Foreign institutional investors and dividend policy in Indonesia

In this study, we investigate the nexus between foreign institutional investors (FIIs) and the dividend policy in a developing country. Using a dataset of 529 Indonesian publicly listed firms between 2010 and 2018, we find that the presence of FIIs has a significant and negative effect on firms’ dividend policy. However, we further find that the negative impact diminishes in firms with a low FII share. In the Indonesian case, although dividends could be used as a mechanism to reduce agency problems caused by information asymmetry, FIIs possibly prefer capital gains because they are subject to a higher dividend tax than domestic investors. Our study contributes to the discussion on the dividend payment puzzle, especially in developing countries.