The Effect of Free Float on Dividend Payout Ratio

Abstract

This study aims to examine the effect of free float on the Dividend Payout Ratio (DPR) of publicly listed companies on the Indonesia Stock Exchange, within the framework of Clientele Effect Theory. This study employs the Autoregressive Distributed Lag (ARDL) method with a Pooled Mean Group (PMG) estimator, using a sample of 58 non-financial companies listed on the Indonesia Stock Exchange over the period 2010–2019. The results indicate that free float has a significant negative effect on the Dividend Payout Ratio in the long run, suggesting that an increase in the proportion of public ownership does not drive companies to distribute higher dividends, but rather the contrary. This finding is consistent with Clientele Effect Theory, whereby public investors dominating free float in Indonesia tend to be growth-oriented and prioritize capital gains over dividend income. Furthermore, firm size and profitability are found to have a significant positive effect, while revenue growth has a significant negative effect on DPR. The Price-to-Book Value variable does not show a significant effect. These findings imply that corporate management should consider the composition of its public investor clientele, particularly the dominance between short-term retail investors and long-term institutional investors, when formulating an optimal dividend policy.