The phenomenon of stock trading in Indonesia is fascinating. We explored the Indonesia Stock Exchange’s Kompas 100 Index, which summarizes companies with good fundamentals. From 2011 to 2019, we compared notable trends for further research. In general, stock trading is carried out by capital owners with the hope that the investment made in certain company shares will provide a return in the future.
As the main return, dividends are expected by the owners of capital. Giving dividends is also a strategy or policy that ultimately positively influences the company. Spence (1973), stated that the announcement of dividends is a positive signal for shareholders, which can reduce uncertainty and cause shareholders to be willing to invest their capital. Hence, it has a positive effect on firm value. Several other studies also support the signaling theory and state that dividend policy is an investment-attractive strategy that can be used as a managerial consideration and is believed to increase firm value (Tahir et al., 2020; Tyastari et al., 2017; Yousaf et al., 2019) However, in fact, not all theories and research results assume that dividends will have a positive effect on firm value. Miller and Modigliani (1961) in their research that produced the dividend irrelevance theory, stated that there is no relevance between dividend payments and firm value. This is the reason why the behavioral aspects of the CEO are interesting to be further investigated.
Narcissism is a character characterized by the need for high self-esteem, attention, personal superiority, low social empathy, and willingness to manipulate to achieve their needs (Braun et al., 2018; Brown et al., 2009; Emmons, 1987; Nevicka et al., 2011; ). Buyl et al. (2019) stated in their research that CEOs with narcissistic characters will increase the risks inherent in organizational policies, so it can be concluded that CEOs with narcissistic characters will worsen business conditions. Thus, CEO Narcissism is expected to influence business continuity negatively. Other research results show that narcissism has a positive value for companies (Brunzel, 2021, Byun & Al-shammari, 2021; Fung et al., 2020; Zhang et al., 2021; Zhou et al., 2019). From the description above, the narcissism of a CEO has two sides, the influence of which is positive and negative to the company performance
H1. Dividend policy has a positive effect on firm value
H2.CEO Narcissism moderates the effect of dividend policy and firm value.
Data and research
We take data from companies consistently included in the Kompas 100 Index from 2011 to 2019. The Kompas 100 Index was chosen as research data because the Kompas 100 Index consists of companies with good fundamentals and performance, high liquidity, and large market capitalization so that the tendency to give dividends to shareholders becomes greater. A total of 47 companies were used to answer the hypotheses that were built.
Dependent variable: Firm value
Firm value is one indicator in describing the condition of the company. To determine company value, several measurement proxies that can be used are Market to Book Value (MBV) and Tobin’s Q (Brigham & Houston, 2006).
Independent variable: Dividend policy
In this study, the dividend payout ratio (DPR) is proxied as a measure of dividend policy following the research of Holder et al. (1998)
Moderating variable: CEO narcissism
This study uses a proxy in Chatterjee and Hambrick (2007), which measures CEO narcissism with a CEO photo score listed in the annual report, with the following criteria: Score 4: if there is a CEO’s photo that occupies a full page Score 3: if there is a photo of the CEO himself with a half-page size Score 2: if the CEO takes a photo with the board of directors Score 1: if there is no photo of the CEO
Conclusion
This study found that dividend policy can provide a positive value for the company. The company provides an overview of the success of good fund management and provides the expected return by shareholders. In line with the results of previous research, this study shows consistency in signaling theory as a signal that is favored by shareholders and has an impact on increasing firm value ( Tahir et al., 2020; Tyastari et al., 2017; Yousaf et al., 2019). This research indicates that CEO Narcissism strengthens the impact of dividend policy on firm value. This study proves that CEO Narcissism is ideal as a moderator that strengthens the value generated by policies for the company.
Author: Vera Oktari, Wiwiek Dianawati
Journal: Dividend policy, CEO Narcissism, and its influence on companies in Indonesia: A Behavioral Theory of the Firm approach
