse (Tanikawa, 2016). One of the big cases was
Wells Fargo's case. The case was caused by illegal practices by top
management in the banking sector and a fine of $ 185 million (newyorktimes,
2016). Other cases such as Bank Century in Indonesia also had become a
major issue due to the absence of GCG. This led to a decrease in trust from
bank customers and even caused customers to withdraw their funds
immediately. Customers know that their money is not available in the bank
and ultimately leads to major distrust of customers as a whole, even to Bank
Indonesia as banking supervisor (www.infobanknews.com, 2017).

Therefore, organizational failure to channel enough money to its shareholders

due to poor supervision (Jensen, 1986). Callahan (2004) claimed that the
weakness of the team in top management contributed to cultural fraud and
overall negative influence. Lin et al. (2013) uses the term "greedy fat cats
problem" to define companies with inefficient performance due to high CEO
costs and poor supervision. Research Li, Moshirian, Nguyen, and Tan (2007)
show that executives can take advantage of shareholders or weak supervision.
This incident was previously studied by Boyd (1994) low TMT characteristics
in firms with lower board control levels not in accordance with firm size or
profitability.

Indonesia adopted a dual board (two-tier board) system consisting of a Board

of Directors (BOD) with executive functions and Board of Commissioners
with supervisory functions. The GCG Indonesia General Guidelines (2006)
states that the Board is one of the essential elements needed to achieve GCG
conditions. Top Management Team (TMT) in this case is the highest executive
(such as chairman, board of directors, chief executive officer, managing
director, president executive director, executive vice president, etc.) who is
responsible for the whole company. Top management translate policy
(formulated by the board of directors) into goals, objectives, and strategies,
and project vision. TMT makes decisions that affect everyone in the
organization and is fully responsible for the success or failure of the company.

In addition to agency theory, signal theory also forms the basis for explaining
the company's motives for informing annual reports of both financial and non-
financial to external parties, due to differences or asymmetry of information
between outsiders and within firms (Ross 1977). Basically, the company's
internal information is a signal for stakeholders in the capital market to invest
funds, as well as an indicator that affects future prospects in distributing
dividends. Wolk et al. (2000) found that one alternative to minimize
information gap is through signaling to external parties, namely through
disclosure of company information. If the characteristics of the board within
the company is good then it will give a positive signal to stakeholders, because
stakeholders feel their interests will be better protected. Signal theory is able to
explain the positive relationship influence the characteristics of corporate
dividend policy. While the financial performance represented by the
profitability ratio explains how the company's ability to create profits from
sales and investment (Prime, 2014). Financial performance is defined as an
alternative to assess how the rate of return obtained under its investment
activities (Haryanto and Toto, 2003). Financial performance through the
profitability ratio is able to describe the amount of profit from invested capital,
which means that financial performance can affect the company's dividend
policy. The magnitude of the growth rate of performance in line with the
company's dividend policy in the future. In the theoretical context of the high
achievement of financial performance, the influence of TMT characteristics on
corporate dividend policy is greater (Gunawan, 2015), this is the basis of
performance use as a moderating variable. Financial performance is one
indicator that is often used stakeholders in taking decisions that will affect the
company's dividend policy.

This study aims to examine the impact of TMT characteristics on dividend

policy with firm performance as intervening variable. Most previous research
on the effect of TMT characteristics on dividends with firm performance as
intervening variables (Yahya and Ghazali, 2017; Tanikawa, 2016; Dalton,
1999; Jensen, 1993; Guest, 2009; Ghosh & Sirmans, 2006). Thus, the
information asymmetric problem enables TMT to make favorable decisions
for the financial performance and regulated corporate dividend policy.

In addition to the board, another tool for reducing agency costs is paying
dividends to shareholders (Easterbrook, 1984). Dividend payments will reduce
agency costs because free cash flow will drop and cause companies to raise
money from the capital market. However, paying dividends begins with
transaction costs associated with dividend payments (Rozeff, 1982). Therefore,
the amount of dividends paid may be an option between reducing agency costs
and transaction costs. Dividend payouts and having a board are two methods
to lower agency costs and can be seen as a substitute for each other (Fernandez
& Arrondo, 2005). If the board performs well as a result of low agency costs,
there is no need to pay dividends. Five characteristics will be taken into
account to test whether they influence the amount of dividend paid. They are
the existence of women, Independent director, tenure, the composition of
board commissioner and board size. If these characteristics improve the
performance of the board, the need for dividend will be lower and vice versa.
For instance, TMT characteristics should be explained as Board size, board
composition, external directors, tenure and the existence of woman. Board size
explains as the number of board members in organization (directors from
outside which is more independent better able to protect the interests of the
shareholders). Board composition of commissioner normally issues with
related to number of board composition (a member of the board
commissioner of a company or organization who does not form part of the
executive management team). The existence of women deals with women
director performance and also representation of women in the
workplace. Independent Director is a member of the board of directors of the
company or the organization who does not part of the executive management.
Tenure is the number of years the director working in the company (Kesner,
1998).

Therefore, it is important to test how the board performs its performance by

looking at the effect of different board characteristics on the amount of
dividends paid. Companies with lower agency conflicts tend to be good at
efficiency. In addition, Goergen, Renneboog, and Correia da Silva (2005) see
dividends in lieu of controls that can reduce the cost of managerial agents in
terms of weak board governance mechanisms.

Capital markets have an important role for the economy state because the
capital market as a means of financing the business / as a means for companies
to get funds from investors. Regarding the capital market, the author knows
that the stock exchange is capital market in Indonesia. The current stock
exchange is the Indonesia Stock Exchange (BEI). There are many types of
indexes in BEI. The index itself is one of the guidelines for investors to invest
in the capital market, especially stocks. The LQ45 index is one of the index
type in BEI. The LQ45 index consists of 45 issuers with high liquidity, which
are selected through several selection criteria. Not all issuers can go inside
index LQ45, because the LQ45 index uses 45 selected stocks based on stock
trading liquidity and adjusted every 6 months. Therefore, the stock contained
in the index will always change.

The stocks listed under the LQ45 stock index are based on some consideration,
the first stocks are indexed LQ45 shares are stocks that have a level of
liquidity high. Secondly, the stocks that become the object of research are
stocks that including on the LQ45 stock index during the study period so it can
 it is certain that the stocks have a high rating compared with other stock
members and assumed as stocks are always in the search by the capital market
players, especially the investors. Generally, investors buy shares to earn
dividends and capital gain from the price of sales difference with the purchase
of shares, therefore so as not to lose, investors should always monitor
fluctuations stock prices and factors affecting stock prices in order to decide
whether to sell or buy shares. The price attached to shares reflect the value of a
company.

The important role of capital market in the Indonesian economy, the

characteristics of the Top Management Team (TMT) in applying GCG to
regulate dividend policy is the background in this study. By knowing the
characteristics of Top Management Team (TMT) related to company
performance and dividend policy in the LQ-45 context, this research will
improve our understanding of the effect on the company with dual board and
conflict in it.

Based on previous problem of bankruptcy in Indonesia and abroad, such as

Century Bank case, Wells Fargo, Enron and previous research which
discussed The impact of top management team characteristics and company
performance on dividend policy in Indonesia is still small, further research is
needed on the impact of top management team characteristics and company
performance on dividend policy in Indonesia, therefore for improving the
literature, we do the research further on LQ45 listed companies (Case Study of
Industrial Sector at LQ45 Index).

1.2 Research Problems

Based on the background of the above problem, it can generally be identified as

follows:
 1. The agency conflicts that arise between managers and shareholders can
degrade the company's performance and dividend pay-out and harming
stakeholders. One of the big cases is Wells Fargo's case. The case was caused
by illegal practices by top management in the banking sector and a fine of
$ 185 million (newyorktimes, 2016).

2. Other cases such as Bank Century in Indonesia also had become a major
issue due to the absence of GCG. This led to a decrease in trust from bank
customers and even caused customers to withdraw their funds immediately.
Customers know that their money is not available in the bank and ultimately
leads to major distrust of customers as a whole, even to Bank Indonesia as
banking supervisor

1.3 Research Objectives

This study aims to analyse the impact of TMT characteristics and company
performance on dividend policy, technically the objectives are as follows:

1. To analyse the effect of TMT characteristics on dividend policy of LQ-45

companies listed on Indonesia Stock Exchange.

2. To analyse the effect of company performance on dividend policy of LQ-45

companies listed on Indonesia Stock Exchange.

3. To analyse the join impact of TMT characteristics and company

performance as moderator to dividend policy in LQ-45 companies listed on
Indonesia Stock Exchange.

1.4 Research question

Based on background, problem identification and research objectives, in general this

research has questions as follows:
 1. Do TMT characteristics affect to dividend policy of LQ-45 company listed in
Indonesia Stock Exchange?
2. Does the join impact of TMT characteristics and company performance as
moderator affect the dividend policy in LQ-45 companies listed on Indonesia
Stock Exchange?

1.5 Significance of study

From this research is expected to get the following benefits:

1. Academic Benefits

This research is expected to increase the wealth of knowledge about

management accounting, especially regarding the accounting records of the
company in accordance with the principles of GCG applied by TMT and
studying the performance and the policy of dividend pay-out in a company.

2. Practical Benefits

This research is expected to be a source of information that can be used as a

study of the impact of top management team characteristics and company
performance on dividend policy. Then can be used as an information used to
determine the strategy in implementing GCG or as one of the consideration in
determining the policy to be used when companies implement GCG.

1.6 Scope of Limitations

Based on the background of problems and identification of the above

problems, this research uses the object of research that is the annual report of
index LQ45 in the Indonesian Stock Exchange period 2009- 2016.
 CHAPTER 2 - LITERATURE REVIEW

2.1 General Theory

2.1.1 Good Corporate Governance

Gompers, Ishi and Metrick (2003) pioneered the literature that establishes
causal relationship between governance mechanisms and financial policies of
firms. A number of studies have employed the Governance Index developed
from this approach. Subsequent work by Bebchuk and Cohen (2005) and
Bebcuk, Cohen and Ferrell (2009) identify the relevant internal provisions of
governance leading to the development of ‘entrenchment’ index. The
Indonesian Institute for Corporate Governance (IICG, 2000) defines corporate
governance as the systems, structures, and processes used by companies to
achieve long term sustainable value taking into account stakeholder interests
based on prevailing norms, ethics, cultures and regulations. Thus, the value of
the company is considered a primary goal. Board characteristics may also have
significant influence on dividend payout ratios. Boards with classified
structure, commonly referred to as staggered boards, have been found to have
significant positive influence on dividend payout ratios for the US firms by
Jiraporn and Chintrakarn (2009). Their study finds that firms with staggered
boards pay larger dividends and that the influence of classified boards is more
than the combined influences of all other governance provisions. However,
since LQ-45 generally has the goal of improving profitability (Joeck, 2013),
achieving high corporate values is often a major consideration of TMT's
decision in the context of LQ45 in Indonesia.

2.1.2. Resource Dependent Theory

The Dependency Theory explains that firms rely on board members to manage
their resources and achieve high performance. The theory views the board as
an important information tool and strategic resource for the company (Dalton
and Daily, 1999). Thus, this theory can explain the relationship between board
member characteristics and firm performance, which largely refers to financial
performance (Wang et al., 2016; McGuinnes et al., 2017). Characteristics of
board for example is the board size, in certain proportions the more number of
board will produce better performance. This is because the board's position is
very strategic for the company.

The size of the board of directors depends on the complexity of business and
the availability of relevant experience and skills set. A board with very few
members may not be equipped to deliver the governance roles that are
expected. Large boards may also at times be non-functional and may not help
in mitigating the agency conflicts between managers and shareholders. Larger
boards may lead to higher dividend payouts if different board members appeal
different clientele. Similarly smaller boards may or may not lead to higher
dividend payout. Smaller boards are likely to be more entrenched and when
they are motivated by considerations of raising equity from markets in the
future, these boards may attempt to pay higher dividends as a way to establish
reputation (La Porta et al., 2000). Boards in this case are acting as substitutes
for lack of shareholder rights. Jiraporn and Ning (2006) find evidence of
substitution effect between shareholders rights and dividend payout for a
sample of US firms. They find that firms that have weak shareholders rights
have paid generous dividends compared to firms that have better shareholder
rights.

2.1.3 Signaling Theory

Signs by Brigham and Houston (2009) are actions used for investors on how
to find a company, with jobs everywhere selling and seeking to add new
capital as needed. A large increase means that the company will be better off
and reduce dividends, including that the company is in a deteriorating
condition. Announcement of emissions by the company, generally is a sign
(signal) that management saw the company is bleak. If the company sells new
shares, more often than usual, then the stock price will decrease.
The signaling theory for information issued by firms for investment decisions
outside of the company. Information that is very important to investors and
business people because information about the essence of providing
information, information or information right for now, is also a time that will
appear for the members of the company and how the effect. Complete,
relevant, accurate and appropriate information is needed by investors in the
field of capital as a tool to make investment decisions.

Signaling theory suggests that dividend payment to shareholders helps in

reducing the conflict between management and shareholder. Jensen and
Meckling (1976) defined the agency relationship as “a contract under which
one or more persons (the principal(s) engage another person (the agent) to
perform some service on their behalf which involves delegating some decision
making authority to the agent.

According to Hartono (2008), the information released will provide various

options for investors in making investment decisions. If reversed it contains a
positive value, it is expected the market will be consolidated at the time issued
by the market. At the moment information signs by Brigham and Houston
(2009) are actions used for investors on how to find a company, with jobs
everywhere selling and seeking to add new capital as needed. A large increase
means that the company will be better off and reduce dividends, including that
the company is in a deteriorating condition. Announcement of emissions by
the company, generally is a signal that management saw the company is bleak.
If the company sells new shares, more often than usual, then the stock price
will decrease.

The signaling theory for information issued by firms for investment decisions
outside of the company. Information that is very important to investors and
business people information about the essence of providing information,
information or information right for now, is also a time that will appear for the
members of the company and how the effect. Complete, relevant, accurate and
appropriate information is needed by investors in the field of capital as a tool
to make investment decisions.
According to Hartono (2008), the information released will provide various
options for investors in making investment decisions. If reversed it contains a
positive value, it is expected that the market will be consolidated at the time
issued by the market. At the time information and information about the
information, used the information as good news (good news) or bad (bad
news). If you want to get the right information for investors, then expand for
investors. This signal is information about other interested parties such as
investors. Signals that can be used for organizing such information as annual
financial statements. Dividend payments can help reduce agency costs arising
from manager signals. For that information, use the information as good news
(good news) or bad (bad news). If you want to get the right information for
investors, then expand for investors. This signal is information about other
interested parties such as investors. Signals that can be used for organizing
information such as annual financial statements. Dividend payments are a by-
product of the freedom of managers and holders, dividend payouts can help
reduce agency costs arising from manager signals.

The signaling theory refers to the idea that managers send information to
shareholders to present the company’s financial position and to build strong
relationships (Ullah, Fida & Khan 2012). It is also argues that management of
the firm has more precise information about the future investment decisions,
future earnings and profitability of the firm than outside investors. Therefore
managers can decide the level of dividend pay-out so as to convey the internal
information to the inventors (Bhattacharya, 1979).

2.1.4. The Upper Echelon Theory

Upper Echelon Theory (UE theory) was developed by Hambrick and Manson
in 1984. His theory considers top management as the ultimate strategic
decision maker within the organization. Thus, the strategic decisions made by
top management as corporate leaders will have a direct impact on the
performance of the company. Logically, as corporate leaders are responsible
for managing the company as a whole, therefore, their characteristics, what
they do, and how they perform, will in particular affect the company's
performance (Finkelstein and Hambrick 1996). This theory has been widely
used in corporate governance research focusing on TMT (Top Management
Team) (Hambrick and Manson, 1984). The main premise of the relevant upper
echelon theory for this research is that top management experience, as well as
their values and personality have a major influence on their interpretation of
the situation and influencing their choices. Therefore, TMT (Top Management
Team) characteristics are related to various values, cognitive, and perceptions
that can influence decision making. The upper echelon theory provides some
basis for the importance of studying the characteristics of TMTs a firm's
performance, whether it is commercial or social orientation, a reflection of its
top management (Wan Yusof, 2010).

2.1.5. Financial performance

Understanding performance according to Indra Bastian (2007) is a picture of

achievement of implementation / program / policy in realizing the goals, goals,
mission and vision of an organization. The concept of financial performance
according to Indriyo Gitosudarmo and Basri (2002) is a series of financial
activities in a certain period reported in the financial statements including
income statement and balance sheet. According to Irhan Fahmi (2011)
financial performance is an analysis conducted to see how far a company has
implemented by using the rules of financial implementation properly and
correctly. Company performance is a description of the financial condition of
a company that is analyzed by means of financial analysis, so it can be known
about good bad financial condition of a company that reflects the performance
of work in a certain period. It is very important that resources are used
optimally in the face of environmental change.

Assessment of financial performance is one way that can be done by the

management in order to fulfill its obligations to the funders and also to achieve
the goals set by the company. The benefits of performance appraisal are as
follows:

1) To measure the achievements achieved by an organization within a certain

period that reflects the success rate of implementation of its activities.
2) Besides being used to view the overall performance of the organization,
performance measurement can also be used to assess the contribution of a part
to the achievement of the overall corporate objectives.

3) Can be used as a basis for determining corporate strategy for the future.

4) Provide guidance in decision making and organizational activities in

general and divisions or parts of the organization in particular.

5) As a basis for determining the policy of capital investment in order to

improve the efficiency and productivity of the company.

On the other hand, the purpose of the company's performance assessment by

Munawir (2000) is as follows:

1) To know the level of liquidity, ie the ability of the company to obtain

financial obligations that must be met or the ability of the company to meet its
finances at the time of billing.

2) To determine the level of solvency, ie the ability of the company to meet its
financial obligations if the company is liquidated both short-term and long-
term financial obligations.

3) To determine the level of profitability or profitability, which shows the

company's ability to generate profits during a certain period.

4) To determine the level of business stability, ie the ability of a company to

conduct its business with a stable, as measured by taking into account the
ability of the company to pay interest expenses on its debts, including
repaying the principal of its debts on time and the ability to pay dividends
regularly to shareholders without experiencing financial constraints or crises.

In addition, we include controls for financial performance to see how these

measures interact with TMT characteristics and dividend policies.

2.1.6. Dividend policy

According to Weston and Copeland (2010) dividend policy is a policy to
determine profit sharing between payments to shareholders and reinvestment
of companies. In other words, this policy determines the proportion of
dividend payments in the form of cash flows paid to shareholders and
reinvestment of the company in the form of retained earnings to finance the
growth of the company.

"The dividend policy concerns the issue of the use of profits to which the
shareholders are entitled" (Husnan, 2010). In line with Weston and Copeland
(2010), Husnan (2010) also agrees that profits which are the shareholder's
right may be divided as dividends or retained for reinvestment. The amount of
profit to be divided as dividends and which will be reinvested must be
determined with careful consideration for added value to shareholders and the
value of the company to be maintained.

Shao et al. (2010) in Fauver and McDonald (2015) examine dividend payout
policies based on conservatism and management characteristics and find that
conservatism has a significant positive relationship while management
characteristics have a negative relationship with dividend payouts. Financial
theorists assume that dividend payouts are one efficient solution to mitigate
conflicting agencies. Higher dividends meet investor demands (Michael, 2013)
and protect minority shareholder investments by reducing excessive cash
available within the firm (La Porta, Lopez -de-Silanes, Shleifer, & Vishny,
2000). Higher agency costs can occur in a company with the amount of free
cash flow available, then it can lead to a decline in shareholder value by
executives. Therefore, the cash flow hypothesis suggests that in order to
reduce agency costs and free flow, firms must pay dividends (Richardson,
2006). Although theorists argue that dividend policy can act as a substitute
control tool of the corporate GCG (Haye, 2014). Yahya and Ghazali (2016)
found that dividend policy distorts the relationship between corporate
performance and CEO characteristics.

2.1.7. Board Characteristics (top management team)

Characteristics of the Council in this case top management team, divided into
three namely independent commissioner, board size and gender. Regulations
concerning External or Independent Council in Indonesia are set forth in the
Code of Good Corporate Governance issued by the National Committee on
Governance Policy in 2006. This External or Independent Council may be
referred to as a council which does not come from an affiliated party.
Affiliated are parties having business and family relationships with the
controlling shareholders, members of the Board of Directors and other Board
of Commissioners, as well as with the company itself. Decision of the Board
of Directors of the JSX Number Kep-305 / BEJ / 07-2004 states that the
establishment of the Independent Council is one of the things required for
listed public companies. Under such a regulation, a public company is
required to have an independent board of at least 30% of the total members of
the Board within the company. This percentage is deemed to be representative
of the minority stakeholders, so the possibility of differential treatment
between majority and minority stakeholders will not occur.

In the Code of Good Corporate Governance, the size and number of board
members has been arranged in such a way. The number of board members or
board size should be adjusted to the complexity of the company with due
regard to effectiveness in decision making. Because of course between
companies with each other must have interests, size and complexity of their
respective. The number of members to be owned by the Board of
Commissioners should be greater or at least equal to the number of members
of the Board of Directors. This is because if the number of members of the
Board of Commissioners is less than that of the Board of Directors, it is
possible that the members of the Board of Commissioners will be under
psychological pressure if there is a difference of opinion between the two
parties (Indrayati, 2010). In the Code of Good Corporate Governance, the
number of female director members has been arranged in such a way.
Women's directors are considered to be more independent because they are
outside the network and have the right to make decisions (Carter et al., 2003).

2.1.7.1 Board Size and Dividend Policy

Jensen (1993) argues that the size of the board is negatively correlated with the
board's ability to advise and participate in long-term planning as a result of
difficulties associated with organizing and coordinating a large number of
directors. Adams and Mehran (2003) argue that some companies require large
boards for effective oversight. However, the existing literature regarding board
size and financial performance varies, Sheikh and Wang (2011) in Pakistan
found that board size has a positive relationship with the company's financial
performance. A recent study by Hussainey and Aljifri, k (2012) in the UAE
found that the number of boards of directors has a positive relationship with
financial performance. Ganiyu and Abiodun (2012) in Nigeria found a positive
relationship indicating that large boards tend to practice effective monitoring
because sufficient number of directors can form different regular bodies and
apply certain levels of policy to increase corporate value. On the other hands,
large numbers of boards increase conflicts that can lead to difficulties in
reaching consensus in decision making that can undermine corporate
governance resulting in poor financial performance for companies. In contrast,
several other studies such as Heng et al. (2012) investigate how board size can
affect a company's financial performance in Malaysia. The results show an
inverse relationship between the number of board members and the ratio of
financial performance. Bodaghi and Ahmadpour, A., (2010) in Tehran, also
found a negative relationship, suggesting that the pressure practiced on
managers encourages them to adopt lower levels of debt to improve corporate
performance.

2.1.7.2. Independent Director’s and Dividend Policy

Independent directors can play an important role in reducing agency problems

and they can help improve the quality of decision making (Fama and Jensen
1983). However, the results of empirical studies vary; Berger et al. (1997)
analyzed the correlation between the percentage of non-executive directors
and the financial performance of firms that found a significant positive
relationship indicating that more active CEOs were controlled and
accompanied by outside directors, causing managers to better manage
financial performance and improve company value. In another study Al-Najjar
& Hussainey, (2011) found the same positive relationship, with the view that
companies with most non-executive members appear to have better network
access, thereby enhancing financial performance and firm value. This is
confirmed by Sheikh & Wang, (2011) in Pakistan. Other studies such as
Greene (2011) found an insignificant positive relationship. In contrast, Abdoli
et al. (2012) found an inverse correlation between board independence and
financial performance, indicating that most of the outside directors of Iran
were affiliated in some respects with the management of the company. In the
same line Chang Kuo et al. (2012) in Taiwan, Wellalage & Locke (2011) in
Sri Lanka found a significant inverse relationship, arguing that managers have
lower levels of financial performance when faced with strong corporate
governance.

2.1.7.3. Women Existence in The Board and Dividend Policy

In general, women's in the boards are more independent because they are
outside the network (Carter et al., 2003). Adams and Ferreira (2009) noted that
female members commit to attending board meetings, and they better record
than male directors, so the female in the board allocates more effort in
observing and analyzing as executive director. Several studies investigated the
gender impact of the board on the performance of firms, such as Ren, and
Wang, (2011) and Ujunwa (2012). Other types of research study the impact of
women's presence on corporate values such as Campbell and Vera (2007).
Alves et al. (2014) investigated empirically how the diversity of councils
affects the company's financial performance. The results show that the more
diverse the gender, the board will improve board efficiency and reduce
information asymmetry between company management and shareholders so as
to improve the company's financial performance.

2.1.7.4. Tenure and Dividend Policy

Tenure is the number of years a director is working at the company. The
evidence on this topic is limited. Byrd Cooperman & Wolfe (2010) find a
negative relation between tenure and governance. Berberich & Niu (2011) find
a positive relation between board tenure and governance issues.

A positive relation between tenure and the performance of the board (and thus
a negative relation with the amount of dividend paid), can be explained by the
expertise hypothesis (Vance, 1983). Directors with a longer tenure will have
more expertise and greater commitment. Furthermore, they will put more
effort in the firm (Buchanan, 1974). Moreover, Vafeas (1999) found that a
more experienced board will lead to better monitoring.

However, according to Bebchuk, Fried and Walker (2002), there is a chance

that long tenure board members become friends with the CEO. Therefore, they
are not able to monitor the CEO properly. In 2003, Vafeas found that outside
Directors with a longer tenure will find it harder to confront the CEO because
their loyalty is shifting towards the CEO instead of the shareholder. Finally,
Katz and Allen (1982) found that tenure will disturb the group process because
it will reduce intra-group communication.

It is not clear what effect tenure will have on the performance of the board. As
stated earlier, the way a board is performing will influence the amount of
dividend that should be paid; the board will become less independent and
agency costs will go up.

2.1.7.5. Board Composition of Independent Commissioner and Dividend

policy

Independent Commissioner are the board of commissioner members who are

not affiliated with the board of directors, the other member of commissioner,
and do not have relation or business with the stakeholders, they known as
corporation itself that can influence on their independency and responsibility
to the company or organization (Dhamastutui & Wahyudi, 2012). Outside
Commissioner or Independent Commissioner are believed to be more
independent and, therefore, better able to protect the interests of the
shareholders (Rosenstein & Wyatt, 1990). In addition, Independent
Commissioner have a reputational risk and they will therefore react differently
than regular commissioner (Borokhovich, Parrino & Trapani 1996; Fama and
Jensen 1983).

The board of commissioners has two main functions such as monitoring

function, which can be attributed for agency theory; provide the function of
resources, which can be attributed to resource dependence theory. According
to agency theory, the council the commissioner holds the responsibility for
monitoring management on behalf of shareholders to avoid conflicts of
interest between principals and its agents (Hillman & Dalziel, 2003; Lefort &
Urzúa, 2008). Yet according to resources theory of dependence, board of
commissioners its role is to enhance the company's reputation, build external
relations, and provide advice and consultation to management (Zahra & Pearce
II, 1989).

Cha Pei Chin et al. 2015 found that the independent commissioner influences
the dividend policy for 162 trading/services sector’s companies in Malaysia
from year 2009 to year 2013.

However, Independent Commissioner does not give the impact to improving

the performance of good governance in companies (Abdel Salam et al., 2008),
the result of the study does not significantly support the substitution
hypothesis (La Porta et al., 2000). Even though CG has been implemented
since 1997, the existence of an Independent Commissioner as a representative
of CG does not use dividends as a mechanism to build a good corporate
reputation.

2.1.7.6. ROA and Dividend Policy

Return on Assets (ROA) is a financial ratio used to measure the degree to

which the assets have been used to generate profits. The greater Return on
Assets (ROA) shows that the better the company's performance, because of the
greater rate of return on investment. (Riyanto, 2001). According to Harahap
(2002), the profitability of a company's ability to generate earnings for a
certain period.
 The value of Return on Assets (ROA) high would indicate that the company is
able to generate profits relatively high value assets. Investors would like the
company to the value of Return on Assets (ROA) is high, as companies with
Return on Assets (ROA) which is capable of producing high levels of
corporate profits is greater than the Return on Assets (ROA) is low (Ang,
2001).

Al-Kuwari (2009) suggests that profitability ratio as the key determinant of the
corporate dividend policy in listed firms of Gulf Co-operation Council
countries, while Pandey (2001) identified it on Malaysian firms. Uwuigbe,
Jafaru and Ajayi (2012) investigate the relationship between the financial
performance and dividend payout among 50 listed firms in Nigeria for 2006 to
2010. Result shows a significant and positive association between the
performance of firms and the dividend pay-out. However, Osegbu et al (2014)
analyses the extent of relationships between dividend payment and corporate
performance in the Nigerian banking industry between 1990 and 2010. Using
regression models, the result shows no significant relation between dividend
policy and performance.

2.2. Previous study

In this study the authors used previous studies that serve as a reference that is:

No. Author & Title Purpose Independent Dependent Results

Variables Variables

Gender Dividend
1. Jie Chen Woon, This paper The conclusions of
composition, payout
Sau Leung, Marc investigates this study indicate
Board of
Goergen (2016) whether female directors, that the positive
independent Corporate effect of board
The impact of
directors are governance, gender composition
board gender
more likely to Tenure, CEO on dividends remains
composition on
impose high Ownership when we employ
dividend payouts
dividend propensity score
payouts matching, the
 instrumental variable
approach, and
difference in
differences approach
to address potential
endogeneity
concerns.
Furthermore, we find
that board gender
composition
significantly
increases the
dividend payout only
for firms with weak
governance.

2. María Consuelo Identify the Corporate Dividend This study illustrates

Pucheta- proportion of governance, policy that analysing the
Martínez (2015) women Gender whole sample, show
directors, the diversity, that the proportion of
The Board Of
proportion of Board of female directors, and
Directors And Directors,
independent, shares held by female
Dividend Policy: Gender quota
institutional directors, are
The Effect Of
and executive positively associated
Gender Diversity
female with dividend payout,
directors, and while the percentage
the percentage of institutional female
of shares held directors has a
by female negative impact. The
directors on percentage of
BD, have an independent and
impact on the executive female
dividends directors has no
 policy of effect on dividend
Spanish payout.
companies.

3. Subba Reddi Identify the Corporate Payout The results of this study
Yaram , Brian effect of Board governance; policy reveal that Board size

Dollery (2015) characteristics and duality have no

significant influence on
on dividend
Board the dividend payout of
policy (413
Characteristics Australian firms when
Australia
and Dividend controlled for other
Firms)
Policy: variables identified in
prior literature,
Australian
however, board
Evidence
independence continue
to exert significant
positive influence on
average dividend
payout.

4. Joy Elly Tulung, Identify the gender, Performan The conclusions of

Dendi Ramdani effect of TMT tenure, ce this study indicate
(2016) characteristics external organizati that all the
on BPD directors on characteristics
The Influence of
Performance (gender, tenure,
Top
external director,
Management
etc) positively affect
Team
the performance of
Characteristics
BPD.
on BPD
Performance

Board gender Dividend

5. Mohamed G. Identify the This study illustrates
diversity, payments
Abobakr & effect of board that institutional
Emerging
Khairy Elgiziry characteristics economies, ownership and
(2017) and ownership Agency government
 structure on theory, ownership is
The Effect of
Financial Uncertainty significantly
Board
leverage positively associated
Characteristics
with corporate
and Ownership
leverage, while the
Structure on the
size of the board,
Corporate
women's council, and
Financial
block ownership are
Leverage
found to be
significantly
negatively correlated.

6. Shadrack Identify the Education, Profitabilit The results of this

Wasike, Rose effect of TMT Experience, y study reveal that the
Ambula, Anne characteristics Size and variables Education,
Kariuki (2016) on corporate Gender Experience, Size and
profits Gender have an
Top
influence on
Management
profitability
Team
represented by Net
Characteristics
Profit Margin (NPM)
(TMT) and
and Net Operating
Profitability
Profit (NOP).

7. Gennaro Bernile, To examine the BOD corporate Using a

Vineet Bhagwat, effects of diversity risk multidimensional
Scott Yonker diversity in the measure, the
(2017) board of conclusions of this
directors on study indicate that
Board
corporate greater board
composition,
policies and diversity leads to
diversity, firm
risk lower volatility and
risk, and
better performance.
corporate
The lower risk levels
 policies are largely due to
diverse boards
adopting more
persistent and less
risky financial
policies.

8. Balasingham The study imputation tax dividend This study illustrates

Balachandran, demonstrates systems payout that Insider
Arifur Khan, the ownership is
Paul Mather significance of positively related to
Michael the imputation the decision to pay
Theobald (2017) tax system dividends and
upon dividend dividend pay-out and
Insider
policy this effect does not
ownership and
vary between
dividend policy
traditional and
in an imputation
imputation tax
tax environment
systems. Firms with
higher foreign
institutional
ownership are less
likely to pay
dividends and have
lower payout ratios.

9. Lihong Cao, Yan This study institutional dividend The results of this
Du, Jens Ørding examines investors payments study reveal that
Hansen (2017) whether changes in dividend
foreign payments over time
Foreign
institutional positively affect
institutional
investment subsequent changes
investors and
influences in foreign
dividend policy:
firms’ dividend shareholding, but the
 Evidence from policies opposite is not true.
China Our study indicates
that foreign
institutional investors
do not change firms’
future dividend
payments once they
have made their
investment choices in
China.

10. Armaya’u Alhaji To find board size, dividend The result found that
Sani and Awaisu relationship board policy board size,
Muhammad between composition, composition,
Musa (2017) corporate audit ownership structure,
board attribute committee and ROA
Corporate Board
(board size, size and (performance) have
Attributes and
board managerial significant negative
Dividend Pay-
composition, ownership impact on dividend
out Policy of
audit policy of listed
Listed Deposit
committee size DMB’s in Nigeria,
Money Banks in
and managerial and audit committee
Nigeria
ownership) and is statistically
dividend insignificant. The
policy. And study recommends
find the needs for
relationship regulatory agencies to
between strengthen the
performance corporate governance
(return on mechanism especially
asset) and the power of the audit
dividend committee.
policy
Indonesian firms typically have staggered boards where a certain number of
directors retire every year and usually seek re-election. It is not apparent if
there are any unitary boards in Indonesia though the Companies Act does not
have any provisions preventing election of boards every year. Given the
considerable difficulties that firms experience in finding appropriate
independent directors most of the companies usually have a 3 year term of
office for directors with possible re-election.

Board independence and independence of sub-committees may have positive

influence on dividend payout with a view to reducing free cash flow and fraud.
Similarly they may view that it is in the best interest of firms to pay dividends
and thereby signalling the good prospects when firms have good projects
available. Independent directors thus facilitate continual monitoring of the
firm by the marsket participants.

Jie Chen Woon, Sau Leung, Marc Goergen (2017) examined the effect of the
company's board of directors (TMT) characteristics, especially gender
differences to dividend policy. His research has resulted that there is a positive
influence of composition and gender in the directors on dividend policy
represented by dividend payout ratio. María Consuelo Pucheta-Martínez
(2015) also strengthens with results that the proportion of female directors and
shares held by female directors, are positively associated with dividend payout,
while the percentage of institutional female directors has a negative impact.
On the other side, Subba Reddi Yaram (2010) also adds the dimensions taken
in the characteristics of the board of directors and has results that board size
and duality have no significant influence on the dividend payout of Australian
firms when controlled for other variables identified in prior literature, however,
board independence continues to exert significant positive influence on
average dividend payout.

Bernile, Bhagwat, Yonker (2018) also researching about board diversity, firm
risk, and corporate policies. The conclusions of this study indicate that greater
board diversity leads to lower volatility and better performance. The lower risk
levels are largely due to diverse boards adopting more persistent and less risky
financial policies.

Balasingham Balachandran, Arifur Khan, Paul Mather Michael Theobald

(2017) Insider ownership and dividend policy in an imputation tax
environment. This study illustrates that Insider ownership is positively related
to the decision to pay dividends and dividend payout

Lihong Cao, Yan Du, Jens Ørding Hansen (2017) study about foreign
institutional investors and dividend policy: Evidence from China. The results
of this study reveal that changes in dividend payments over time positively
affect subsequent changes in foreign shareholding, but the opposite is not true.
This study indicates that foreign institutional investors do not change firms’
future dividend payments once they have made their investment choices in
China.

According to stewardship theory, duality has positive benefits for the firm as
no conflict of interest is necessarily assumed between managers and
shareholders (Donaldson, 1990). Motivated by the transaction costs, firms may
retain more earnings with a view to reinvest in firm activities when managers
believe that the firm can earn a higher rate of return than what investors can
earn. Tulung (2015) study about the Influence of Top Management Team
Characteristics on BPD Performance. The conclusions of this study indicate
that all the characteristics positively affect the performance of BPD. Agree
with this study, Abobakr & Elgiziry (2017) research about the Effect of Board
Characteristics and Ownership Structure on the Corporate Financial
Leverage.This study illustrates that institutional ownership and government
ownership is significantly positively associated with corporate leverage, while
the size of the board, women's council, and block ownership are found to be
significantly negatively correlated. Shadrack (2015) study about top
Management Team Characteristics (TMT) and Profitability. The results of this
study reveal that the variables Education, Experience, Size and Gender have
an influence on profitability represented by Net Profit Margin (NPM) and Net
Operating Profit (NOP).
In the other context, Kiel and Nicholson (2003) survey a sample of 348 large
Australian non-financial firms and estimate the average board size, extent of
duality and average board independence. They also find a positive relationship
between board size and corporate performance. Henry (2003) analyses the
board characteristics and corporate governance practices of a sample of
Australian firms for the period 1992 to 2002 and finds that the corporate
governance structure is important. According to this study, the impact of
corporate governance disclosures on valuation is not evident. Cortese (2009)
traces the characteristics of non-executive directors of 50 large Australian
firms and finds that 80 per cent of the board members are independent for the
year 2006. Henry (2010) finds that compliance with governance requirements
reduces the agency costs of individuals firms and that this reduction in agency
costs is robust to various structures of ownership. Brown et al., (2011) reviews
the existing literature on corporate governance and highlight the stickiness of
governance data and potential endogeneity problems. Coulton and Ruddock
(2009) find that dividend paying firms in Australia to be larger, profitable and
have lower growth opportunities compared to firms that did not pay dividends.
Henry (2011) finds evidence of tax-induced dividend clientele for both
domestic and foreign investors investing in Australian firms.

Earlier studies also find that growth, performance and risk also influence
dividend payout ratios (Rozeff, 1982, Farinha, 2003 and Da Silva et al., 2004).
The present study considers the previously identified variables in literature
while attempting to analyze the relationship between board characteristics and
dividend payout of Indonesian firms.

In contrast to previous research, Sani and Musa (2017) research has a more
complex dimension, they found that the characteristics of the board of
directors as well as the performance of the companies represented by ROA
have negative results on the dividend policy of banks in Nigeria.
 CHAPTER 3 – METHODOLOGY

3.1 Research Process

Figure 2 Research Process

Background Collection of theories Formulation of

Indentification, (Previous Study) Research Framework &
Research Problem & Research Model
Hypothesis
Formulation

Data Verification Collection of Data Research Design

•Model Invalid : Strategy
Reformulate
•Model Valid : Proceed

Data Interpretation Conclusion Report Publication

Formulation

Figure 3 Source: Author’s Formulation

This research begins with the identification of the background of the problem. Then
an understanding of the underlying background of the problem is developed, the
research problem then defined and followed by the formulation of the hypothesis. The
problem of this research is the case was caused by illegal practices by top
management in the sector (Wells Fargo) and a fine of $ 185 million. Other cases such
as Bank Century in Indonesia also had become a major issue due to the absence of
GCG. Research Li, Moshirian, Nguyen, and Tan (2007) show that executives can take
advantage of shareholders or weak supervision. Further, theories collected from
previous studies based on issues raised, information from multiple sources
accumulated to strengthen understanding of the problem. Agency theory and signal
theory also forms the basis for explaining this research. Results from previous
findings were collected to identify the existence of previously unidentified issues that
could be addressed in this study. The involved variables were formed into the research
framework and the research model was developed to illustrate the correlation
significance between independent and dependent variables. The variable of this
research are dividend policy and top management team with the indicator: board size,
board composition, gender (woman existence), external directors and tenure. The
methods involved in data analysis, timing, and other related data analysis theories are
compiled and described under a research design strategy. This research will use
quantitative method with positivistic paradigm. The data to be analyzed is then
collected from the source and formulated into panel data which is then processed into
statistical software. The data collected from annual report (Indonesia stock exchange).
When the results show that the model is valid, then the results are interpreted.
Otherwise, the model must be redefined. All interpretations on the data will be used to
draw conclusions from the research. Recommendations for further research will be
included. The last part of the research is publication, to make this research available to
readers.
3.2 Theoretical Framework

Figure 3 Theoretical Framework

TMT Specific
Factors
Board Size

Board
Commissioner
External Directors Dividend Policy

Female Directors

Tenure
Firm Performance

Figure 3 Source: Author’s Formulation

From the theoretical framework, variable dependent is dividend policy. Dividend pay-
out ratio use to measure the dividend policy. Board size is measured by summing up
the total members of the Board of Commissioners. Board composition of
commissioner is measured by divide the number of Independent Commissioners by
the number of members of the Board of Commissioners. External directors is
measured by comparing the number of external and internal directors. Women
existence is measured by counting the number of female sex in the board of directors.
And Tenure is measured by counting the number of time the board of directors served
(in units of years)

3.3 Research Hypothesis

Hypothesis testing to determine whether there is a significant influence between
independent variables to the dependent variable. In this study, researchers used a
significant test, with the determination of the null hypothesis (Ho) and alternative
hypothesis (Ha).
The null hypothesis (Ho) is that the hypothesis states that there is no significant
influence between the variables with the dependent variable while the hypothesis (Ha)
is the hypothesis that there is a significant influence between the independent variable
with the dependent variable.
Ho1: TMT has no significant impact on dividend policy

Ha1: TMT has a significant impact on Dividend Policy

Ho2 : Company Performance has no significant impact on Dividend Policy

Ha2 : Company Performance has significant impact on Dividend Policy

Ho3 : Join Impact of TMT and Company Performance has no significant impact on
Dividend Policy

Ha3: Join Impact of TMT and Company Performance has significant impact on
Dividend Policy
3.4 Research Design

Figure 4. The Research Design

3.4.1 Purpose of Study

The purpose of this study was to find and describe the correlation between
independent and dependent variables to find the significance of the relationship. Thus,
the purpose of this study is explorative-causal research. A causal explanatory study is
for studies that aim to understand why and how one variable will cause changes in the
other. It focuses on explaining relationships between variables (Cooper & Schindler,
2014). Finding correlation does not mean that one variable can cause changes to
another variable (Sekaran & Bougie, 2016). Therefore, the purpose of this study is to
find the correlation of variables and explain how one variable can affect the other if
the correlation exists.

3.4.2 Unit of Analysis

The unit of analysis defines the level of data aggregation used during the analysis
(Sekaran & Bougie, 2016). The unit of analysis used in this study is the organization
in the form of institutions listed in the LQ45. The data used are taken from samples of
LQ45 companies in Indonesian Stock Exchange which provides complete information
for the variables during 2009-2016. Because this study is interested in studying index
LQ45 companies, annual reports are used to project the LQ 45.

3.4.3 Time Horizon

According to Sekaran & Bougie (2016), a longitudinal study was for studies when the
data used for analysis were collected from two or more points in time.

This study collects data from a series of consecutive year periods. To observe the
change of each variable of a sample of companies and over time, this analysis uses
information obtained from several time periods. Annual financial and yearly reports
with LQ45 samples from 2009-2016 are used. This data is referred to as panel data as
some entities are observed at some point in time (Brooks, 2008). Thus, referring to the
definition of longitudinal studies, this study is categorized as a longitudinal study.

3.4.4 Data Collection Method

The data collection method describes the data source used which is the secondary data
from IDX LQ-45 Industries, and how the data is obtained. An unobtrusive method is
used as a data set.

3.4.4.1 Sources of Data

The data used in this research is secondary data. Secondary data is defined as
information collected by others other than the researcher (Sekaran & Bougie, 2016).
The financial statements and annual report of the bank are included as samples taken.
The published financial reports and annual reports are drawn from 2009-2016 (IDX).

3.4.4.2 Method of Data Collection

The method of collecting data from a research depends on the time available for study,
budget, availability of data, expertise of a researcher, the level of accuracy required,
and the available facilities (Sekaran & Bougie, 2016). This study uses data collection
methods that do not interfere with collecting financial statements published from the
website of each company and the Indonesia Stock Exchange.

3.4.5 Data Analysis

The analysis of data in this research is using a panel of data analysis.

3.4.5.1 Data Panel

According to Brooks (2008), a panel of data is involved when the data used for
analysis are both time series and cross-sectional elements. There are some advantages
of using panel data. First, more issues can be analyzed by using cross-sectional or
time series alone. The second advantage is that the researcher will get a degree of
freedom, thus the power of test, through applying information on the changing
behavior of entities over time. It will also assist in mitigating the multicollinearity
issue if time series is used alone.

A panel data analysis can be done using the basic modeled Pools OLS Regression,
Fixed Effects Model, and Random Effect Model.

A Chow Test will be availed whether Pooled OLS Regression or Fixed Effect is
applicable. The following step is to determine whether the fixed effect model or
random effect model is applicable. This can be done using the result from the
Hausmann Test.

1. Pooled OLS Regression: this model assumes that all companies are the same. This
research will not be using the Pooled OLS Regression method as all companies can
not be assumed the same. Hence, the decision is left to either the fixed effect or the
random effect model.

2. Fixed Effects: the fixed effect allows for the use of intercepts but still assumes that
the coefficient and slopes are similar throughout the cross sectional data. Once a fixed
effect is picked from the Pooled OLS method, then there is a need to determine
whether the fixed effect or random effect model is applicable. If the result of the
Hausman test shows a probability of 5% or below (statistically significant), then the
null hypothesis is rejected and the fixed effect model is applied. If the probability is
above 5% (not statistically significant), then the null hypothesis cannot be rejected.
Hence the random effect model is applied.

0: Random Effect model is applicable.

1: Fixed Effect model is applicable.

3. Random Effects: the random effects model a constant intercept in each different
entities which arise from the same intercept for both cross sectional and over time,
and the relationship between independent and dependent variables are assumed to
remain constant in cross sectional and temporally. This model assumes that
unobservable individual variables.

3.4.5.2 Testing the Model

Reliability test is omitted due to the fact that data is used as an analysis. Validity test
of the model is accounted for which will be seen from the result of F-test.

3.4.5.2.1 Validity Test

The validity of the models will be revealed as the result of F-test is achieved. The
normality, multicollinearity, autocorrelation and heteroscedasticity criteria are to be
considered in the validity test.

3.4.5.3 Normality Test

A normality test will indicate that the distribution of data is equal. Before an analysis
of panel data is done, there is a need to identify its normality. The F-test requires an
equal data distribution (Cooper & Schindler, 2014).

3.4.5.4 Outliers
Outliers are data points that exceed the interquartile range. These data exhibit unusual
amounts. They are uniquely treated in order to prevent a bias in the result. Outliers are
to be treated and removed during editing (Cooper & Schindler, 2014).

3.4.5.5 Multicollinearity

Multicollinearity is divided into two classes, perfect multicollinearity and near

multicollinearity. Multicollinearity defines the relationship between the independent
variables. A perfect multicollinearity occurs when there are independent variables.
Near multicollinearity occurs when the relationship between independent variables
cannot be neglected but neither perfect (Brooks, 2008).

3.4.5.6 Autocorrelation

An autocorrelation test can be done using the Durbin-Watson Statistic. An

autocorrelation is a condition where there is a relationship between the values of
variables which are separated by time lags. The result of the Durbin-Watson will
determine whether an autocorrelation exists or otherwise (Brooks, 2008).

3.4.5.7 Heteroscedasticity

If the variance of the error is constant, it will be called homoscedasticity, otherwise,

when the variance of the error is not constant, it is heteroscedasticity. Most likely in
financial research involving time series, variance of the error are not constant. It
would cause a false standard error estimates if a heteroscedasticity is falsely assumed
to be homoscedasticity (Brooks, 2008).

3.4.5.8 T-test
The statistical test t basically indicates how far the influence of an individual
explanatory / independent variable in explaining the variation of the dependent
variable. The null hypothesis (Ho) to be tested is whether a parameter (bi) is equal to
zero, or:

The variable X has no significant effect on the variable Y

: The variable X has significant influence on variable Y
It means whether an independent variable is not a significant explanation of the
dependent variable. The alternative hypothesis ( ) parameter of a variable is not
equal to zero, or: meaning that the variable is a significant explanation of the
dependent variable.

There are several ways of doing t test:

a. Quick look: if the number of degree of freedom (df) is 20 or more, and 5%
confidence degree, denotes that bi = 0 can be rejected if the value of t is 2 (in
absolute value). In other words we accept the alternative hypothesis, which states that
an independent variable individually affects the dependent variable.
b. Compare the statistical value t with the tipping point according to the table. If the
statistical value of t arithmetic calculation is higher than the value of t table, we accept
the alternative hypothesis, which states that an independent variable individually
affects the dependent variable.

3.4.5.9 F-test
The statistical test F basically shows whether all independent or
independent variables that are implanted in the model have a mutual
influence on the dependent / bound variable. The null hypothesis (Ho) to
be tested is whether all parameters in the model are zero, or:

It means that all independent variables are not a significant explanation of

the dependent variable. The alternative hypothesis (Ha) is not all
parameters simultaneously equal to zero, or:

That is, all independent variables are simultaneously a significant

explanation of the dependent variable. To test this hypothesis used statistic
F with decision criteria as follows:
a. Quick look: if the F value is greater than 4 then Ho can be
rejected at 5% level of confidence. In other word we accept an
alternative hypothesis, which states that all independent
 variables simultaneously and significantly affect the dependent
variable.
b. Compare the F value of the calculation with the value of F
according to the table. If the value of F arithmetic greater than
the value of F table, then Ho is rejected and accept Ha

3.5 Sample Data

Sample data obtained from annual report from LQ-45 Industry in Indonesia
Type Variable Description Measurement Source Author
previous
study
Independent Board Size Number of measured by Annual Kiel and
Variable board member summing up the Report, & Nicholson
total members of Published (2003),
the Board of Financial Sheikh and
Directors Statements Wang
(2011),
Heng et al.
(2012)
Board Commissioner measured by Annual (Sanjaya&
Composition from outside divide the number Report, & Christianti,
of which is more of Independent Published 2012).
Commissioner independent Commissioner by Financial
better able to the number of Statements (Cha Pei
protect the members of the Chin et
interests of the Board of al.,2015
shareholders Commissioner
Independent a member of the Measured by Annual Woon
Directors board comparing the Report, & (2017),
of directors of a number of external Published Cao, Du,
company or and internal Financial Hansen
organization directors Statements (2017)
who does not Cortese
form part of the (2009)
executive Shadrack
management (2015)
team.
Women female Measured by Annual (2017)
Existence members dummy variable, 1 Report, &
performance for each Woman Published
and equal members, and 0 Financial
representation otherwise Statements

Tenure the number of Measured by Annual Sheikha and

years a director counting the Report, & Wang
is working at number of time the Published (2011),
the company board of directors Financial Heng et al.,
served (in units of Statements (2012)
years)
Dependent Dividend Dividend policy Dividend Payout = Annual María
Variable Policy is the set of Dividends/ Net Report, & Consuelo
guidelines a Income *100% Published Pucheta-
company uses Financial Martínez
to decide how Statements (2015)
 much of its Cao, Du,
earnings it will Hansen
pay out to (2017)
shareholders.
Moderation Firm ROA – the ratio ROA = Annual Sani dan
Variable Performance is directly taken / Total Report, & Musa
from the source *100% Published (2017)
with no Financial
adjustments. Statements
Measurements
are according to
the policy
regulated by the
Central Bank of
Indonesia.

3.6.1 The Model

Model 1:
+ +Ԑ
Dp : Dividend Policy
Bs : Board Size
Bc : Board Composition of Commissioner
Id : Independent Directors
T : Tenure
We : Women existence
ROA : Return on Assets

3.6.2 Independent Variable

An independent variable is a variable that affect the dependent variable or criterion

variable and accounts for its variance (Sekaran & Bougie, 2016). Dividend Policy is
used as an independent variable to capture the effect it has on the dependent variables.
The changes Dividend Policy is expected to have a significant impact on the
dependent variables.
3.6.2.1 Dividend Policy

The independent variable used is dividend policy. Replicating the measurement used
to measure the dividend policy previously done by Abobakr & Elgiziry (2017), Cao
& Hansen (2017), Chen et al., (2017), this research calculates the dividend pay-out
ratio from the year. The dividend policy measurement is used to capture how the
changes in the amount of dividend pay-out ratio would affect the dependent variables,
whether a high or low dividend pay-out ratio would have a positive or negative with
significant or insignificant impact.
3.6.3 Dependent Variable

Two dependent variables are used resulting in two models. The first model used
profitability as the dependent variable and the second model used credit risk as the
dependent variable. Both dependent variables have proxies and measurements.

3.6.3.1 Board Composition of Commissioner

Board Composition of Commissioner is used as a dependent variable to capture the

effect of TMT towards the dividend policy in the organization. This research intends
to relate the number directors from outside which is more independent better able to
protect the interests of the shareholders.

The number of composition are used as the indicators of Board Composition of

Commissioner (Ezzamel & Watson, 1993; Baysinger & Butler, 1985; Perce & Zahra,
1992), Daily & Dalton, 1993; Dalton, Daily, Ellstrand & Johnson 1998; Finkelstein &
Mooney, 2003, Yaram (2010), Hansen (2017). The results from those researched are
significant relationship between board composition of commissioner and dividend
policy is expected.

3.6.3.2 Board Size

Board Size is used as the second dependent variable for the first model. Board size is
the Number of board member in organization. This research intends to relate the
number directors toward dividend policy. The number of composition are used as the
indicators of Sheikh and Wang (2011), Heng et al., (2012), Bodaghi and Ahmadpour,
(2010). The results from those researched are significant relationship between board
size and dividend policy is expected.

3.6.3.3 Independent Directors

Independent director is used as the third dependent variable. External directors

measure with the total member of the board of directors of a company or organization
who does not form part of the executive management team. Independent directors are
used as a dependent variable to capture the effect of TMT towards the dividend policy
in the organization.
The number of independent directors are used as the indicators Michael Theobald
(2017), Shadrack (2015) Cao & Hansen (2017) Finkelstein & Mooney, 2003, Yarram
(2010). The results for those researches are significant relationship between external
directors and dividend policy is expected.

3.6.3.4 Tenure

Tenure is the number of years a director is working at the company. Tenure is used as
the fourth dependent variable for the model. This research intends to relate the
number of years tenure toward dividend policy. The number years are used as the
indicators of Sheikha and Wang (2011), Heng et al. (2012), Bodaghi and Ahmadpour,
A., (2010). Significant relationship between tenure and dividend policy is expected.

3.6.3.5 Gender Diversity

Gender diversity is the number of female members in board of directors structure.

Gender diversity is used as the fifth dependent variable for the model. Gender
diversity is the Number of female board member in organization. This research
intends to relate the number of female directors toward dividend policy. The number
of female are used as the indicators of Bernile, Bhagwat, Yonker (2018), Shadrack
(2015) Sheikha and Wang (2011), Heng et al. (2012), Bodaghi and Ahmadpour(2010).
The results from those researched are significant relationship between gender
diversity and dividend policy is expected.

3.7 Scope & Limitations

1. Firm included as samples are firm categorized as LQ-45 in IDX.

2. Firm used as samples are firm listed in the Indonesian Stock Exchange.

3. Only firms included in the criteria with published financial statements will be
included in the sample for analysis.

4. The year of published financial statements used is from year 2009 to 2016.

5. Firms included as samples are firms whose existence reach until 2016, and its
establishment is between 2009 and 2016.

CHAPTER 4 - DATA ANALYSIS

4.1 Data Analysis

The mutual funds data used in this study are listed companies listed on LQ-45 IDX as
of January 1, 2009. The total number of registered companies is 45 companies and
changed every quarter (six months), because LQ-45 is an index with certain criteria
such as the highest market capitalization, the highest transaction value, and have high
growth prospects (IDX, 2018). Indirectly LQ-45 is an index that can be the driving of
other stock prices.

The total of 45 companies are elected by the criteria listed in the LQ-45 index
consecutively for 8 years and have the required data. A total of 18 companies issued
because it does not match the data required. The study consisted of 27 companies
consistent for 8 years registered at LQ-45 and actively operating until 2016. A total of
216 panel data were obtained.

Using Eviews 10, panel data is obtained. Panel data in this research is estimated using
Model Random effect or Model fixed effect. The Pooled OLS Regression is not
applicable because this study does not consider all companies to be equal. This model
cannot distinguish between variance between place and time difference because it has
a fixed intercept, and not randomly vary (Kuncoro, 2012). The decision on the use of
the Model Random effect or the fixed effect model depends on the result of the
Hausmann-Test probabilities. The autocorrelation in this study is determined by the
number of Durbin-Watson statistics. Multicollinearity test results (Table 1) show that
there is no complete multicollinearity in the data. The ability of independent variables
to explain the dependent variable is obtained through adjusted R-Square.

Descriptive statistics table is provided with information in accordance with statistical

results obtained from Eviews 10. All tables used in this chapter have been modified
from the original format processed by Eviews 10 for efficiency purposes. Full results
obtained from Eviews 10 are available in the Appendix.

4.2 Descriptive Statistics

The following data exhibits the highest, lowest, average and standard deviation
amount of each main variables.
Table 4.1 Descriptive Statistics
Descriptive Statistics
N Minimum Maximum Mean Std. Deviation
BOARDSIZE 216 4.00 12.00 7.2083 2.19685
BOARDCOMPOSITION 216 .00 1.00 .4323 .1450
INDEPENDENT_DIREC 216 .00 1.00 .2361 . 4256
TORS
WOMAN_EXISTANCE 216 .00 1.00 . 5185 .5008
TENURE 216 .00 13.38 4.3202 2.52458
ROA 216 -0.0475 .7151 .12977 12.05183
DEVIDENPAYOUTRATI 216 .00 2.1099 .398558 .29380
O
Valid N (listwise) 216
Table 4.1 Source: Processed Data from Eviews 10

Based on the data listed in Table 1 it is known that the average value of the dividend
payout ratio variable is 39.85, with a standard deviation of 29.38, the maximum value
of 210.99 and the minimum value of 0. Meanwhile, TMT variable consisting of board
size, board composition, independent directors, women's existence and tenure have
diverse data. The board size has an average value of 7.2 with a standard deviation of
2.19, a maximum value of 12 and a minimum value of 4. It indicates that the average
company has a BOD number greater than 5, the Bank Danamon (BDMN) company
has the largest BOD of 12 directors, on the other side of the company Alam Sutra
(ASRI) has a BOD at least 4.
Board composition has an average value of 0.04 with a standard deviation value of
0.077, a maximum value of 0.29 and a minimum value of 0. It indicates that the
average company has a minimum number of independent commissioners 2 in each
company, LPKR (Lippo Karawaci) has the most independent commissioner is 7
independent commissioner, on the other hand INTP company does not have
Independent Commissioner in 2009. Independent directors have an average value of
0.24 with a maximum value of 2 and a minimum value of 0. It shows the average
company does not have an independent director.
Only 17 companies (AALI (Astra Agro Lestrati), ADRO (Adaro Energy), AKRA
(AKR Corporindo), Indofood, ASII (Astra International), BBCA (Bank Central Asia)
INTP (Indocement Tunggal Prakarsa), JSMR (JasaMarga ), KLBF (Kalbe Farma),
LPKR (Lippo Karawaci), UNTR (United Tractor), BDMN (Bank Danamon), CPIN
(Charoen Pokphand), INCO (International Nickel), ITMG (Indo Tambang Raya
Megah, ASRI (Alam Sutera Realty ), GGRM (Gudang Garam) from 27 companies
with independent directors and on average starting in 2014 as BEI issues amendment
to IDX IA Rule on January 20, 2014 which entered into force on January 30, 2014,
concerning Stock Listing and Equity Securities In addition to the Shares issued by the
Listed Company, which in one of the articles of which point V.4 requires that the
Listed Company must have an Independent Director.Nevertheless, BBNI (Bank
Negara Indonesia), BBRI (Bank Rakyat Indonesia), TLKM (Telkom Indonesia), ISIP
(London Sumatra Indonesia), PGAS (Peru , PTBA (PT Bukit Asam), SMGR (Semen
Gresik), UNVR (Unilever), ANTM (Antam), BMRI (Bank Mandiri) do not have
independent directors.
Women existence has an average value of 0.889 with a standard deviation of 1.03 and
a maximum value of 3 and a minimum value of 0. It indicates that the average
company does not have women in the board of directors. BDMN and AKRA
companies have the highest number of women in the board of directors of 3 persons,
while AALI, ADRO, ASII, BBNI, INTP, LSIP, PGAS, PTBA, SMGR, UNTR,
ANTM, and ITMG have no women in board of directors.
Tenure has an average value of 4.3 with a standard deviation value of 2.52, a
maximum value of 13 and a minimum value of 0. It shows the average company has a
board of directors who served for 4 years, the company has a board of directors who
served longest ie 13 years. INCO company in 2011 has the smallest value of 0.4.
Then this research also uses moderator variable that is company performance with
measurement using ROA. Data descriptions for ROA are average values of 12.97,
standard deviation of 12.05, maximum values of 71.51 and -4.57. The company with
the highest ROA is UNVR in 2013, while the company with the lowest ROA is
ANTM in 2015.

B. Testing Data Analysis Requirements

Classical Assumption Testing Results
The classical assumption test is intended to produce good estimator model parameters.
Good estimator parameters will meet Best Linear Unbias Estimation (BLUE) criteria,
so it can be assured that the data has been free of classical assumption problems.
Testing the classical assumption in this study was conducted for the hypothesis that
includes testing the normality, multicollinearity, heteroskedasticities and
autocorrelation.
Normality test
Normality test is done with the aim to determine whether the dependent and
independent variables in the regression model are normally distributed (Ghozali,
2006). Normality test performed in testing using Eviews application 10. Testing the
regression equation by looking at the residual value of Jarque-Bera. Residuals are said
to have a normal distribution when significant value of Jarque-Bera is above 5% and
not normally distributed
if significant value of Jarque-Bera is below 5%. The following is the normality test
result from the previous panel data regression equation:

Table 4.2
50
Series: Residuals
Sample 1 216
40 Observations 216

Mean -2.89e-15
30
Median -1.051408
Maximum 171.3359
20 Minimum -49.41888
Std. Dev. 27.63899
Skewness 1.921997
10 Kurtosis 11.79589

Jarque-Bera 829.2961
0
-40 -20 0 20 40 60 80 100 120 140 160 180 Probability 0.000000
Table 4.2 Source: Processed Data from Eviews 10

So, from the test results of the above regression equation can be concluded that the
residual value of the above regression equations distributed abnormally because the
value of Jarque-Bera every model is below 5%. To normalize the data one way to do
the normality of residual values with Log10. Log10 results from each variable then
tested with Eviews 10 software by testing the regression normality of the model that
has been tested. The results of this test are shown in the table below:

Table 4.3 Normality Test After Log10 (X)

28
Series: RESIDUAL
24 Sample 1 216
Observations 216
20
Mean 1.902424
16 Median 1.970314
Maximum 3.617946
12 Minimum 0.223270
Std. Dev. 0.520648
8
Skewness -0.185455
Kurtosis 3.419032
4

Jarque-Bera 2.818460
0
0.5 1.0 1.5 2.0 2.5 3.0 3.5 Probability 0.244331

Table 4.3 Source: Processed Data from Eviews 10

Based on the result of normality test with natural logarithm transformation in the
above table, then from the test result of regression equation above can be concluded
that the residual value from the above regression equation is normal distributed
because Jarque-Bera value of each model is above 5%.

The result of normality test of residual value shows Jarque-bera 2,818 and
significance is 0,244 so that significance above 0,05. Therefore, it can be said that the
data in this study has been normal distribution.

Observations in this study using data as much as 216, with 27 company samples, so
the data in the study considered to have been normally distributed and hypothesis
testing by using regression in this study can be done.

Multicollinearity Test
Multicollinearity is a condition in which one or more independent variables have
correlation or relationship with other independent variables or in other words one or
more independent variables is a linear function of other independent variables. One
way to analyse the presence or absence of multicollinearity influence in this study by
looking at the value of Correlation Matrix using software program EViews 10. A data
can be said to be free from symptoms of multicollinearity if the value of cantered VIF
of independent variables is smaller than 10. From the data processed by using
program EViews 10, obtained multicollinearity test results as seen in table 4.4 below.

Multicollinearity Test
Variance Inflation Factors
Sample: 1 216
Included observations: 216

Coefficient Uncentered Centered

Variable Variance VIF VIF

C 74.49629 20.57429 NA
BS 0.976167 15.30334 1.295092
BC 206.3319 11.84453 1.192721
ID 21.94688 1.599499 1.234571
WE 4.362425 2.231127 1.279180
T 0.787592 5.439689 1.379926
Table 4.4 Source: Processed Data from Eviews 10

Multicollinearity test aims to test between independent variables that one with other
independent variables have a direct relationship (correlated). Based on the results of
the output table, it appears that there is no problem multicollinearities between
independent variables. Multicollinearities can be seen from the value of VIP
(Variance Inflation Factor). The VIF value of each independent variable is below 10
so there is no multicollinearity.

Heteroskedasticity Test (White Test)

Heteroskedasticity test is a test that aims to test whether in a regression model there is
a uniformity of variance from one residual to another. Heteroskedasticity test can be
done by white test using eviews10 which is seen by measuring the significance of Chi
Square Probing from Obs * R-square, if the value of significance above 0.05 then pass
from white test (heteroscedasticity).

Table Test Heteroscedasticity

 Table 4.5

Prob. F(5,210) 0.0698

Prob. Chi-Square(5) 0.0706
Prob. Chi-Square(5) 0.0000

Can be seen from the results above, the value of Obs * R-squared obtained is 0.0706
so that the value is greater than 0,05 so the result passes the white test or no
heteroscedasticities.

Autocorrelation Test
Autocorrelation in the regression model means that there is a correlation between
sample members sorted by time mutually correlated. The autocorrelation test aims to
test whether in a linear regression model there is a correlation between the
confounding error at a certain period and the disturbance error in the previous period.
If there is a correlation between intruder errors, then it can be said that in the linear
model there is autocorrelation. The following is an autocorrelation measurement test
(Breusch-Godfrey Serial Correlation LM Test) using EViews 10:

Table 4.6 Test Autocorrelation

Breusch-Godfrey Serial Correlation LM Test:

F-statistic 2.268800 Prob. F(4,206) 0.0630

Obs*R-squared 9.114221 Prob. Chi-Square(4) 0.0583

Table 4.6 Source: Processed Data from Eviews 10

After the test obtained the results above, the value of Obs * R-squared significance
obtained is 0.0583 so that the value is greater than 0.05 so there is no autocorrelation.
Based on these results it can be concluded that there is no correlation between the
intruder error.

1. Selection of Regression Model

This study uses panel data so that intercepts and slope coefficients produced will be
different at each company and every time period. Therefore, in estimating the
regression model it will be highly dependent on the assumptions made about the
intercept, slope coefficient, and disturbance variables. To determine the regression
model with panel data can use three approaches are approach of common effect, fixed
effect, and random effect.
This research will use the following regression model:
Regression Model
DP= β0 + β1BS + β2BC + β3ID + β4 WE + β5T +ε1
The result of regression equation above by using approach of common effect can
be seen in table below.

Table Results Regression with Common Effect

Table 4.7 Common Effect

Dependent Variable: DP
Method: Panel Least Squares
Date: 06/24/18 Time: 13:11
Sample: 2009 2016
Periods included: 8
Cross-sections included: 27
Total panel (balanced) observations: 216

Coefficie
Variable nt Std. Error t-Statistic Prob.

C 0.534662 0.088777 6.022508 0.0000

BS -0.033566 0.010194 -3.292811 0.0012
BC 0.208662 0.148177 1.408189 0.1606
ID -0.106146 0.050714 -2.093020 0.0375
WE 0.028498 0.044930 0.634279 0.5266
T 0.006000 0.008944 0.670835 0.5031

Prob(F-statistic) 0.014074

Table 4.7 Source: Processed Data from Eviews 10

Common Effect Explanation
Regression results obtained from the method of common effect is 1 regression model
(meaning the object under study is considered to have the same characteristics)
namely:
DP= 0,5346 – 0,0335BS + 0,208 BC - 0,1061 ID + 0,0284 WE + 0,006 T

Simultaneous Test
The result of regression in table 4.6 above shows that TMT characteristic variable
(Board size, Board Composition, Independent director, Women existence and tenure)
together significantly influence Dividend Pay-out ratio because the value of
probability (p-value) F statistic 0,000 smaller than the degree of trust (α) of 0.05.

Partial Test
In partial test, the BC, WE and T variables have a significance value greater than 0.05
so it can be said there is no significant influence of both variables on the DP because
the p-value t statistics of 0.16 for BC, 0.52 for WE and 0.50 for Tenure, in this case
greater than the degree of confidence (α) of 0.05. The Board Size and Independent
Director variables partially have a significant effect on the dividend policy because it
has statistical t that is less than the 0.05 trust degree. Partially can be explained that
the variable of BS have significant effect to DP. This is evidenced by a significance
value of 0.00 for BS (significance less than 0.05). Regression coefficient value is -
0.03 which can be interpreted a negative influence, meaning the higher the value of
the BS then the DP will decrease and vice versa. Then the variable ID significantly
influence DP. This is evidenced by a significance value of 0.03 (significance less than
0.05). Regression coefficient value is -0.10 which can be interpreted a negative
influence, meaning the higher the value of the ID then the DP will decrease and vice
versa.

Coefficient of Determination
Adjusted R square value of 0.0429 which can be interpreted together independent
variables can affect DP of 4.29% in this case the rest is influenced by other variables
that are not used as research variables.
Regression result using fixed effect approach can be seen in table below.

Table 4.8 Regression result using Fixed Effect

Fixed Effect

Dependent Variable: DP?

Method: Pooled Least Squares
Sample: 2009 2016
Included observations: 8
Cross-sections included: 27
Total pool (balanced) observations: 216

Variable Coefficient Std. Error t-Statistic Prob.

C 0.166233 27.19853 0.430805 0.5326

BS? 0.000405 3.231019 0.006101 0.9900
BC? 0.466069 22.51994 2.040242 0.0401
ID? -0.086325 4.868160 -1.725766 0.0993
WE? 0.141427 12.64102 1.102233 0.2664
T? -0.005797 1.431496 -0.354445 0.6845
Fixed Effects
(Cross)
_AALI—C 11.56925
_ADRO—C 8.576311
_AKRA—C 22.70166
_ASII—C 8.862679
_BBCA—C -34.15149
_BBNI—C -12.60896
_BBRI—C -23.48552
_BMRI—C -43.82241
_TLKM—C -10.73083
_INDF—C 3.641233
_INTP—C 16.93636
_JSMR—C -17.11541
 _KLBF—C 13.58041
_LPKR—C -31.22271
_LSIP—C 4.016204
_DPAS—C 7.164155
_PTBA—C 17.28535
_SMGR—C 10.61548
_UNTR—C 18.41137
_UNVR—C -1.857438
_ANTM—C 2.694736
_BDMN—C -32.99648
_CPIN—C -16.42168
_INCO—C 27.12601
_ITMG—C 58.64111
_ASRI—C -18.95703
_GGRM—C 11.54763

Prob(F-statistic) 0.000000

Table 4.8 Source: Processed Data from Eviews 10

Explanation of Fixed Effect

Regression result obtained from fixed effect method is 27 regression model (meaning
the object under study is considered to have different characteristics) that is:
DPAALI= 0.16623 + 0.000405 BSAALI + 0.46606BCAALI -0.0863 IDAALI + 0.1414
WEAALI -0,0057TAALI
…
…
…
DDPGGRM= 0.16623 + 0.000405 BSGGRM + 0.46606 BCGGRM -0.0863 IDGGRM +
0.1414 WEGGRM -0,0057 TGGRM

Simultaneous Test
The result of regression of panel data with fixed effect model in table 4 above shows
that TMT characteristic variable (Board size, Board Composition, Independent
director, Women existence and tenure) together significantly influence Dividend
Policy because the value of probability (p-value) F statistics of 0.000 smaller than the
degree of confidence (α) of 0.05.

Partial Test
In partial test, the BC variable has significant effect on DP. This is evidenced by the
significance value of 0.0428 (significance smaller than the degree of trust (α) 0.05).
Regression coefficient value is 45.946 which can be interpreted the positive influence,
it means the higher the value of WE then the DP will be higher. On the other hand, the
BS, ID, WE and T variables have a significance value greater than 0.05 so it can be
said there is no significant influence of the four variables on the DP. In detail can be
explained the significance value of BC is 0.9951, significance value ID 0.0861, the
significance value WE 0.2718 and the significance value of tenure is 0.7234.

Coefficient of Determination
Adjusted R square value of 0.3192 which can be interpreted together independent
variables can affect DP of 31.92% and the rest is influenced by other variables.
Regression result using random effect approach can be seen in table below.

Table 4.9 Regression Results using Random Effect

Dependent Variable: DP?
Method: Pooled EGLS (Cross-section random effects)
Sample: 2009 2016
Included observations: 8
Cross-sections included: 27
Total pool (balanced) observations: 216
Swamy and Arora estimator of component variances

Variable Coefficient Std. Error t-Statistic Prob.

C 50.99025 13.21526 3.858437 0.0002

BS? -3.663687 1.529523 -2.395313 0.0175
BC? 28.78269 17.94785 1.603684 0.1103
ID? -8.084906 4.535476 -1.782593 0.0761
WE? 6.753162 3.507620 1.925283 0.0555
T? -0.275101 1.131313 -0.243170 0.8081
Random Effects
(Cross)
_AALI--C 1.220805
_ADRO--C -5.995447
_AKRA--C 17.27948
_ASII--C 4.189998
_BBCA--C -8.464846
_BBNI--C -4.440065
_BBRI--C -6.092224
_BMRI--C -14.39944
_TLKM--C 0.132366
_INDF--C 9.595550
_INTP--C 12.10817
_JSMR--C -11.69498
_KLBF--C 2.951869
_LPKR--C -20.43395
_LSIP--C -8.890563
_DPAS--C -3.212612
_PTBA--C 3.118107
_SMGR--C 2.894077
_UNTR--C 6.962311
_UNVR--C 20.08660
_ANTM--C -7.074503
_BDMN--C -6.310636
_CPIN--C -12.88158
_INCO--C 12.21289
_ITMG--C 33.51414
_ASRI--C -21.90927
_GGRM--C 5.533761

Prob(F-statistic) 0.022605
Table 4.9 Source: Processed Data from Eviews 10

Explanation of Random Effect

Regression results obtained from the method of random effect is 27 regression models
(meaning the object under study is considered to have different characteristics). The
difference with the fixed effect method is the random effect method using the residual
value in the calculation of constant value.
β0 = β 0 + ui; i = 1, ..., n
this residual value that is suspected to have inter-time and interobject relationships, so
obtained regression model as follows:
DPAALI= 0,4770 - 0,0309 BSAALI + 0,3242 BCAALI - 0,0823 IDAALI + 0,0551 WEAALI -
0,001 TAALI
…
…
…
DPGGRM= 5,533 -3,663BSGGRM + 28,782BCGGRM -8,084IDGGRM + 6,753WEGGRM -
0,275TGGRM

Simultaneous Test
The result of regression of panel data with fixed effect model in table 4 above shows
that In F test obtained value significance from F test that is 0,022 so this value is
smaller than degree of trust (α) 0,05 and can be said that simultaneously significant
with the influence of TMT characteristic variables (Board size, Board Composition,
Independent director, Women existence and tenure) have a significant effect on
Dividend Policy.

Partial Test
In partial test, BS variable has significant influence to DP. This is evidenced by the
significance value of 0.0462 (significance smaller than the degree of trust (α) 0.05).
The value of regression coefficient is -0.03095 which can be interpreted a negative
influence, meaning the higher the BS then the DP will be lower. On the other hand,
the variables BC, ID, WE and T have a significance value greater than 0.05 so it can
be said there is no significant influence of the four variables on the DP. In detail can
be explained the significance value of BC is 0.0798, significance value ID 0.0919,
significance value WE 0.4370 and the significance value of tenure is 0.9240.

Coefficient of Determination
Adjusted R square value of 0.018 which can be interpreted together independent
variables can affect the DP of 1.8% and the rest of 98.2% influenced by other
variables.

The researcher uses the following considerations to determine the approach used in
the estimation of the regression model (common effect approach, fixed effect or
random effect):

Test of significance of fixed effect (Chow test)

Chow test is performed to compare which model is the best between fixed effect
model and common effect model to estimate the research model. The hypothesis of
this test is as follows:
Ho: Model uses common effect
Ha: The model uses fixed effect

Table 4.10 Chow-Test

Redundant Fixed Effects Tests
Equation: PANELREG
Test cross-section fixed effects

Effects Test Statistic d.f. Prob.

Cross-section F 4.263519 (26,184) 0.0000

101.85178
Cross-section Chi-square 0 26 0.0000

Cross-section fixed effects test equation:

Dependent Variable: DP
Method: Panel Least Squares
Date: 06/24/18 Time: 14:06
Sample: 2009 2016
Periods included: 8
Cross-sections included: 27
Total panel (balanced) observations: 216

Variable Coefficient Std. Error t-Statistic Prob.

C 0.534662 0.088777 6.022508 0.0000

BS -0.033566 0.010194 -3.292811 0.0012
BC 0.208662 0.148177 1.408189 0.1606
ID -0.106146 0.050714 -2.093020 0.0375
WE 0.028498 0.044930 0.634279 0.5266
T 0.006000 0.008944 0.670835 0.5031

Prob(F-statistic) 0.014074

Table 4.10 Source: Processed Data from Eviews 10

Determination of which method is better between common effect method and fixed
effect method hence can be used Chow test. This test is performed with the following
hypothesis
Ho: The model follows the common effect
Ha: Model follows fixed effect
Better fixed effect models are shown with significant values <0.05 on the probability
values of chi-square. Based on the results of Chow test in table 4.7 above, shows that
the value of p-value F statistics regression equation is greater than the degree of
confidence (α) of 0.05 so it can be interpreted that between fixed effect model is better
than the common effect model.

c. The significance test of fixed effect or random effect (Hausman test)

Hausman test is performed to compare which technique is best between fixed effect or
random effect to estimate the research model. The hypothesis of this test is as follows:
Ho = Model uses random effect.
Ha = Model using fixed effect.
The rule is: if the probability is less than 5%, then Ho is rejected so that the correct
method used to estimate panel data regression is fixed effect method. But if the
probability is more than 5%, then Ho is accepted so the appropriate method used to
estimate panel data regression is the random effect method.

Hausman test results can be summarized in Table 4.11 below:

Table 4.11 Hausman-Test
Hausman Test
Correlated Random Effects - Hausman Test
Equation: PANELREG
Test cross-section random effects

Chi-Sq. Chi-Sq.
Test Summary Statistic d.f. Prob.

Cross-section random 3.566055 5 0.6134

Table 4.11 Source: Processed Data from Eviews 10

The choice between fixed and random effect method can be done by Hausman test.
Hausman test has the following hypothesis:
Ho: Model follows random effect
Ha: Model follows fixed effect
A better random effect model is indicated by the significance of cross section random
0.6134> 0.05 on the probability value of the cross section random. Based on the
results on the Hausman test showed that the panel data regression model with random
effect method is better than other models.
Based on the above considerations, a better regression model used is the random
effect model.

Regression Result with Moderator (ROA Variable)

Table 4.12 Regression with Moderator (ROA Variable)
Dependent Variable: DP
Method: Panel EGLS (Cross-section random effects)
Date: 06/24/18 Time: 14:11
Sample: 2009 2016
Periods included: 8
Cross-sections included: 27
Total panel (balanced) observations: 216
Swamy and Arora estimator of component variances

Coefficie
Variable nt Std. Error t-Statistic Prob.

C 0.457434 0.163911 2.790744 0.0058

BS -0.032679 0.018727 -1.745053 0.0825
BC 0.225557 0.247255 0.912243 0.3627
ID -0.174171 0.079441 -2.192470 0.0295
WE -0.014569 0.074962 -0.194346 0.8461
T 0.010848 0.015172 0.714973 0.4754
ROA -0.033882 1.133210 -0.029899 0.9762
BSROA 0.116818 0.174194 0.670618 0.5032
BCROA -0.843750 1.309335 -0.644411 0.5200
IDROA 1.327235 0.760907 1.744280 0.0826
WEROA 0.289271 0.254693 1.135764 0.2574
TROA -0.061489 0.123865 -0.496423 0.6201

Table 4.12 Source: Processed Data from Eviews 10

Tambahin f test nya
Random Panel Regression with ROA as a moderating variable
DP = 0.4574 - 0.03267 BS + 0.2255 BC - 0.17417 ID - 0.0145 WE + 0,010 T - 0.0338
ROA + 0.116818 BSROA - 0.843750 BCROA + 1.327235 IDROA + 0.289271
WEROA – 0. 061489 TROA
The result of regression using ROA as moderator showed that there was an increase of
determination coefficient from random model (better selected model based on chow
and Hausman test). The increase in the influence of the dividend policy characteristics
from 1.8% to 6.1% after involving the company performance variable as the
moderator variable. Based on previous research by Kanwal and Hameed (2017)
company performance can increase the influence of dividend policy. The same thing
is also reinforced by Velnampy at al., (2014) which uses ROA as determinant of
company performance and dividend pay-out ratio is used to measure dividend policy.
Characteristics of the board will affect the dividend policy; overall good
characteristics will make the dividend policy is also better and it will be more
influential if company performance increases.

In conclusion, based on the calculation results obtained that the regression model with
the moderator showed better results because there is a relationship between the
moderator variable raised the ROA with dividend policy, so that between independent
variables and moderators cause regression model increasingly influential. Therefore,
the regression model used by using regression model with moderator variable, and in
panel data used random effect model.

4.3 Results Analysis

The Random Effect Model is used to estimate the variable coefficients in our previous
panel data by using the Chart Test value of significance value of 0.0000 which means
the common model is rejected and the fixed effect model is accepted. Furthermore,
after the Hausmann-Test, the probability significance of 0.6134 shows the appropriate
effect random model to test the dividend policy. Hausmann-Test probability reveals
that the null hypothesis is accepted and the model test follows a random effect. Based
on the result of the classical assumption test, it is found that the distributed model is
normal and does not occur multicollinearity, heteroskedasticities and autocorrelation.

Based on F-test, the result of the probability value (p-value) F statistic from each
common model (0,01), fixed effect (0,000) and random effect (0,01) less than degree
of trust (α) 0,05 so that it can be concluded together independent variables (BS, BC,
ID, WE, and T) have a significant effect on the dependent (dividend policy).
Based on the result of Adjusted R square, using the selected model that is the random
effect model has the result of 0.018 can be interpreted the BC, BC, ID, WE and T
variables together affect the DP by 1.8%. While with Fixed model, Adjusted R square
value is 0,3183 which can be interpreted together BC BS ID WE and T can influence
DP equal to 31,83%. On the other hand, Adjusted R square value with common model
is 0,0429 which can be interpreted together BC BC ID WE and T can affect DP equal
to 4.29% and the rest is influenced by other variables not explained by model.
The equations derived from random effect model are as follows:

Random effect
DP = 0.4770 - 0.0309 BS + 0.3242 BC - 0.0823 ID + 0.0551 WE - 0.001 T

Random Panel Regression with ROA as a moderating variable

DP = 0.4574 - 0.03267 BS + 0.2255 BC - 0.17417 ID - 0.0145 WE + 0,010 T -0,0338
ROA + 0.116818 BSROA - 0.843750 BCROA + 1.327235 IDROA + 0.289271
WEROA – 0. 061489 TROA

This study shows similar statistical results. That together TMT characteristics will
affect the dividend policy decided by the council. The results of each model have a
significant effect. In this case a change of TMT characteristics will result in a change
of dividend policy.

Coefficient value of 0.457434 means that if the dividend policy is not influenced by
other factors, then the dividend policy value of 0.457434. The effect is significant at
the alpha error rate of 5%.

Board Size and Dividend Policy

1. BS (Board Size) coefficient value of -0.032679 means the effect of BS (Board Size)
on dividend policy is negative, meaning if there is an increase / decrease of BS (Board
Size) by 1 then it will decrease / increase dividend policy of 0.032679. The effect is
not significant at the error rate of 0.05. This is because of prob. greater than alpha of
0.05 or 0.0825> 0.05 in other words Ho accepted (Ha rejected) means there is no
significant influence between BS (Board Size) to Dividend Policy. This result is not
line with the previous study. Woon et al., 2016 find that board gender composition
significantly increases the dividend pay-out only for firms with weak governance.
However, the correlation analysis indicated that board size in a company had a weak
negative correlation with dividend pay-out (Ikunda et al., 2016). Furthermore,
Subramaniam and Susela (2011), Arshad, et al. (2013) found that the board directors
give the more power of making decision on dividend policy to the company manager
or CEO and this make the board size is irrelevant to dividend policy. Furthermore, the
result is inconsistent with the findings by Raheja (2005) who found board size to have
a significant impact on dividend pay-out. The other reason where this study result is
inconsistent with those findings is compare to foreign country companies where those
result investigate on, board size is play a more important and significant role in
influence the dividend policy of IDX LQ45 companies. Lastly, it can conclude and
proven that there is no significant relationship between board size and dividend policy
of IDX LQ45 companies.

Board Composition of Independent Commissioner

BC (Board Composition of Independent Commissioner) coefficient value of 0.225557
means BC (Board Composition of Independent Commissioner) influence on dividend
policy is positive, if an increase / decrease in BC (Board Composition of Independent
Commissioner) of 1 then it will increase / decrease the dividend policy of 0.225557.
The value is not significant at the error rate of 0.05. This is because of prob. greater
than the alpha of 0.05 or 0.3267> 0.05 in other words Hoived (Ha upside down)
means there is no significant influence between BC on the Dividend Policy. This
research is consistent with the previous research, Martínez et al., 2015 find the
independent director has no relationship with the dividend policy. The proportion of
Independent Commissioner negatively affects Dividend Policy (Yulianto, 2014).
Sanjaya & Christianti (2012) also conducted the independent commissioner reduce
the the amount of dividend shares among shareholders. This research does not support
of the agency problems (Jensen &Meckling, 1976) because of its ineffectiveness in
doing the controlling. This means that the existence of Independent Commissioner
tends to contradict with the existence of the board of commissioners. In addition, the
Independent Commissioner is not independent. The study supporting the result of the
present study is the one by Abdel Salam et al. (2008), revealing that Independent
Commissioner are not so important in improving the performance of good governance
in companies. Lastly, the result of this research shows that there is no significant
relationship between board composition and dividend policy of IDX LQ45 companies
in Indonesia.
Independent Director and Dividend Policy

The coefficient ID (Independent Director) value of -0.174171 means the effect of ID

on the dividend policy is negative, meaning if an increase / decrease ID (Independent
Director) of 1 then it will decrease / increase the dividend policy of 0.174171. The
effect is significant at the error rate of 0.05. This is because of prob. smaller than
alpha of 0.05 or 0.0295 <0.05 in other words Ho is rejected (Ha accepted) means there
is a significant influence between ID (Independent Director) against Dividend Policy.
This research is in line with Joy Elly Tulung, Dendi Ramdani (2016) the independent
director has impact on dividend policy. This research also consistent with the previous
research, independent directors on boards may affect dividend policy, offering
improvement of the communication between the company and relevant external
bodies and the reputation, counselling and advice (Pfeffer, 1972; Pfeffer and Salancik,
1978; Hillman et al., 2000). However, the result of this study inconsistence with
Kowalewski et al. (2007), which explains that when the board of directors that consist
more dependent directors than independent directors, it makes shareholders concerns
about the decisions related to earnings will be made in favor of investments and due
to not declare more dividends. Independent directors are more conservative than
internal directors and can help to reduce agency costs and information between
shareholders and managers (Ahmed and Duellman, 2007; Wei et al., 2011). Therefore,
shareholder will request for high dividend when independent director is less in the
company. On the other hand, board independence does not affect dividend policy
because dividend distribution is depending on external financing outside the firm
(Maher, 2005; Mansourinia, 2013; Batool and Javid, 2014). Lastly, the result of this
research shows that there is significant relationship between Independent Director and
Dividend Policy of IDX LQ45 companies in Indonesia.

Women existence and Dividend Policy

WE (Women Existence) coefficient value of -0.014569 with a negative ratio, if there

is an increase / debit of 1 then it will decrease / raise the dividend policy of 0.014569.
The value is not significant at the error rate of 0.05. This is because of prob. greater
than alpha of 0.05 or 0.8461> 0.05 in other words Hoived (Ha inverse) means there is
no significant influence between WE (Women Existence) on Dividend Policy. This
research result is in line with Mohamed G. Abobakr & Khairy Elgiziry (2017) the
women’s director has no impact on dividend policy. Also, this result consistent with
the previous result, studies about the effect of gender diversity on dividend policy
across Spanish companies. The result showed that the dividend policy is affected
negatively by percentage of institutional female directors (Pucheta-Martínez & Bel-
Oms, 2015). However, Lückerath-Rovers (2013) in his study shows the women on
board lead to positive dividend payout policy in the listed firms in Vietnam. Lastly,
the result of this research shows that there is no significant relationship between
Women Existence and Dividend Policy of IDX LQ45 companies in Indonesia.

Tenure and Dividend Policy

T (Tenure) coefficient value of 0.010848 means that the influence of T on the

dividend policy is positive, meaning that if an increase / decrease in T of 1 then it will
increase / decrease the dividend policy of 0.010848. The effect is not significant at the
error rate of 0.05. This is because of prob. greater than alpha of 0.05 or 0.4754> 0.05
in other words Ho accepted (Ha rejected) means there is no significant influence
between T (Tenure) on Dividend Policy. This research result is not in line with Joy
Elly Tulung, Dendi Ramdani (2016) that tenure has impact on dividend policy.
However, the result is consistent with the previous results, Canavan, Jones and Potter
(2004) that found negative significant between Tenure and Dividend Policy. Their
result show that long tenure may harm the director ability in the company and the
changes to the business or policies of the company might be failed to keep up due to
the long tenure of Director. This is because sometimes long tenure Director tend to
not follow new regulations and new policies in the company. However, finding of
Buchanan (1974), Chung and Pruitt (1996), Vafeas (1999), and Pan (2009) that
supports this positive result of tenure may have positive effect on dividend payout
because the longer the tenure, director not only can obtain new knowledge or
information, he or she can also gain more experiences on solve the problems that
facing by the company and increase the profits and due to increase in dividend payout.
Lastly, that there is no significant relationship between Tenure and Dividend Policy of
IDX LQ45 companies in Indonesia.

ROA and Dividend Policy

ROA coefficient value of -0.033882 means the influence of ROA to dividend policy is
negative, meaning if there is an increase / decrease in ROA of 1 then it will decrease /
raise dividend policy of 0.033882. The effect is not significant at the error rate of 0.05.
This is because of prob. greater than alpha of 0.05 or 0.9762> 0.05 in other words Ho
accepted (Ha rejected) means there is no significant influence between ROA to
Dividend Policy. This result is not significant Osegbu et al (2014) analyses the extent
of relationships between dividend payment and corporate performance in the Nigerian
banking industry between 1990 and 2010. Using regression models, the result shows
no significant relation between dividend policy and performance. This happen
probably because of the liquidity condition the company, the company has plenty of
cash reserves, or the companies want to expand their business, which is can reflect to
dividend payout and the interest of the investor to invest to the company. Furthermore,
Raei, Moradi and Eskandar (2012) examine dividend policies of Iranian listed firms.
Results indicate a non-significant relationship between dividend policy and
performance proxy, ROA. However, Uwuigbe, Jafaru and Ajayi (2012) investigate
the relationship between the financial performance and dividend payout among 50
listed firms in Nigeria for 2006 to 2010. Result shows a significant and positive
association between the performance of firms and the dividend pay-out. Lastly, there
is no significant relationship between ROA and Dividend Policy of IDX LQ45
companies in Indonesia.

Join Impact of TMT Characteristics and Dividend Policy

The increase in the influence of the dividend policy from 1.8% to 6.1% after the test
of join impact of TMT and company performance on dividend policy. By using a
random effect model involving ROA as variable, it can be seen that the Prob(F-
statistic) with simultaneously, which is 0.011597. The effect is significant at the error
rate of 0.05. This is because of prob. smaller than alpha of 0.05 or 0.011597 <0.05 in
other words Ho is rejected (Ha accepted) means there is a significant influence
between the joint impact of TMT Characteristics and company performance against
Dividend Policy. This result is consistent with previous study, that board size will
positive influence the dividend policy due to the reason of large number of board size
will tend to have high dividend yield because contribution towards company
performance will be more. Large board size means the board will tend to manage the
company resources more effective and efficient due to different board directors have
different skills and knowledge, therefore, when the board size increase, it will increase
the dividend pay-out (Kiel & Nicholsan, 2003; Van Pelt, 2013). The more the
independent director in the board, the higher the right to vote during board meeting
and will help the board in making a fair decision that will benefit both company and
shareholder. The more the independent director in board, the lesser the chances of a
dependent or inside director to get an insider information. The possibilities of board
get inequality and asymmetry information will be less and reduce the problem of
company abuse shareholder wealth by getting arbitrage opportunity from shareholder
by paying fewer dividends (Düztaş, 2008; Yatim, 2011). The higher number of
independent director in board, the higher the effectiveness and efficiency of board in
monitor the manager or CEO in distribute dividend payout policy where company
profit and shareholder wealth been considered in a fair way. Cha Pei Chin et al. 2015
found that the independent commissioner influences the dividend policy. According
to this research independent commissioner give the benefit to the company to increase
the distribution of the dividend and also attract more investor to invest in the company
due to increase in company performance. This research result is consistent with the
previous result, studies about the effect of gender diversity on dividend policy across
Spanish companies. The result showed that the dividend policy is affected negatively
by percentage of institutional female directors (Pucheta-Martínez & Bel-Oms, 2015).
According to the agency theory, the women on board is considered as a better monitor
of management’s decisions, offer greater benefits to shareholders, and resolve the
shareholder-manager conflict of interest, and then it is more likely it disciplines
management through directly influencing pay-out policy. In addition, investors in
emerging economies will ask for immediate compensation for their investments,
instead of waiting for more future dividend payments, so we argue that female
directors address their claims in a more responsive manner and choose high pay-out
policy. The result is consistent with the finding of Buchanan (1974), Chung and
Pruitt (1996), Vafeas (1999), and Pan (2009) that supports this positive result of
director tenure may have positive effect on dividend payout. Moreover, the result
shows that the longer tenure of director will contribute to high dividend are consistent
with the signaling theory whereby the longer the tenure of director, the chances to
receive the incorrect information for investing are reducing and also can increase
company performance. Uwuigbe, Jafaru and Ajayi (2012) investigate the relationship
between the financial performance and dividend pay-out among 50 listed firms in
Nigeria for 2006 to 2010. Result shows a significant and positive association between
the performance of firms and the dividend pay-out.

CHAPTER 5 - CONCLUSION
5.1 Conclusion
Companies listed in LQ-45 have an important role in driving the Indonesian economy.
The direction of motion in the stock market is largely determined by a majority share
that is marked by the entry of the company in the LQ-45 index. As the main indicator
of JCI (Jakarta Composite Index) movement, investors should carefully consider the
situation and condition of LQ-45 index.
BS (Board Size) coefficient value of -0.032679 means the effect of BS (Board Size)
on dividend policy is negative, meaning if there is an increase / decrease of BS (Board
Size) by 1 then it will decrease / increase dividend policy of 0.032679. The effect is
not significant at the error rate of 0.05. This is because of prob. greater than alpha of
0.05 or 0.0825> 0.05 in other words Ho accepted (Ha rejected) means there is no
significant influence between BS (Board Size) to Dividend Policy. BC (Board
Composition of Independent Commissioner) coefficient value of 0.225557 means BC
(Board Composition of Independent Commissioner) influence on dividend policy is
positive, if an increase / decrease in BC (Board Composition of Independent
Commissioner) of 1 then it will increase / decrease the dividend policy of 0.225557.
The value is not significant at the error rate of 0.05. This is because of prob. greater
than the alpha of 0.05 or 0.3267> 0.05 in other words Hoived (Ha upside down)
means there is no significant influence between BC on the Dividend Policy. The
coefficient ID (Independent Director) value of -0.174171 means the effect of ID on
the dividend policy is negative, meaning if an increase / decrease ID (Independent
Director) of 1 then it will decrease / increase the dividend policy of 0.174171. The
effect is significant at the error rate of 0.05. This is because of prob. smaller than
alpha of 0.05 or 0.0295 <0.05 in other words Ho is rejected (Ha accepted) means there
is a significant influence between ID (Independent Director) against Dividend Policy.
WE (Women Existence) coefficient value of -0.014569 with a negative ratio, if there
is an increase / debit of 1 then it will decrease / raise the dividend policy of 0.014569.
The value is not significant at the error rate of 0.05. This is because of prob. greater
than alpha of 0.05 or 0.8461> 0.05 in other words Hoived (Ha inverse) means there is
no significant influence between WE (Women Existence) on Dividend Policy. T
(Tenure) coefficient value of 0.010848 means that the influence of T on the dividend
policy is positive, meaning that if an increase / decrease in T of 1 then it will increase
/ decrease the dividend policy of 0.010848. The effect is not significant at the error
rate of 0.05. This is because of prob. greater than alpha of 0.05 or 0.4754> 0.05 in
other words Ho accepted (Ha rejected) means there is no significant influence
between T (Tenure) on Dividend Policy. ROA coefficient value of -0.033882 means
the influence of ROA to dividend policy is negative, meaning if there is an increase /
decrease in ROA of 1 then it will decrease / raise dividend policy of 0.033882. The
effect is not significant at the error rate of 0.05. This is because of prob. greater than
alpha of 0.05 or 0.9762> 0.05 in other words Ho accepted (Ha rejected) means there is
no significant influence between ROA to Dividend Policy.
TMT characteristics and company performance dividend policy, it increases in the
influence of the dividend policy from 1.8% to 6.1%. Based on previous research by
Kanwal and Hameed (2017) company performance can increase the influence of
dividend policy.
In general, this study examines the characteristics of the board with dividend policy
and involves company performance and TMT characteristics. Based on the empirical
findings in this study, together independent variables have a significant influence on
the dependent variable, in this case board size, board composition, independent
directors, women existence and tenure have influence on dividend policy. With the
involvement of company performance as moderation then the influence is getting
stronger.
Furthermore, this study found that by involving company performance as a
moderating variable, the impact of top management team characteristics variables
becomes increasingly higher against the dividend policy.

5.2 Recommendations
This study provides guidance to individual investors to understand and get a clearer
picture of dividend companies under the IDX LQ45 Companies. When they intend to
invest, they can take a good reference investment in Indonesia. if individual investors
want to invest in IDX LQ45 companies, they can use the result of this research such
as company performance and also look at TMT Characteristics (Board Size, Board
Composition of Independent Director, Independent Director, Women Existence and
Tenure) which can maximize their wealth.

Besides, for the policy maker, the result of this research shows that tenure, women
existence, board size, board composition of independent commissioner, and company
performance significantly affect the company’s dividend policy. Thus, policy maker
and regulator should take this into account and emphasize on developing corporate
governance policies in future to prove that higher dividend pay-out in good corporate
governance (Bhagat & Bolton, 2008).

For further research, it is advisable to identify other variables that have not been
involved in this study. Then use of dimensions and indicators used in the study can
also be modified as women existence using dummy variable to gender proportions.
The company under study can also be expanded and increased the number of
companies and years.
GLOSSARY
COMPANY is a financial ratio that shows the percentage of profit a company earns in
relation to its overall resources. It is commonly defined as net income
divided by total assets.
DIVIDENDS is a financial ratio that shows the percentage of profit a company earns in
relation to its overall resources. It is commonly defined as net income
divided by total assets.
STOCK a facility where stock brokers and traders can buy and sell securities, such
EXCHANGE as shares of stock and bonds and other financial instruments
INDEPENDENT member of a company's board of directors that the company brought in
DIRECTOR from outside (as opposed to an inside director chosen from within the
organization).
ROA (Return on is a financial ratio that shows the percentage of profit a company earns in
Asset) relation to its overall resources. It is commonly defined as net income
divided by total assets.
NI (Net Income) a company's total earnings (or profit); net income is calculated by taking
revenues and subtracting the costs of doing business such as depreciation,
interest, taxes and other expenses. This number appears on a company's
income statement and is an important measure of how profitable the
company is over a period of time.
INDEPENDENT is a group free from outside or political control that works towards a
COMMISSIONER specific goal for the country, state, etc
LQ 45 the stock market index in Indonesia Stock Exchange (IDX) consisting of 45
companies that meet certain criteria.
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 APPENDICES

Table Test Heteroscedasticity

Table 4.5
Heteroskedasticity Test: White

F-statistic 2.074603 Prob. F(5,210) 0.0698

Obs*R-squared 10.16718 Prob. Chi-Square(5) 0.0706
Scaled explained SS 51.87523 Prob. Chi-Square(5) 0.0000

Test Equation:
Dependent Variable: RESID^2
Method: Least Squares
Sample: 1 216
Included observations: 216

Variable Coefficient Std. Error t-Statistic Prob.

C 1073.237 399.4516 2.686776 0.0078

BS^2 -10.73786 5.552686 -1.933815 0.0545
BC^2 -267.2265 1253.790 -0.213135 0.8314
ID^2 -167.0626 340.4052 -0.490776 0.6241
WE^2 119.0568 68.44428 1.739470 0.0834
T^2 7.030427 6.481284 1.084727 0.2793

R-squared 0.047070 Mean dependent var 760.3774

Adjusted R-squared 0.024381 S.D. dependent var 2504.183
S.E. of regression 2473.467 Akaike info criterion 18.49201
Sum squared resid 1.28E+09 Schwarz criterion 18.58577
Log likelihood -1991.138 Hannan-Quinn criter. 18.52989
F-statistic 2.074603 Durbin-Watson stat 1.768744
Prob(F-statistic) 0.069847

Table 4.5 Source: Processed Data from Eviews 10

 Table 4.6 Test Autocorrelation
Breusch-Godfrey Serial Correlation LM Test:

F-statistic 2.268800 Prob. F(4,206) 0.0630

Obs*R-squared 9.114221 Prob. Chi-Square(4) 0.0583

Test Equation:
Dependent Variable: RESID
Method: Least Squares
Sample: 1 216
Included observations: 216
Presample missing value lagged residuals set to zero.

Variable Coefficient Std. Error t-Statistic Prob.

C 0.009745 0.095203 0.102363 0.9186

BS -0.000609 0.010911 -0.055832 0.9555
BC -0.028458 0.158396 -0.179661 0.8576
ID -0.015838 0.052206 -0.303379 0.7619
WE 0.001030 0.023021 0.044760 0.9643
T 0.002429 0.009808 0.247704 0.8046
RESID(-1) 0.183146 0.069731 2.626471 0.0093
RESID(-2) 0.011229 0.070856 0.158477 0.8742
RESID(-3) -0.074454 0.070806 -1.051513 0.2943
RESID(-4) -0.050500 0.078544 -0.642950 0.5210

R-squareds 0.042195 Mean dependent var -5.11E-17

Adjusted R-squared 0.000350 S.D. dependent var 0.307608
S.E. of regression 0.307554 Akaike info criterion 0.524859
Sum squared resid 19.48544 Schwarz criterion 0.681122
Log likelihood -46.68473 Hannan-Quinn criter. 0.587989
F-statistic 1.008355 Durbin-Watson stat 1.999914
Prob(F-statistic) 0.434448

Table 4.6 Source: Processed Data from Eviews 10

 Table 4.7 Common Effect

Dependent Variable: DP
Method: Panel Least Squares
Date: 06/24/18 Time: 13:11
Sample: 2009 2016
Periods included: 8
Cross-sections included: 27
Total panel (balanced) observations: 216

Coefficie
Variable nt Std. Error t-Statistic Prob.

C 0.534662 0.088777 6.022508 0.0000

BS -0.033566 0.010194 -3.292811 0.0012
BC 0.208662 0.148177 1.408189 0.1606
ID -0.106146 0.050714 -2.093020 0.0375
WE 0.028498 0.044930 0.634279 0.5266
T 0.006000 0.008944 0.670835 0.5031

Mean dependent 0.39855

R-squared 0.065178 var 8
Adjusted R- 0.29380
squared 0.042920 S.D. dependent var 4
Akaike info 0.37170
S.E. of regression 0.287430 criterion 7
0.46546
Sum squared resid 17.34931 Schwarz criterion 5
Hannan-Quinn 0.40958
Log likelihood -34.14434 criter. 5
1.15213
F-statistic 2.928323 Durbin-Watson stat 0
Prob(F-statistic) 0.014074

Table 4.7 Source: Processed Data from Eviews 10

 Table 4.8 Regression result using Fixed Effect
Fixed Effect

Dependent Variable: DP?

Method: Pooled Least Squares
Sample: 2009 2016
Included observations: 8
Cross-sections included: 27
Total pool (balanced) observations: 216

Variable Coefficient Std. Error t-Statistic Prob.

C 0.166233 27.19853 0.430805 0.5326

BS? 0.000405 3.231019 0.006101 0.9900
BC? 0.466069 22.51994 2.040242 0.0401
ID? -0.086325 4.868160 -1.725766 0.0993
WE? 0.141427 12.64102 1.102233 0.2664
T? -0.005797 1.431496 -0.354445 0.6845
Fixed Effects
(Cross)
_AALI—C 11.56925
_ADRO—C 8.576311
_AKRA—C 22.70166
_ASII—C 8.862679
_BBCA—C -34.15149
_BBNI—C -12.60896
_BBRI—C -23.48552
_BMRI—C -43.82241
_TLKM—C -10.73083
_INDF—C 3.641233
_INTP—C 16.93636
_JSMR—C -17.11541
 _KLBF—C 13.58041
_LPKR—C -31.22271
_LSIP—C 4.016204
_DPAS—C 7.164155
_PTBA—C 17.28535
_SMGR—C 10.61548
_UNTR—C 18.41137
_UNVR—C -1.857438
_ANTM—C 2.694736
_BDMN—C -32.99648
_CPIN—C -16.42168
_INCO—C 27.12601
_ITMG—C 58.64111
_ASRI—C -18.95703
_GGRM—C 11.54763

Effects Specification

Cross-section fixed (dummy variables)

R-squared 0.416631 Mean dependent var 0.398558

Adjusted R-squared 0.318346 S.D. dependent var 0.293804
S.E. of regression 0.242571 Akaike info criterion 0.140912
Sum squared resid 10.82671 Schwarz criterion 0.640953
Log likelihood 16.78155 Hannan-Quinn criter. 0.342930
F-statistic 4.239004 Durbin-Watson stat 1.834077
Prob(F-statistic) 0.000000

Table 4.8 Source: Processed Data from Eviews 10

Table 4.9 Regression Results using Random Effect

Dependent Variable: DP?
Method: Pooled EGLS (Cross-section random effects)
Sample: 2009 2016
Included observations: 8
Cross-sections included: 27
Total pool (balanced) observations: 216
Swamy and Arora estimator of component variances

Variable Coefficient Std. Error t-Statistic Prob.

C 50.99025 13.21526 3.858437 0.0002

BS? -3.663687 1.529523 -2.395313 0.0175
BC? 28.78269 17.94785 1.603684 0.1103
ID? -8.084906 4.535476 -1.782593 0.0761
WE? 6.753162 3.507620 1.925283 0.0555
T? -0.275101 1.131313 -0.243170 0.8081
Random Effects
(Cross)
_AALI--C 1.220805
_ADRO--C -5.995447
_AKRA--C 17.27948
_ASII--C 4.189998
_BBCA--C -8.464846
_BBNI--C -4.440065
_BBRI--C -6.092224
_BMRI--C -14.39944
_TLKM--C 0.132366
_INDF--C 9.595550
_INTP--C 12.10817
_JSMR--C -11.69498
_KLBF--C 2.951869
_LPKR--C -20.43395
_LSIP--C -8.890563
_DPAS--C -3.212612
_PTBA--C 3.118107
_SMGR--C 2.894077
_UNTR--C 6.962311
_UNVR--C 20.08660
_ANTM--C -7.074503
_BDMN--C -6.310636
_CPIN--C -12.88158
_INCO--C 12.21289
_ITMG--C 33.51414
_ASRI--C -21.90927
_GGRM--C 5.533761

Effects Specification
S.D. Rho

Cross-section random 15.47306 0.2895

Idiosyncratic random 24.24192 0.7105

Weighted Statistics

R-squared 0.059991 Mean dependent var 19.31207

Adjusted R-squared 0.037610 S.D. dependent var 24.63640
S.E. of regression 24.16867 Sum squared resid 122666.2
F-statistic 2.680430 Durbin-Watson stat 1.632375
Prob(F-statistic) 0.022605

Unweighted Statistics

R-squared 0.108685 Mean dependent var 39.85583

Sum squared resid 165418.6 Durbin-Watson stat 1.210488

Table 4.9 Source: Processed Data from Eviews 10

Table 4.10 Chow-Test

Redundant Fixed Effects Tests
Equation: PANELREG
Test cross-section fixed effects

Effects Test Statistic d.f. Prob.

Cross-section F 4.263519 (26,184) 0.0000

Cross-section Chi-square 101.85178 26 0.0000
 0

Cross-section fixed effects test equation:

Dependent Variable: DP
Method: Panel Least Squares
Date: 06/24/18 Time: 14:06
Sample: 2009 2016
Periods included: 8
Cross-sections included: 27
Total panel (balanced) observations: 216

Variable Coefficient Std. Error t-Statistic Prob.

C 0.534662 0.088777 6.022508 0.0000

BS -0.033566 0.010194 -3.292811 0.0012
BC 0.208662 0.148177 1.408189 0.1606
ID -0.106146 0.050714 -2.093020 0.0375
WE 0.028498 0.044930 0.634279 0.5266
T 0.006000 0.008944 0.670835 0.5031

R-squared 0.065178 Mean dependent var 0.398558

Adjusted R-
squared 0.042920 S.D. dependent var 0.293804
S.E. of regression 0.287430 Akaike info criterion 0.371707
Sum squared resid 17.34931 Schwarz criterion 0.465465
Log likelihood -34.14434 Hannan-Quinn criter. 0.409585
F-statistic 2.928323 Durbin-Watson stat 1.152130
Prob(F-statistic) 0.014074

Table 4.10 Source: Processed Data from Eviews 10

Table 4.11 Hausman-Test

Hausman Test
Correlated Random Effects - Hausman Test
Equation: PANELREG
Test cross-section random effects

Chi-Sq. Chi-Sq.
Test Summary Statistic d.f. Prob.

Cross-section random 3.566055 5 0.6134

Cross-section random effects test comparisons:

Variable Fixed Random Var(Diff.) Prob.

BS 0.000405 -0.030955 0.000786 0.2634

BC 0.466069 0.324206 0.016894 0.2751
ID -0.086325 -0.082329 0.000352 0.8314
WE 0.141427 0.055195 0.011069 0.4124
T -0.005797 -0.001097 0.000071 0.5764

Cross-section random effects test equation:

Dependent Variable: DP
Method: Panel Least Squares
Date: 06/24/18 Time: 14:08
Sample: 2009 2016
Periods included: 8
Cross-sections included: 27
Total panel (balanced) observations: 216

Coefficie
Variable nt Std. Error t-Statistic Prob.

C 0.166233 0.265871 0.625236 0.5326

BS 0.000405 0.032346 0.012512 0.9900
BC 0.466069 0.225435 2.067419 0.0401
ID -0.086325 0.052115 -1.656446 0.0993
WE 0.141427 0.126860 1.114826 0.2664
T -0.005797 0.014245 -0.406983 0.6845
 Effects Specification

Cross-section fixed (dummy variables)

Mean dependent 0.39855

R-squared 0.416631 var 8
Adjusted R- 0.29380
squared 0.318346 S.D. dependent var 4
Akaike info 0.14091
S.E. of regression 0.242571 criterion 2
0.64095
Sum squared resid 10.82671 Schwarz criterion 3
Hannan-Quinn 0.34293
Log likelihood 16.78155 criter. 0
1.83407
F-statistic 4.239004 Durbin-Watson stat 7
Prob(F-statistic) 0.000000

Table 4.11 Source: Processed Data from Eviews 10

Regression Result with Moderator (ROA Variable)

Table 4.12 Regression with Moderator (ROA Variable)
Dependent Variable: DP
Method: Panel EGLS (Cross-section random effects)
Date: 06/24/18 Time: 14:11
Sample: 2009 2016
Periods included: 8
Cross-sections included: 27
Total panel (balanced) observations: 216
Swamy and Arora estimator of component variances

Coefficie
Variable nt Std. Error t-Statistic Prob.

C 0.457434 0.163911 2.790744 0.0058

 BS -0.032679 0.018727 -1.745053 0.0825
BC 0.225557 0.247255 0.912243 0.3627
ID -0.174171 0.079441 -2.192470 0.0295
WE -0.014569 0.074962 -0.194346 0.8461
T 0.010848 0.015172 0.714973 0.4754
ROA -0.033882 1.133210 -0.029899 0.9762
BSROA 0.116818 0.174194 0.670618 0.5032
BCROA -0.843750 1.309335 -0.644411 0.5200
IDROA 1.327235 0.760907 1.744280 0.0826
WEROA 0.289271 0.254693 1.135764 0.2574
TROA -0.061489 0.123865 -0.496423 0.6201

Effects Specification
S.D. Rho

Cross-section random 0.129629 0.2237

Idiosyncratic random 0.241507 0.7763

Weighted Statistics

Mean dependent
R-squared 0.109966 var 0.219239
Adjusted R-
squared 0.061974 S.D. dependent var 0.250930
S.E. of regression 0.243030 Sum squared resid 12.04895
F-statistic 2.291346 Durbin-Watson stat 1.698083
Prob(F-statistic) 0.011597

Unweighted Statistics

Mean dependent
R-squared 0.186943 var 0.398558
Sum squared resid 15.08948 Durbin-Watson stat 1.355920

Table 4.12 Source: Processed Data from Eviews 10