The Simulataneity of Dividend and Capital Structure Decisions:The Case of Indonesia Capital Market

Abstract

This study explains the sinrultaneity of dividend and capital structure decisions using the agency cost framework. Noronha et al. ( 1996) found that the simultaneity of dividend and capital structure decisions only occurred on low growth and no blockholder firms. Increasing dividend payment and debt simultaneously is used to decrease the agency cost by shifting the monitoring activity to capital market. The findings of this study can be summarized as follows. (1) Simultaneity of dividend and capital structure decisions occurs only on the firms with characteristics of low growth and no blockholder. Four variables are tested as determinants of the simultaneity. These variables are: insider holding, number of shareholders. earnings volatility and non-debt tax shield. Only non-debt tax