4. Analysis and Control of Capital Stock
The development of the economy in a country requires the presence of a large capital. Not just the human resource capital and nature, but also the capital of the Fund which is not a little. The Government will try to raise funds from the public, both domestic and community of communities abroad. One way gather funds that can be done is to encourage investment. The Government will try to attract people’s interest for investing with profitable results. The economy of a country is often judged based on investment activity happens. When high levels of investment, the prospects of the country’s economy will be increasingly good.
The investment is considered the most advantage is quick investment through the capital markets. Therefore, the stock market will perform economic and financial. Can be joined an alternative capital market funds from the public in addition to the banking system. Financial instruments in the capital market which is most widely used to attract funds from the society’s common shares (common stock). In General, investors opted to common stock investment, because the expectation will earn a return, in the form of capital gains/capital loss and dividend. Capital gain/loss is the difference between the sale price and the purchase price of the stock, while the dividend was the rest of the company’s profit distributed to shareholders. Every investor has a different preference for a satisfactory return. The uncertainty of the return to be gained is the risk faced by investors. Therefore, investors will be wary of deciding what investments will be chosen.
At the time of going to invest in a stock, investors will try to assess the company to estimate the expected return can be acquired. The stock price of a company on the stock market often became a reference point to indicate the value of the company. Fundamental analysis of companies, becomes one of the ways to assess the performance and prospects of the company. The dividend is one of the fundamental factors expected to affect stock prices. Indicating that the content of the information in the announcement of dividends can have an effect on abnormal return a share, which means it affects stock prices. Dividend increase of information could be interpreted as a sign of optimism with regard to corporate profits, and dividend declines can be interpreted otherwise any decline in profits in the future (the goddess, 2003). For investors who expect a return from dividends, will certainly pay attention to the information relating to the payment of the dividend that the company will do.
If a company makes a profit, does not mean the company would distribute dividends. States that new investors can receive dividends if two conditions are met, the company makes a profit and the general meeting of shareholders (GMS) which authorities have decided upon the profit dividend distribution.
Dividend payments are also subject to the discretion of the Board of Directors of the company. There are rules that limit the dividend payment. Before payment of dividends to ordinary shareholders do, all claims or liabilities to the Government, creditors and holders of preferred stock must be met first. The management company will consider various things to determine policy of dividend. Policy as to whether the company will make the payment of dividends or not, or how the amount of dividends that will be paid can affect judgments of investors about the condition of the company. On the other hand, ordinary shareholders who were investor is very little outside parties to obtain information about the condition of the company. If investors can figure out what things into consideration management companies in taking decisions regarding the dividend cash payment, then investors can predict cash dividends which will be taken as a return on investment that he did.
Many studies have proved that capital markets are reacting to all of the information related to the company. The information is considered to provide good news can raise prices and otherwise the information is considered bad news would lower the price. For investors who want a return of the dividend, it will analyze the variables that can potentially affect the company’s decision in making the payment of dividends. Research on this subject has also been much done to help investors and management to decide on dividend policy is best for the parties concerned. Baker and Powell (2000) conducted a survey of firms-companies listed on the NYSE in 1997, to know the views of managers the company regarding any factors that determine dividend policy. Their research results that the factors that most affect dividend policy is the level of profit and dividend continuity past. A survey had also been conducted at the Jakarta Stock Exchange which aims to assess the views of the Chief Executive Officer of the dividend policy and capital structure policy. Results of the survey show that for executives, variables that affect the dividend policy is variable profits and investment opportunities. In addition, the cash ratio, cash flow, and stock prices also be variables that affect the dividends.
A lot of research on dividend policy has been done, but the results of the research there is nothing consistent. From these problems, researchers are interested in testing the reload of the factors that affect the cash dividend payment. This research is the replication of research that has been done by Kania and Bacon (2005), which conducted a study to examine the factors that motivate the dividend policy of the company.
This research with the research equation Kania and Bacon (2005) is a dependent variable which is used, i.e. using a Dividend Payout Ratio (DPR), but a sample of the company and the independent variables are used differently. Kania and Bacon (2005) observed a few variables, i.e., Return On Equity (ROE), sales growth, liquidity (current ratio), the ratio of debt (Debt to Total Assets), Insider Ownership, Institutional Ownership, Beta, use of capital, and earning per share growth, whereas the current study only focused on financial variables are internal, i.e. ROE, earning growth variables per-share, liquidity and debt ratios. Liquidity is measured by the size of the cash ratio because it sharper than current ratio, whereas the ratio of debt as measured by the Debt to Equity Ratio. This research adds a variable dividend the previous period due partly to have an impact on the current dividend payout policy, based on the existence of some research on it.