corporate governance and dividend policy

According to Becht, Bolton and Röell (2003) refer to a group of policies that supervisors can
share with corporate governance (CG onward). This definition includes mechanisms such as
credit, independent directors, managers, concentrated participation and conventional royalties.
Given the issue of dividend policy, the only way to resolve the conflict is to bring changes in the
rules to control dividends in the hands of the company's external members. Gosen (1995)
analyzes alternative ways of doing this and offers an extreme solution with the policy of sharing
the mandatory selection mechanism. An unsolved problem is how these mechanisms come
together.
In our particular case, we want to know which of these instruments will replace or complete the
dividend policy (DP onward). On the one hand, La Porta, López-de-Silanes, Schleifer and
Vishny (2000) believe that division policy complements corporate governance. They study the
DP of publicly traded companies in 33 countries and discover that capital managers in countries
where investors' rights are respected can pay dividends. On the other hand, John and Knyazeva
(2006) and John, Knyazeva and Knyazeva (2013) consider dividends as another replacement
tool for internal control and are approved by US companies. With better management and lower
delivery rates. This is consistent with the notion that dividend payers are not required to regulate,
for example, there are other factors that ensure the optimal use of accumulated earnings. Drivers
fear of loss or dismissal of the quote, or suffering from a takeover bid. How do I know that you
can integrate these seemingly inconsistent outcomes?
The solution to this mystery needs a excel convention of the process for determining the
company's dividend policy. Alternatively, this process can be controlled by foreign investors or
with insider information. If outsiders control the dividend policy, they are look forward to use it
as a replacement mechanism to dominate the government or make internal decisions when other
CG mechanisms are not successful. The logic is simple:
Foreign investors will choose free dividend policies to reduce their free cash flow because they
know that there are no alternative mechanisms that can resolve the agency's friction, even if it is
costly. On the other hand, if those who control the DP are experts, the policy chosen will depend
on the quality of the company's general corporate governance, in addition to other CG
mechanisms that will function in the same way. . In reality, when the incidents control the DP
and the government is weak, the DP will fail in its try to enter the spinal agent conflict. On the
other hand, if income controls dividend policy, but other work correctly and encourage those
who have the power to make decisions, the design of the DP will overcome the flow of free cash.
Especially the expectant will choose to reduce free cash flow by controlling dividend policy, if
there is a stimulus for them, options in executive compensation packages, pressure from
independent directors, institutional investors, etc.
As we saw in the previous section, the DP is legally managed by internal people, so it is expected
to reflect the overall quality of CG and complement other existing mechanisms to improve public
and government decision making. Therefore, there must be alternative mechanisms for CG that
now force managers to distribute free cash flow.
So, let's continue briefly analyzing how internal and external controls can change DP by
encouraging foreign investors and, in turn, jeopardizing the position of the interior. Managers
will see that the cost of their actions is reduced, their choices are worthless and they run the risk
of losing their job or other mechanisms through their work arrangements. These status quo
threats serve as a powerful incentive to change DP and distribute free cash flow. However, it
should be taken into account that these market mechanisms will be less effective with the
participation of control partners. Note that the value of the shares will also be depleted, but the
lack of structural liquidity of the controlling interest and the long-term horizontal investment of
such investments reduces the influence of the stock market on internal behavior. In terms of
internal control, there are tools for the management of internal power by active investors and
executives.
In a company controlled by activists, activists can force the government to develop and distribute
more generous dividends. This is in line with the proof of the job done by activists in corporate
governance. What is the role that active investors in companies can play with the majority of
shareholders? In the last decade, activist investors have begun to develop interests in European
companies with concentrated ownership structures, but there is still insufficient empirical
evidence on the role these companies play in corporate governance. Belcredi and Enriques
(2015) provide anecdotal evidence about the experience of institutional investors in Italy and
evaluate that these funds are encouraged. For the United States, for example, Brav, Jiang,
Partnoy and Thomas (2008) confirm that there are positive abnormal returns in companies that
have received more than 5% participation in the 13D form of positive numbers when SEC
coverage funds are offered. Acquired businesses have more rotational experience in earnings,
performance and after the entry of these activists.

Becht, Franks, Mayer and Rossi (2008) describing the activity of an investor-defined
organization, Hermes UK Focus Fund (HUKFF), show that active policies mainly focus on
restructuring operations to pay dividends to the CEO to replace

Initiatives of unequal success aimed at ending private profits by controlling shareholders. In

addition, these activists continue to consider DPas a way forward. Erede (2009), who is also
investigating the specific Italian situation, analyzed several cases in which hedge funds were
forced to distribute more dividends, but maximum of these cases were uneffective.
Ultimately, an preferred method of internal CGis the board of directors and especially
independent directors. The job of independent consultants is to vote for foreign investors and
force participants to allocate free funds. Unfortunately, the outcomes in the empirical literature
on the development of advice and the role of independent directors are unclear and indicate the
important limitations they face. However, the meetings are expected to be less effective in most
of the shareholders' businesses. Remember that regardless of its composition, the board has very
effective techniques to harness the power of executives, since they are liable for designating an
executive, preparing a payment package and approving accounts. However, when it comes to
limiting the powers of most shareholders, the board does not have the necessary tools. The
benchmark and codes of good practice indicate that companies have remuneration and audit
committee composed of the maximum of independent directors. However, it is uncertain that this
mechanism is sufficient for partnerships with controlling partners, since it is the responsibility of
the supervisors to leave the majority of the shareholders. Gutiérrez and Sáez (2013) examine this
problem and contended that the functions of independent directors in most shareholder firms are
ineffective if they are not reworked to provide greater power to protect minorities from the
personal interests of the partners.

Absence of facts , absence of motivation and even dearth of real independence (as opposed to
formal independence) reduces legal advice on the use of force by people with privileged
information. The result we have concluded so far is that rotation has the power to develop a
dividend policy. At the same time, its power is subject to existing CGmechanisms. Therefore,
insurers with collapsed property structures will face a series of barriers to maintain free cash
flow. flow. However, concentrated real estate companies do not have a solid stock market or
CGmechanism that can prevent most shareholders from retaining and comparing profits. As we
see in the next section, we can explain most of the findings about the differences in the dividend
policies of companies with different corporate governance, and the notable differences in the
dividend policies of companies with and without the majority of shareholders.

Evidence on DP in companies with a structure of concentrated ownership

De Angelo and Skinner (2009) argue that even when there is no doubt, companies with the
majority of shareholders will notice differences in dividend policy. This is because most
shareholders will generally find it difficult to meet their consumption and investment needs with
the 'adjusted' dividends that small shareholders obtain. As a rule, most shareholders' investments
are not liquid, and the sale of significant shares can be a loss of control that they naturally want
to avoid. Therefore, assuming that attachment is not a problem, we can expect that most
shareholder companies have more generous distribution rates. However, their choices may
change over time, and most types of shareholders can be family, state or business. For example,
Goergen, Renneboog and Da Da Silva (2005) show that bank-controlled companies in Germany
tend to omit or exclude dividend payments in a given year, and Hugler (2003) shows that family
businesses in Austria for the controlled state companies are more likely to reduce dividends
In general, the empirical prediction is completely inadequate, given the private benefit that most
shareholders receive at the expense of minority shareholders. As we have seen, most
shareholders are likely to choose lower dividend rates if they can use their power to control the
personal interests of minorities. This is because most shareholders prefer to avoid the
proportional distribution of benefits, since all shareholders receive the same treatment. As a
result, they pay less dividends and retain undistributed profits in the community, which can
redistribute a large portion of their profits through tunnels, independent businesses and related
operations. As we will see later, the empirical analysis of all evidence of countries with
concentrated ownership structure is consistent with this prediction.
The first evidence of this image is La Porta et al. (2000) showed that in countries with little legal
protection from foreign investors, the distributed participation is lower. The way companies
improve and improve their health.

For example, D. Denis and Osobov (2005) find significant differences in the DPof companies in
Germany, France and Japan, compared to the US companies Canada and the United Kingdom.
Larger and more profitable companies are more likely to pay dividends in all the countries in the
sample, but when growth opportunities are analyzed, dividend distribution in the United States,
Canada and the United Kingdom is more likely, with Germany, France and Japan opposite
The negative correlation between the structure of concentrated ownership and dividends has been
documented by Faccio, Lang and Young (2001) for European companies and Asian Maury
&Pajuste (2002) for Finland; Goergen for Germany, Correia da Silva and Renneboog (2004);
Renneboog and Trojanowski for the United Kingdom (2005); Chen (2004) for Companies in
developing markets; While Harada and Nguyen (2006), Mancinelli and Ozkan (2006) for Japan
and Italy. With only a sample of 37 countries, Truong and Heaney (2007) found a positive
relationship between the percentage of shares owned by the largest shareholder and the
percentage of dividends distributed, but with a larger share, the greater the shareholder, the lower
the payment of dividends, they realize what it is. This is a problem that may arise in empirical
research, with the problem related to the variables published as a result of low dividend
payments and the concentration of real estate. At the same time, other business characteristics
may arise and there is no causal relationship between the two. To determine the causal
relationship, Gugler, Mueller, Yurtoglu and Zulehner (2003) study the market response to
dividend reduction announcements in Germany and discover that the negative effects are greater
for companies with greater internal power. Wei, Xie and Zhang (2005) achieve the same result
for large sample companies in more than 20 countries. Tomsen (2005), who is also investigating
the causes, confirms that the increase in concentrated assets is related to a subsequent decrease in
dividend payments.
Some investigations have been advanced and investigates not only if the concentration of the
property has a negative effect on the dividends, but also on the structure of the concentrated
property. According to our theory, although most shareholders have the power to determine their
dividend policy, they will only use the DPto reimburse cash flow if there are other
CGmechanisms that limit their power.
Some studies have analyzed the influence of other important shareholders in the dividend policy,
apart from the controlling shareholder. Bolton and Von Thadden (1998) and Pagano &Röell
(1998) develop theoretical models that have a positive effect on the existence of other
shareholders because they control the majority of the shareholders. However, there are cases in
which several shareholders have shared control. Bennedsen and Wolfenzon (2000) examined for
the first time the impact of the presence of several shareholders in the government block on
corporate governance, who developed a theoretical model to demonstrate how these governance
structures can facilitate expropriation. due to paralysis or stagnation. The evidence available in
the case of DP is uneven. Faccio et al (2001) argue that the presence of significant shareholders
in Europe reduces problems of expropriation and results in higher fines for shareholders at the
expense of dividends. This is consistent with the idea that the control exercised by other
significant shareholders has a favorable effect. However, it should be borne in mind that the
presence of several important shareholders in the same company in Asia causes lower dividend
rates. The poor quality of CGin Asian jurisdictions and the lack of protection of external partners
indicate that the exploitation of foreign shareholders can be a big disagreement among the main
shareholders. Maury and Pajuste (2002), Finland, show that payment rates are negatively related
to the fact that dividends are a second major shareholder in companies. Hugler et al. (2003)
confirm a positive relationship between the second largest shareholder and the distribution of
dividends in Germany. This may be due to the different results, which are the control unit, and
the absence of differences between countries and companies in guaranteeing the minimum level
of government. However, all this indicates that there is a conflict of interest between the different
dividend policies preferred by the shareholders, the different options in the control block or the
different preferences between the control block and minority shareholders.

Evidence on DP in companies with a structure of concentrated ownership

De Angelo and Skinner (2009) argue that even when there is no doubt, companies with the
majority of shareholders will notice differences in dividend policy. This is because most
shareholders will generally find it difficult to meet their consumption and investment needs with
the 'adjusted' dividends that small shareholders obtain. As a rule, most shareholders' investments
are not liquid, and the sale of significant shares can be a loss of control that they naturally want
to avoid. Therefore, assuming that attachment is not a problem, we can expect that most
shareholder companies have more generous distribution rates. However, their choices may
change over time, and most types of shareholders can be family, state or business. For example,
Goergen, Renneboog and Da Da Silva (2005) show that bank-controlled companies in Germany
tend to omit or exclude dividend payments in a given year, and Hugler (2003) shows that family
businesses in Austria for the controlled state companies are more likely to reduce dividends
In general, the empirical prediction is completely inadequate, given the private benefit that most
shareholders receive at the expense of minority shareholders. As we have seen, most
shareholders are likely to choose lower dividend rates if they can use their power to control the
personal interests of minorities. This is because most shareholders prefer to avoid the
proportional distribution of benefits, since all shareholders receive the same treatment. As a
result, they pay less dividends and retain undistributed profits in the community, which can
redistribute a large portion of their profits through tunnels, independent businesses and related
operations. As we will see later, the empirical analysis of all evidence of countries with
concentrated ownership structure is consistent with this prediction.
The first evidence of this image is La Porta et al. (2000) showed that in countries with little legal
protection from foreign investors, the distributed participation is lower. The way companies
improve and improve their health.

For example, D. Denis and Osobov (2005) find significant differences in the DPof companies in
Germany, France and Japan, compared to the US companies Canada and the United Kingdom.
Larger and more profitable companies are more likely to pay dividends in all the countries in the
sample, but when growth opportunities are analyzed, dividend distribution in the United States,
Canada and the United Kingdom is more likely, with Germany, France and Japan opposite
The negative correlation between the structure of concentrated ownership and dividends has been
documented by Faccio, Lang and Young (2001) for European companies and Asian Maury
&Pajuste (2002) for Finland; Goergen for Germany, Correia da Silva and Renneboog (2004);
Renneboog and Trojanowski for the United Kingdom (2005); Chen (2004) for Companies in
developing markets; While Harada and Nguyen (2006), Mancinelli and Ozkan (2006) for Japan
and Italy. With only a sample of 37 countries, Truong and Heaney (2007) found a positive
relationship between the percentage of shares owned by the largest shareholder and the
percentage of dividends distributed, but with a larger share, the greater the shareholder, the lower
the payment of dividends, they realize what it is. This is a problem that may arise in empirical
research, with the problem related to the variables published as a result of low dividend
payments and the concentration of real estate. At the same time, other business characteristics
may arise and there is no causal relationship between the two. To determine the causal
relationship, Gugler, Mueller, Yurtoglu and Zulehner (2003) study the market response to
dividend reduction announcements in Germany and discover that the negative effects are greater
for companies with greater internal power. Wei, Xie and Zhang (2005) achieve the same result
for large sample companies in more than 20 countries. Tomsen (2005), who is also investigating
the causes, confirms that the increase in concentrated assets is related to a subsequent decrease in
dividend payments.
Some investigations have been advanced and investigates not only if the concentration of the
property has a negative effect on the dividends, but also on the structure of the concentrated
property. According to our theory, although most shareholders have the power to determine their
dividend policy, they will only use the DPto reimburse cash flow if there are other
CGmechanisms that limit their power.
Some studies have analyzed the influence of other important shareholders in the dividend policy,
apart from the controlling shareholder. Bolton and Von Thadden (1998) and Pagano &Röell
(1998) develop theoretical models that have a positive effect on the existence of other
shareholders because they control the majority of the shareholders. However, there are cases in
which several shareholders have shared control. Bennedsen and Wolfenzon (2000) examined for
the first time the impact of the presence of several shareholders in the government block on
corporate governance, who developed a theoretical model to demonstrate how these governance
structures can facilitate expropriation. due to paralysis or stagnation. The evidence available in
the case of DPis uneven. Faccio et al (2001) argue that the presence of significant shareholders in
Europe reduces problems of expropriation and results in higher fines for shareholders at the
expense of dividends. This is consistent with the idea that the control exercised by other
significant shareholders has a favorable effect. However, it should be borne in mind that the
presence of several important shareholders in the same company in Asia causes lower dividend
rates. The poor quality of CGin Asian jurisdictions and the lack of protection of external partners
indicate that the exploitation of foreign shareholders can be a big disagreement among the main
shareholders. Maury and Pajuste (2002), Finland, show that payment rates are negatively related
to the fact that dividends are a second major shareholder in companies. Hugler et al. (2003)
confirm a positive relationship between the second largest shareholder and the distribution of
dividends in Germany. This may be due to the different results, which are the control unit, and
the absence of differences between countries and companies in guaranteeing the minimum level
of government. However, all this indicates that there is a conflict of interest between the different
dividend policies preferred by the shareholders, the different options in the control block or the
different preferences between the control block and minority shareholders.

Evidence on DP in companies with a structure of concentrated ownership

De Angelo and Skinner (2009) argue that even when there is no doubt, companies with the
majority of shareholders will notice differences in dividend policy. This is because most
shareholders will generally find it difficult to meet their consumption and capital invested needs
with the 'adjusted' dividends that small shareholders obtain. As a rule, most shareholders'
investments are not liquid, and the sale of significant shares can be a loss of control that they
naturally want to avoid. Therefore, considering that attachment is not a problem, we can expect
that most shareholder companies have more generous distribution rates. However, their choices
may vary over time, and most types of shareholders can be family, state or business, eg.
Goergen, Renneboog and Da Da Silva (2005) show that bank-controlled companies in Germany
tend to omit or exclude dividend payments in a given year, and Hugler (2003) shows that family
businesses in Austria for the controlled state companies are more likely to reduce dividends
In general, the empirical prediction is completely inadequate, given the private benefit that most
shareholders receive at the expense of minority shareholders. As we have seen, most
shareholders are likely to choose lower dividend rates if they can use their power to control the
personal interests of minorities. This is because most shareholders prefer to avoid the
proportional distribution of benefits, since all shareholders receive the same treatment. As a
result, they pay less dividends and retain undistributed profits in the community, which can
redistribute a large portion of their profits through tunnels, independent businesses and related
operations. As we will see later, the empirical analysis of all evidence of countries with
concentrated ownership structure is consistent with this prediction.
The first evidence of this image is La Porta et al. (2000) showed that in countries with little legal
protection from foreign investors, the distributed participation is lower. The way companies
improve and improve their health.

For example, D. Denis and Osobov (2005) find significant differences in the DPof companies in
Germany, France and Japan, compared to the US companies Canada and the United Kingdom.
Larger and more profitable companies are more likely to pay dividends in all the countries in the
sample, but when growth opportunities are analyzed, dividend distribution in the United States,
Canada and the United Kingdom is more likely, with Germany, France and Japan opposite
The negative correlation between the structure of concentrated ownership and dividends has been
documented by Faccio, Lang and Young (2001) for European companies and Asian Maury
&Pajuste (2002) for Finland; Goergen for Germany, Correia da Silva and Renneboog (2004);
Renneboog and Trojanowski for the United Kingdom (2005); Chen (2004) for Companies in
developing markets; While Harada and Nguyen (2006), Mancinelli and Ozkan (2006) for Japan
and Italy. With only a sample of 37 countries, Truong and Heaney (2007) found a positive
relationship between the percentage of shares owned by the largest shareholder and the
percentage of dividends distributed, but with a larger share, the greater the shareholder, the lower
the payment of dividends, they realize what it is. This is a problem that may arise in empirical
research, with the problem related to the variables published as a result of low dividend
payments and the concentration of real estate. At the same time, other business characteristics
may arise and there is no causal relationship between the two. To determine the causal
relationship, Gugler, Mueller, Yurtoglu and Zulehner (2003) study the market response to
dividend reduction announcements in Germany and discover that the negative effects are greater
for companies with greater internal power. Wei, Xie and Zhang (2005) achieve the same result
for large sample companies in more than 20 countries. Tomsen (2005), who is also investigating
the causes, confirms that the increase in concentrated assets is related to a subsequent decrease in
dividend payments.
Some investigations have been advanced and investigates not only if the concentration of the
property has a negative effect on the dividends, but also on the structure of the concentrated
property. According to our theory, although most shareholders have the power to determine their
dividend policy, they will only use the DPto reimburse cash flow if there are other
CGmechanisms that limit their power.
Some studies have analyzed the influence of other important shareholders in the dividend policy,
apart from the controlling shareholder. Bolton and Von Thadden (1998) and Pagano &Röell
(1998) develop theoretical models that have a positive effect on the existence of other
shareholders because they control the majority of the shareholders. However, there are cases in
which several shareholders have shared control. Bennedsen and Wolfenzon (2000) examined for
the first time the impact of the presence of several shareholders in the government block on
corporate governance, who developed a theoretical model to demonstrate how these governance
structures can facilitate expropriation. due to paralysis or stagnation. The evidence available in
the case of DPis uneven. Faccio et al (2001) argue that the presence of significant shareholders in
Europe reduces problems of expropriation and results in higher fines for shareholders at the
expense of dividends. This is consistent with the idea that the control exercised by other
significant shareholders has a favorable effect. However, it should be borne in mind that the
presence of several important shareholders in the same company in Asia causes lower dividend
rates. The poor quality of CGin Asian jurisdictions and the lack of protection of external partners
indicate that the exploitation of foreign shareholders can be a big disagreement among the main
shareholders. Maury and Pajuste (2002), Finland, show that payment rates are negatively related
to the fact that dividends are a second major shareholder in companies. Hugler et al. (2003)
confirm a positive relationship between the second largest shareholder and the distribution of
dividends in Germany. This may be due to the different results, which are the control unit, and
the absence of differences between countries and companies in guaranteeing the minimum level
of government. However, all this indicates that there is a conflict of interest between the different
dividend policies preferred by the shareholders, the different options in the control block or the
different preferences between the control block and minority shareholders.

Impact of Dividend Payout on the Profitability of the Firm

The payout ratio has correlation co-efficient value -0.1401 with the ROA of firms and -0.1855
with ROE of firms. In both cases the correlation is negative, asserting the negative association
and negative impact of payout on the profitability of firms. This mean if the company pays more
and more in dividend its profitability will keep on decreasing. Further the structural model
reveals the co-efficient value -0.019, z value of -0.94 and p value of 0.348, these results
indicating the negative but insignificant impact of payout on the profitability of firms. In simple
words it can be stated that if the company payout ratio increase it reduce the profitability of
firms. As the impact is insignificant it can be deducing that the impact is negative but not
considerable as it will cause a very low amount of change which is ignorable. On the basis of
above results the hypothesis H4: there is positive impact of dividend payout on the profitability
of the firm, has been rejected as the payout have negative insignificant impact on the profitability
of firms. It is evident from the literature that payout can have various type of impact on the firm
performance like the cliental effect says if the majority of investors required and prefers high
dividend than high payout ratio will enhance the share price goodwill and value of the firms.

On the other hand, if majority of investors require and prefers capital gains instead of dividend
than high payout will lead to low share price, low goodwill and low value of the firms. The same
notion can be found the word of De Angelo and Skinner (2009) argue that one would expect to
observe differences in the dividend policies of companies with majority shareholders, even in the
absence of expropriation problems. This is because it will generally be more difficult for
shareholders that the majority can meet their consumption and investment needs with "custom-
made" dividends to what small shareholders do. As a general rule, the investments of the
majority shareholders are not liquid and the sale of a significant shareholding could imply a loss
of control that they will naturally try to avoid. Therefore, assuming there are no expropriation
problems, we could expect that companies with majority shareholders have more generous
distribution rates. However, it happens that your preferences may change over time and also
according to the types of majority shareholders, be they families, the state or companies. For
example, Goergen, Renneboogy and Correia Da Silva (2005) find that in Germany the
companies controlled by the banks show a greater predisposition to skip or exclude the payment
of dividends in a given year and Gugler (2003) shows that in Austria the companies Family-
controlled are more likely to cut dividends than state-controlled companies. The above results
and discussion on the previous literature address the question number 4: What is the impact of
dividend payout on the profitability of the firm? On the basis of results obtained in current study
the impact of payout is negative but insignificant while the theory of cliental effect and previous
literature assumes that impact of payout can be positive, negative and in some cases no impact.

Research Methodology
Research methodology" comes from the word "Method" which means the right way to do
something; and "Logos" which means science or knowledge. So, methodology means how to do
something by using the mind carefully to achieve a goal. While "Research" is an activity to
search, record, formulate and analyze until compiling the report.

More broadly, it can be said that research methodology is science that learns ways to make
observations with the right thinking in the most comprehensive way through the stages that are
arranged scientifically to find, compile and analyze and conclude data, so that it can be used to
find, develop and test the truth something knowledge based on the guidance of God.

The research methodology consists of the word methodology which means the knowledge of the
paths taken to obtain an understanding of the goals that have been set before. In line with the
meaning of the research mentioned above, research can also be interpreted as a business / activity
that require accuracy or precision in understanding reality as far as possible as it is. So, research
methodology is the science of the path that is passed to achieve understanding. The road must be
determined scientifically responsibly and the data sought to build / gain understanding must be
through the requirements of accuracy, meaning that the truth must be trusted.
3.2 Research philosophy
According to Lincoln & Guba (1986)research must be carried out based on the principle of
logical thinking and carried out over and over again considering that research never stops at a
certain point in time. In logical thinking, a scholar must be allow to merg existing theories /
ideas with facts in the field and be carried out systematically. So, it can be said that research is a
process that is conducted systematically to produce information. In the view of philosophy of
science, the soundness of information produced via research is well dependent on the consistency
between ontology, epistemology and methodology used by researchers. As a good analyst is a
analyst who understands well the philosophical foundation used in the research process.Deetz
(1996)argue that social science can be conceptualized with four suppositions connected to
ontology, epistemology, human nature, and methodology. Ontology is an important assumption
about the core of the phenomenon in research. The basic question about ontology emphasizes
whether "reality" which is researched objectively or "reality" is an individual cognitive product.
The ontology debate is therefore distinguished between realism (which considers that the social
world exists independently of individual appreciation) and nominalism (which considers that the
social world which is outside the individual's cognitive comes from just the name, concept and
label used to compile reality). While Epistemology is an assumption about the basis of
knowledge - about how one begins to understand the world and communicates it as information
to others. What forms of information can be obtained? How can one distinguish what is called
"right" and what is called "wrong"? What is the nature of science? The basic question about
epistemology emphasizes whether it is feasible to point out and communicate information as
something hard, real and tangible (so that information can be achieved) or whether that
information is softer, more subjective, based on experience and insight from one's unique and
important nature (so information is something that must be experienced personally). Debate
about epistemology is therefore distinguished between positivism (which try to describe and
forecast what will happen to the social world by looking for habits and cause and effect
association between the main elements) and post-positivism (which opposes the search for laws
or basic habits in social world affairs argues that the social world can only be explained from the
perception of personal who are precisely concern in the activities under study).

Every research activity from the beginning should be clearly defined what research
approach/design used by researchers that contains how researchers see reality (world views),
how to study phenomena, ways that are used in research and the ways used in interpreting
findings. In the framework of research design, the picking of research paradigms describes the
choice of a belief that will dominate and guide the whole research mechanism (Guba, 1990).
Research paradigms determine what problems are addressed and what types of explanations can
be accepted (Ritzer, 1975). Sarantakos (2012)says that there are several views in social science
about several existing paradigms. But Chariri (2009) stated that there are 2 paradigms,
positivists and post-positivist. With comparison Guba& Lincoln (1994) identified 4 main
paradigms, positivism, post-positivism, constructivism and theoretical criticism. Sarantakos
(1998) contended that there are three main paradigms in social science, namely positivistic,
interpretive, and critical. The choice of paradigm has implications for the selection of data
collection and analysis methodologies and methods.

The current study follow positivism approach is used, because positivism is an approach
endorsed from natural science that emphasizes the mixture of numbers and deductive logic and
the use of quantitative tools in interpreting a phenomenon "objectively". This approach abandon
from the fact that the validity of a science and research comes from the use of precisely
calculated data, retrieved via surveys / questionnaires and combined with statistics and
hypothesis testing that is free of value / objective (Neuman & Kreuger, 2003). In that way, a
phenomenon can be analyzed and then found a association between the variables involved in it.
The relationship is a correlation relationship or causal relationship.

For positivism, social sciences and natural sciences utilized a common philosophy of science, so
that whole scientific actions in both area of science must utilized the same mechanism in
evaluating of answers and developing theories. Practically there are information that are
repetitive in certain rules and arrangement so that the law of cause /effect can be found. Thus, the
theory in understanding is formed from a set of applicable universal laws. While the purpose of
the research is to find out these laws. In this approach, a researcher begins with a general causal
relationship derived from general theory. Then, use the idea to correct the explanation of the
relationship in a more specific context.

The Deductive Process

The purpose of deductive mechanism is to analyze the law of influence according to the laws of
distinct trends, which are the general result. They are stages: direct acceptance, approval and
confirmation. The initial step of the deductive procedure is immediate acceptance, that is,
perception or testing of facts. This progression expects an earlier perception of each reason. It
would be troublesome, for instance, to figure the laws of an article moving in the event that we
didn't initially watch the laws identified with the item and after that those identified with the
reference framework under the watchful eye of drawing the laws of the entirety. In the field of
the economy, the disorders of a function (production, distribution and consumption) cannot take
place without causing several others which generally leads to crises. The understanding of the
crisis therefore depends on the observation of the first traces of the disorder. The second step
comprises in deciding, as per the laws of causes, what will be the impact created by a given mix
of these causes. With the guide of these reasoning from the different laws of causes, we can, to a
limited degree, discover a response to these two inquiries: a specific blend of causes being given,
what will be the impact delivered? What blend of causes, on the off chance that it existed, would
create such a given impact? In the primary case, it is viewed as that the impact will happen in
certain mind boggling conditions, the different components of which are known; in the other, it
is made a decision as indicated by which law (under what forerunner conditions) a given
complex impact will be delivered. The third basic component of the Deductive Method is
confirmation. All together that the ends gotten by surmising are ensured, they should be
deliberately contrasted and the aftereffects of direct perception any place they can be seen. In the
event that immediate perception and examination of actualities outfit observational laws of
impact (valid in every one of the cases watched or in the best number), the surest check of which
the hypothesis is powerless would be that it drives deductively to these equivalent experimental
laws.According to Suriasumantri (2001)Deductive thinking is a reasoning action which is
something contrary to inductive thinking. Deductive is a perspective in which from a general
articulation made a particular inference

3.5 Type of Research (Explanatory Type)

Existing research design is a confirmatory and exploratory study, which means that the research
is conducted through relevant theories, particularly the theory of financial and equity markets, ie
trade theory, financing theory, and distribution theory and the postulates in theories will be tested
through hypothesis. The impact of firm growth on profitability and firm value will be analyzed
by taking profitability as a mediating variable. Dividend payment theory is one of the main
theories in financial management, which will discuss the functional link between DPand firm
value. Incompatibility of the dividend rate means that the dividend payment does not affect the
firm's value. The appropriateness of the dividend ratio suggests that the dividends have a
significant impact on the firm value that we approve in this study. Another theory to be tested is
the Bird Hand theory, presented by Gordon in 1959, indicating that dividend affects the firm's
value.
Explorative research is a study by conducting searches, especially in strengthening ideas that will
be utilized in the vast scope of research with a larger conceptual reach (Yusuf, 2017). In
conducting exploration, mature concepts become goals in research and broader conceptual reach.
Explorative research is an initial study that aims to get an overview of a research topic that will
be examined further (Morrison, 2017).

The purpose of explorative research is presented in more detail by Joseph (2004) that the general
purpose of the research is exploratory, namely to get ideas about the main problems in more
detail and to develop existing hypotheses. The results of exploratory research will answer
whether the research will continue or not. So exploratory research is a type of initial research
from a study that is very broad in nature. To research certain subjects, exploratory research is
very important because it will produce a strong foundation for further research. Explorative
research is a combination of descriptive research and testing, but cannot have an independent
meaning. In explorative research researchers do not want to explore a particular field or record
symptoms, but try to explain it and if possible as a continuation on that basis develop certain
hypotheses (Heitink, 1999). Exploratory research provides direction on the formulation of
problems and hypotheses (Tesch, 2013). The technique of collecting data in exploratory research
can use open interviews and review of various books. When open interviews are conducted,
researchers can ask various deep questions that are closely related to the object under study
(Dörnyei & Taguchi, 2009). As for some of the characteristics of Explorative Research by
(Willig & Rogers, 2017).

Exploratory research is a study where the researcher investigates topics that the researcher does
not know very well or where the research topic is relatively new. This type of research provides
the researcher with preliminary information about the subject and aims to collect surface data.
Generally, exploratory research is preferred in three cases: a) In the absence of systematic
experimental analysis, or unless several studies on the group, process, activity, or situation to be
investigated are b) the relevant subject has not been investigated promptly; (c) - where such
information is subject to such modification, the subject with which it is informed is preferred
(Stebbins, 2001).

Exploratory research studies usually have three objectives: 1) to provide the researcher with an
interest in the subject and the initial information; 2) -Check if more comprehensive research can
be done on the subject; and 3) Develop tools for data collection that can be used in future
research (Kothari, 2004). As it were, the reason for the exploration study is to give the scientist
the information expected to recognize the examination issue and to direct progressively far
reaching research. Lab studies are led to gather the most widely recognized data about the
exploration issue. This sort of research empowers the specialist to find the accessible data
regarding the matter of intrigue and makes way for further look into. In the wake of finishing the
exploration, the specialist recognizes the examination issue dependent on the information
gathered by the scientist. Research enables the specialist to figure out which research technique
he is keen on, what apparatuses he will utilize, and who will be incorporated into his exploration.

Methodology in Exploratory Research:

Research issues can't be precisely recognized in research in light of the fact that there isn't much
data regarding the matter before the study. This kind of research in this way requires the
utilization of a subjective research technique. Research studies incorporate writing research,
conference with specialists, and contextual investigations (Lin, 1976). Literature review is the
initial phase in getting data on any examination subject. The writing survey incorporates the
distinguishing proof, screening and perusing of important writing, and the combination of the
data acquired. Meeting with specialists is the analyst's discussion with specialists to increase
direct data regarding the matter. These pros ought not need to be researchers, yet should have
direct information of research. For the situation study, the specialist doesn't have the foggiest
idea what he is searching for on the grounds that he doesn't explain the exploration issue and has
almost no learning about the subject. Hence, it doesn't utilize organized information gathering in
its perceptions and meetings. The third technique utilized in research studies is the disclosure
strategy. The case revelation covers a point by point overview of the people associated with the
examination. It isn't important to choose an agent test for the case; despite what might be
expected, extraordinary cases are favored over moderate levels (Lin, 1976). In a research study,
the researcher seeks to get enough information about the subject, rather than generalizing the
universe or understanding a social phenomenon in detail.

Quantitative Research Procedure

The steps of quantitative research are the operationalization of the scientific method by paying
attention to scientific elements. Quantitative research starts from the existence of problems that
can be extracted from empirical and theoretical sources, as a preliminary research activity. In
order for the problem to be found well it requires empirical facts and is accompanied by mastery
of the theory obtained from examining various relevant literature. The study was conducted in a
systematic, empirical, and critical manner regarding phenomena guided by theories and
hypotheses.
Research activities begin by identifying issues or issues that are important, actual and interesting.
And the most important thing is the benefits that are generated if the problem is examined. In the
next stage, research looks at goals as a problem. Problems that have been found are formulated in
a problem statement. In general, the formulation of quantitative research problems is arranged in
the form of questions. Formulation of the problem is the determination of factors or aspects
related to the scope of the research study.

In practice the factors and aspects related to the study of the problem are very numerous and
complex. Therefore, restrictions are needed on the dominant factors or aspects. Research divides
the problem into sub-problems that can be managed in a meaningful and affordable manner to be
investigated. Each sub-problem looks for possible answers specifically in the form of an
appropriate hypothesis. In this case a literature study is needed, namely an activity to examine
the theories underlying research. In this activity, empirical matters were also examined which
originated from previous studies. Research temporarily holds hypotheses or questions until all
data is collected and interpreted. In the next stage, the research is directed to find data based on
the formulation of the problems and hypotheses stated earlier. In this case a research design is
needed which contains the stages of research, research methods, data collection techniques, data
sources (population and sample), and the reasons for using the method. Before the data collection
activities are carried out, the technique for preparing and testing the instruments must be
determined first to be used for data collection. The data obtained is then analyzed using statistical
techniques. The results of data analysis are findings that have not been given meaning.

The significance of the aftereffects of information investigation is done through interpretation

that lead to endeavors to beat issues or answer research questions. In this stage it is expressed
about acknowledgment or dismissal of the speculation. Elucidation is made by taking a gander at
the connection between one finding and different discoveries. Decision is a speculation of the
consequences of the elucidation.

Data type, collection source, collection techniques

Research activity cannot be separated from the availability of raw data to provide a specific
description of the research object. Information is the empirical evidence collected by researchers
to solve problems or answer research questions. Research data may come from different sources
collected during the research process using different methods. Source-based survey data can be
grouped into two types, namely primary data and secondary data.
This investigation depends on optional information, secondary data is information that alludes to
data gathered from existing sources. Optional information sources are organization records or
documentation, government distributions, industry investigation by the media, sites, and the web,
etc Sekaran and Bougie (2011)Secondary information is an information source that doesn't
straightforwardly give information to information authorities (Sugiono 2008). The auxiliary
information is information that supports the necessities of essential information, for example,
books, writing and perusing identified with the usage of credit supervision in a bank. That why
for the current research study secondary data will be collected from the annual reports and
financial reports of the firms which will be acquired form manual as well as internet sources?
The balance sheet analysis of state bank and website are used for obtaining relevant data of
firms. The required data has been analyzed by using appropriate statistical techniques and tests.
First, we have check correlation among independent variables, and then used Barren and Canny
model for measuring the profitability as mediating variable.
Descriptive statistics
Descriptive statistics are technique that abridge and explain quantitative information in a way
that expose the concept of information appropriation. Essentially incorporate information rate
examination, brought together method of examination, information spread investigation,
information circulation and some key insights. Highlights incorporate quantitative information
that uncover the qualities of the information dispersion. Elucidating insights is an accumulation
of factual techniques that give a proficient and generally basic strategy for condensing and
describing data. Normally communicated in a graphical technique, it is straightforward and is
anything but difficult to quantify with the conveyance of the estimation of value attributes (for
the most part) and tendency. It is commonly utilized as a reason for quantitative information
examination or as a supplement to the ineffectual factual techniques to gather and describe
information.
3.11.2 Correlation Nature of Correlation Research
Just expressed, correlation can be deciphered as a relationship. However, when grown further,
the correlation can not exclusively be comprehended as restricted to that comprehension.
Correlation is one of the investigative methods in insights used to discover the connection
between two quantitative factors. The relationship of these two factors can happen due to a
causal relationship or it can likewise happen because of shot. Two factors are said to correspond
if changes in a single variable will be trailed by changes in different factors normally a similar
way (positive relationship) or inverse (negative connection).
Correlation research is a study that relates the step of gathering data to evaluate whether there is
n association and the level of association between two or more variables. The association and
level of association between these variables is important, because by knowing the level of the
relationship that exists, researchers can develop it in accordance with the objective of research.
In correlation research, researchers usually only base on the appearance of variables as they are,
without setting conditions or manipulating those variables. Therefore, researchers should know
enough strong reasons to maintain the results of the relationship found. Correlation research is
more appropriate if in research researchers focus their efforts on achieving information that can
explain the existence of complex phenomena through relationships between variables. In the
field of education, correlation studies are usually used to conduct research on a number of
variables which are estimated to have a significant role in achieving the learning process.
Correlation analysis helps determine how close a metric variable is, how close it is, and in which
direction it goes. The correlation coefficient expressing the bivariate statistical association
between two time series may estimate values between +1 and -1, where values near +1 reveal a
positive association between the variables values near 0 no association and values close to -1 in a
close negative context.

3.11.3 Regression analysis (Mediation model)

The Structural Equation Modeling (SEM) model is a tool that combines both the multiple
regressions and the factorial analysis. It allows the researcher not only to evaluate the very
complex dependency association but also incorporate the impact of measurement error on the
structural coefficients at the same time.

The model of structural equations (SEM) allows us to simultaneously examine a series of

dependency relationships, and specifically beneficial when a explained variable becomes an
explanatory variable (Mediator) in subsequent dependency association. In addition, many of
these variables affect each of the explained variables, but with different effects (Hair, et al,
2001). Infect the model of structural equations is an extension of several multivariate techniques
such as multiple regression and factor analysis (Kahn, 2006). However, it has some particular
characteristics that differs it from the other multivariate techniques. One of the differences is the
ability to estimate and evaluate the relationship between unobservable constructs, called
generally latent variables. A latent variable is an assumed construct that can only be measured by
observable variables. In comparison with other analysis techniques where the constructs can be
represented with a single measurement (raw scores of a test, for example) and the measurement
error is not modeled, the SEM allows Multiple measures that represent the construct and control
the measurement error specific to each variable. This difference is important since the researcher
can evaluate the validity of each measured construct.

Another feature of the SEM is that the relationships between latent variables, which can be of
three types: covariance, direct effects or indirect effects (mediators).

Covariance is analogous to the correlation and is defined as the non-directional association

between explanatory (latent) variables. The direct effect is the association between the dependent
variable and the measure (indicator) or between two latent variables, similar to what is observed
in the analysis of multiple regression This relationship is indicated by a unidirectional that
implies directionality between the variables, although it should not be interpreted as
causality. An implied effect is the association between an explanatory variable and a explained
variable when its effect is mediated by one or more latent variables (Baron & Kenny, 1986).