Dividend and Capital Structure Policy in Indonesia and the Philippines: The Views of Executives of Listed Firms

  • George W. Kester Bucknell University, Lewisburg, PA
  • Rosita P. Chang University of Rhode Island, Kingston, RI
  • Erlinda S. Echanis UP College of Business Administration
  • Susatio Soedigno PEFINDO Credit Rating Indonesia, Ltd., Jakarta Indonesia


This paper reports the results of surveys of chief executive officers of firms listed on the Jakarta Stock Exchange and the Philippine Stock Exchange regarding dividends and capital structure.

The survey responses on dividend policy indicate that Indonesian and Philippine executives believe that dividend policy affects share prices.  Further, they believe that firms should have target payout ratios and strive for uninterrupted dividend payments.  Indonesian and Philippine executives seem to be aware of signalling and clientele effects.

The survey responses on capital structure policy indicate a preference for following a financing hierarchy rather than adhering to a target capital structure.  Both Indonesian and Philippine executives ranked internal equity as their first choice for long-term financing.  However, whereas Indonesian executives expressed an aversion to debt, ranking new common stock higher than debt, Philippine executives ranked bank loans ahead of common stock.

Both Indonesian and Philippine executives believe that long-term survival and maintaining flexibility are important considerations affecting a firm’s financing decisions.  They also believe that a firm’s investment and dividend decisions are more binding than capital structure decisions.