SIGNALING AND AGENCY COSTS REDUCTION USING DIVIDEND POLICY IN THAILAND

Abstract

The business with administrative separation between ownership and management causes information asymmetries. The management which means the administrators is more informed than the shareholders. It, therefore, is possible that the administrative decision was done aiming at the benefits of the management. This, therefore, increases examination cost. The objectives of this study were to find decisive trends to pay dividend and dividend amount according to signaling theory and to discover how to reduce agency costs from cash flow. The study was done using Panel Data with all listed companies on the Stock Exchange of Thailand, except for the financial industries, between the years 2009-2013. The Panel Random-Effects Tobit was used as the estimator. The study showed that the companies with firm value, profitability and high dividend paid in the past year have positive relation with the dividend payout ratio just as the result of Robustness test of companies with high dividend payments. Meanwhile, the companies with debt obligation have negative relation with the dividend payout ratio. The result of this study can signal the decisive trends to pay dividend and dividend payout ratio in order to decrease the information asymmetries. For those companies with free cash flow and mechanisms for corporate governance of major shareholders, it was found that there was positive relation of dividend payout ratio. This causes reduction in agency cost. Moreover, it was found that the tenure of positions of the independent directors of 15 years or more has negative relation to dividend payout ratio. And this makes it unable to reduce agency cost. The result of this study helps the investigators or the shareholders evaluate the trends to pay dividends and dividend payout ratio. Moreover, it helps the management determine dividend policy consistent with business achievement. It can also be used by regulators for revising rules and regulations of ownership structure and independent directors.