Valuation of Dividends of Indonesian Listed Firms
29 Pages Posted: 16 Feb 2014
Date Written: February 14, 2014
Abstract
Using a large sample of 3,066 firm-year observations, representing 372 distinct firms listed on IDX during the period 1995-2012, we show that dividends are reliably positively priced by the capital market, violating thus the dividend displacement theorem. This result persists even after controlling for some typical factors that affect firm value (capital structure, risk) and the effect of factors not separately identified, but priced by the capital market (other information). Dividends are positively correlated to future profitability over and above current accounting earnings. Both findings show that dividends play a central role on the Indonesian capital market. The also results show the extent to which dividends displace information for value and forecasting in other accounting variables. We also model “other information” that captures institutional factors that we are unable to model explicitly. Finally, we show evidence that earnings management after 2002 is contractually-efficient rather than opportunistic.
Keywords: dividend valuation, forecasting earnings, accounting models of value
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