Islamic law, corporate governance, growth opportunities and dividend policy in Indonesia stock market

This paper examines whether the Islamic law (Shariah), corporate governance and growth opportunities affect dividend policy. Using a sample of 2125 firm-years for companies listed on the Indonesia Stock Exchange (IDX) over the period of 2012–2016, we find evidence that Shariah-compliant firms (SCFs) have higher dividend payouts, mainly driven by insider ownership and external large ownership. In addition, institutional ownership of SCFs plays a strong role in corporate governance since it is negatively related to dividend payouts when firm growth is high while this relationship becomes positive when firm growth is low. These results suggest that the Islamic law is an important factor affecting dividend policy in Islamic countries.