The Role of Family Involvement in Moderating the Relationship Between Company Characteristics and Dividend Policy in Indonesia

This study seeks out the relationship between the characteristics of companies and dividend policy, as well as the role of family involvement as a moderator of such relationships. This study utilized a purposive sampling method. We conducted the analysis by multiple linear regression and moderated regression analysis. The number of samples in this study is 192 observations in non-financial companies listed on the LQ45 index. The Result shows that profitability, size, and investment opportunities have positive effects on dividend payout ratio. Meanwhile, financial leverage has a negative relationship with the dividend payout ratio. Family involvement weakens the positive influence of profitability on dividend policy but strengthens the positive effect of investment opportunities. Family involvement does not moderate the effect of size, and financial leverage on dividend policy.


INTRODUCTION
form of retained earnings. This policy regulates the percentage of profit distributed as dividends and retained earnings as a source of corporate internal financing. The greater the profits distributed as dividends, the smaller the profits that are reinvested to increase the company's capital.
The dividend payout ratio is one of the company's dividend policy indicators. According to Sudana (2015), dividend payout ratio is the ratio of net income paid to shareholders in the form of dividends. This ratio states the proportion of the value of dividends to net income. The dividend payout ratio can be calculated using the formula: The higher the value of the dividend payout ratio, the greater the proportion of net income paid to shareholders, and the smaller the retained earnings for investment financing purposes.

Company Characteristics that Affect Dividend Policy
Profitability is the company's ability to generate profits using the resources it has. Return on Assets is commonly used as a measure of a company's profitability, for it shows the company's ability to generate profits after tax using all assets owned. This following equation measure the Return on Assets (ROA): ………………….……………………..………….. (2) The higher the ROA the greater the potential dividends distributed. This is because dividends are sourced from the company's net profit. The higher the profitability, the higher the ability to generate profits, the higher the potential for dividends paid. According to Gugler & Yurtoglu (2003), profitability has a positive effect on dividends. Companies that earn high profits tend to pay more dividends than those who get low profits.
Size indicates the scale of a company, which is measured by the total value of assets held. The size of a company can affect its ability to obtain the funding needed to finance investment activities. Large companies have greater access to enter the capital market and other external funding, making it easier to obtain funds than smaller companies. The ease of access owned by large companies in getting funds from third parties can reduce the company's dependence on internal funds. Therefore, large companies tend to pay higher dividends than small companies. The size of the company is proxied by the natural logarithm of total assets. Size can be formulated as follows: The investment opportunity of a company can be measured using Tobins'Q. This ratio compares the market value of equity plus total debt to the book value of assets. According to Lang, Stulz, & Walkling (1989) companies with higher market value ratio are considered to have more investment opportunities. Tobin's q ratio with a value of more than one illustrates that investment in company assets generates higher benefits than investment costs. This condition will encourage new investment because investors give a high valuation to the company and have expectations that the company will show good performance and is

Asset Total
Tax After Earning ROA = considered capable of producing better cash flow in the future. The greater the Tobins'q ratio the higher the investment opportunity of the company. Tobins' Q can be formulated as follows:

……………….……. (4)
Companies that have high investment opportunities tend to hold profits and pay dividends at a lower rate because the profits generated by the company will be used to finance existing investments (Sarah, 2015).
Financial leverage is the use of debt which incurs fixed costs in the form of interest. In this study, financial leverage is measured using a debt ratio, which is the ratio of total debt to total assets. This ratio measures the proportion of funds sourced from debt to finance company assets. Debt ratio can be formulated with the following formula: According to Brigham & Houston (2014), the use of large amounts of debt will increase financial risk. Because of fear of potential defaults. This results in companies with high levels of leverage to rely heavily on internal funds so that only a small portion of income can be paid as dividends.

Family Involvement
According to Miller, Le Breton-Miller, & Scholnick (2008) family involvement is a condition in which several family members are involved as both owners and managers. According to Sciascia & Mazzola (2008), family involvement is a condition of a company in which a family controls the company through ownership and involvement in the management of both the commissioners and directors. Adopting Kowalewski, Talavera, & Stetsyuk (2010) and Zattoni, Gnan, & Huse (2015), family involvement in this study was measured using an ordinal measure. There are three levels of family involvement, namely high, low, and zero involvement. A company exhibits a high Family involvement if the share of family ownership in the company is at least 25% and there are at least 2 family members from different generations who hold executive positions, both commissioners and or directors. Family companies that cannot meet these requirements are categorized as companies with low family involvement. Non-family companies are categorized as zero involvement companies. Scores for the high, low and zero involvement categories are 3, 2, and 1, respectively.
Family involvement can have a positive or negative effect on dividend payouts (Briano-Turrent, Li, & Peng, 2020; González, Guzmán, Pombo, & Trujillo, 2014;Sener & Akben Selcuk, 2019). The family involvement in the form of company stock ownership will increase agency problems by creating opportunities for expropriation by the majority shareholders through tunneling and others. This condition will lead to a lower payout ratio. Family involvement in management and supervision can minimize owner-manager conflict (Fama & Jensen, 1983). This is because family involvement in management can suppress opportunistic behavioral tendencies that managers often show and only benefit themselves (Massis, Frattini, & Lichtenthaler, 2013). Family involvement in supervision can also mitigate agency conflicts. This is because involvement in supervision can increase long-term investment-oriented tendencies and provide better management oversight mechanisms (Sciascia & Mazzola, 2008). Therefore family involvement in management and supervision tends to be positively related to dividend policy.

The Moderating Effect of Family Involvement on the Relationship between Profitability and Dividend Policy
Companies with family involvement have a longer-term investment outlook and fewer investment risks (Anderson & Reeb, 2003). Companies with high family involvement prioritize continuity for the sake of the next generation of heirs. Therefore family shareholders are more willing to focus on the long-term performance of the company and participate in company management while ensuring that family shareholders have a strong voice in the company (Jensen & Meckling, 1976).
Family involvement in companies with high profitability has the potential to reduce the value of dividends distributed. This happens because when the company's profitability increases, family shareholders tend to prefer to divert the company's net income to retained earnings, or in other words to the company's capital and investment in the future, compared to increasing dividend payments to shareholders. Thus, family involvement in the company will weaken the positive influence of profitability on dividend policy.

The Moderating Effect of Family Involvement on the Relationship between Size and Dividend Policy
Family involvement in the company, usually seen in the presence of family members who have majority ownership and have positions in the top management of the company. Companies with these structures will be able to minimize or eliminate agency problems and costs (Jensen & Meckling, 1976). Agency costs and problems will not arise because the owner and management of the company are the same parties and there will be no difference in interests, so the agency costs that arise for monitoring will be little or no. High family involvement in a company can act as an investor who is very concerned about the survival of the company and has more encouragement to monitor the performance of the company and the performance of company management. In addition to a long-term perspective, family businesses are also more conservative in their decision making (Din & Javid, 2012;Gudmundson, Hartman, & Tower, 1999).
Family companies tend to face low agency problems because the majority share ownership owned by the family is usually controlled by the family of the owner of the company so that the family company has a good performance. This builds the company's reputation in the eyes of investors. The company's reputation will increase the value of the company (Sujoko & Ugy, 2009). Therefore, the involvement of families in large size companies makes it easier to get external funding. The convenience is because companies with family involvement have a good reputation in the eyes of fund providers. Thus the company is able to reduce dependence on internal funds and be able to pay higher dividends. Family involvement will strengthen the positive effect of size on dividend policy.

The Moderating Effect of Family Involvement on the Relationship between Investment Opportunity and Dividend Policy
Family companies involve at least two generations in determining company policy, and have at least 25% ownership of company shares owned by family members or certain family groups (Donnelley, 1988). The greater the involvement of the family in a company, the higher the family control in the company. High family involvement can build a good reputation in the stock market because the family's commitment to the company's sustainability is even greater. According to Jensen & Meckling (1976), companies with high family involvement are more willing to focus on the company's long-term performance.
Families are very concerned about the continuity of the company and have more encouragement to monitor the company's and management's performances.
Family involvement in companies that have high investment opportunities has the potential to increase dividend payout ratios higher. This is because companies with family involvement have a good reputation in the eyes of fund providers. Companies are not so difficult to finance investment projects so the company does not depend on internal funds. Thus, the involvement of the family in a company will weaken the positive influence of investment opportunity on dividend policy.

The Moderating Effect of Family Involvement on the Relationship between Financial Leverage and Dividend Policy
Family companies tend to have weaker governance than other companies because of ineffective internal governance mechanisms. The involvement of the family in the ownership of majority shares and the presence of family members in the management of the company raises the potential of the family to make decisions that could only benefit them by doing expropriation. Expropriation is an action taken by controlling shareholders to maximize their welfare by using their control rights (Claessens, Djankov, & Lang, 2000). The expropriation can be in the form of excessive salary and bonuses or making transactions with related parties. Investors may be reluctant to buy new equity from a family company so that larger dividend payments are used as compensation for poor corporate governance. High dividend payments will build a good reputation on the stock market because the image of the company is considered important in the capital market so that companies with high family involvement have the potential to pay dividends in larger amounts.
According to La Porta, Lopez-De-Silanes, Shleifer, & Vishny (2000) Companies with family involvement focus on reputation building behavior, that is, building a reputation by treating investors well. This is done so that when the company plans to issue equity in the future, investors will still be interested in buying new equity. Therefore, even though the company's leverage ratio is poor, high family involvement results in the company being able to obtain external funds so that dividend payments tend to be high. Under these conditions, family involvement weakens the negative influence of leverage on the policy.

METHODOLOGY Data and Sample
The sample in the study was determined using the purposive sampling method, with the following criteria: 1. Non-financial companies listed on the LQ45 index on the Indonesia Stock Exchange during the 2012-2017 period. 2. Published annual reports and financial statements for the period 2012-2017 in rupiah units.

Model
The analysis was carried out using the moderated regression analysis method, with the model: DPRi,t = + βn predictori,t + ɤ1 moderatori,t + n moderator x predictori,t + εi,t …(6) The predictors are company characteristics, which include profitability, size, investment opportunity, and financial leverage. Moderators in the study are the level of family involvement; worth "3" if the company exhibits high family involvement, "2" if it is low, and "1" if the company cannot be categorized as a family company. Table 1 shows a description of the research variables. On average the company distributed 29.28% of the company's net profit for dividends. LQ45 companies tend to use internal funds to finance investment projects. This is consistent with the company's life cycle theory that companies at the maturity stage of external funding needs begin to decline because the source of internal funds is relatively high. The average ROA of 7.88% with a standard deviation of 5.29% shows that LQ45 companies have good profitability and not many companies produce a negative return on assets. The average value of ownership of company assets is Rp 22.8 trillion. The high total assets show that most of LQ45 companies are old-age companies and have been operating for a long time. The average value of investment opportunities of 1.96 indicates a large investment opportunity. The average sample company has a financial leverage value of 0.4650 meaning that the proportion of the use of debt in financing investments is quite high nearly 50%.  Table 2 Model 1 shows that profitability has a positive effect on dividend policy as measured by the dividend payout ratio. This indicates that when the profitability of the company increases, the dividends distributed will also be higher. The higher the profitability, the greater the profit generated by the company. Therefore the company's ability to pay dividends is getting higher. This is consistent with the research of Gugler & Yurtoglu (2003) which states that companies that obtain high profits tend to pay more dividends, thus showing that profitability and dividends have a positive effect. Table 2 reports the results from OLS and Moderated Regression Analysis. The dependent variable is dividend payout ratio. T-statistics are in parentheses. *, **, *** indicate significance at the 10%, 5%, and 1% levels, respectively.

Model Analysis and Hypothesis Testing
Size has a positive effect on dividend policy. The larger the size of the company, the greater the access the company has to enter the capital market or get other external funding. Large size companies can reduce dependence on internal funds. Thus large companies tend to pay higher dividends than small companies. Oreland (2017) shows that large companies pay high dividends to their shareholders, so the size and dividend policy have a positive influence.
Investment opportunity has a positive effect on dividend policy. This result is not in line with the results of Alphonse & Tran (2014), study which found that investment opportunity has a negative effect. Nevertheless, the positive influence of this investment opportunity is in line with the research of (Kouki & Guizani, 2009). Companies with high investment opportunities have easier access to external funds. High company performance can enhance reputation in the eyes of fund providers. This can reduce the company's dependence on internal funds so that the company's ability to pay high dividends. Paying greater dividends can also signal investors that the company has good performance and prospects.

Source: SPSS output
Financial leverage has a significant negative effect on the dividend payout ratio. The greater use of debt results in a higher fixed interest rate of the company. High interest payments cause cash flow available for dividend payments to be lower. This is in line with research by Al-Kuwari (2009) which states that financial leverage negatively affects the dividend payout ratio. The use of large amounts of debt will also increase the financial risk of the company. High corporate debt results in the creditors to be very careful to lend their funds because of the high risk of default. This resulted in the company relying on internal funds.

The moderating effect of family involvement on the effect of Firms' characteristics on dividend policy
Model 7 in table 2 shows that family involvement weakens the positive effect of profitability on dividend policy. This is consistent with the research by Jensen & Meckling (1976), that companies with higher family involvement tend to prioritize continuity and try to bequeath the business to future generations. When corporate profitability increases, family shareholders tend to prefer to use net income as retained earnings, or in other words as a source of funding for corporate investment to ensure future growth.
Models 5 and 7 in Table 2 show that family involvement strengthens the positive relationship between investment opportunity and dividend policy. This finding is in line with the study of Wu, Ni, & Huang (2020). Companies with high investment opportunities tend not to have difficulty collecting funds from external sources. On the other hand, companies with high family involvement tend to be able to control agency conflicts that lead to a better reputation. Higher family involvement in companies with high levels of investment opportunity can increase dividend payments. Companies with high investment opportunities show high market performance as well. Such companies have easier access to external funding. The ease in obtaining external funds will be strengthened by the good reputation that arises as a result of higher family involvement. This makes it easier for companies to obtain external funds. The company's dependence on internal funding sources is getting lower and resulting in higher availability of funds to pay dividends. Thus, the involvement of the family in a company will strengthen the positive influence of investment opportunity on dividend policy.

CONCLUSION
The results show that company characteristics influence dividend policy. Profitability, size, and investment opportunity have a positive effect on dividend payout, while financial leverage has a negative effect. Family involvement strengthens the effect of profitability but weakens the influence of investment opportunity. Higher family involvement can affect two things, namely a high concern for the survival of the company and a higher reputation of the company. Both of these will encourage families to take advantage of higher growth opportunities while maintaining compensation for them by using external funds for investment and using profits as dividends.
For investors, this research has implications for the determination of investment strategies, especially in family companies. This study also provides insight into the impact of family involvement measured holistically on the relationship of company characteristics with dividend policy. Further research can be more focused on family businesses, where family involvement can be more detailed in terms of involvement in ownership, management, supervision, cross-generational involvement, and holistic involvement.