DIVIDEND SIGNALING HYPOTHESIS AND AGENCY COST: AN INVESTIGATION ON SHARIAH AND NON-SHARIAH COMPLIANT FIRMS IN KUALA LUMPUR SHARIAH INDEX

DIVIDEND SIGNALING HYPOTHESIS AND AGENCY COST: AN INVESTIGATION ON SHARIAH AND NON-SHARIAH COMPLIANT FIRMS IN KUALA LUMPUR SHARIAH INDEX
Aulia Fuad Rahman
Fakultas Ekonomi Universitas Brawijaya, Malang
E-mail: fuad@fe.unibraw.ac.id
M. Farid Wajdi
Fakultas Ekonomi Universitas Muhammadiyah Surakarta
Jalan Ahmad Yani, Tromol Pos I, Surakarta 57102
Telepon: (0271) 717417 psw 210 & 214
E-mail: faridwazdi2000@yahoo.com
Abstract
This study, basically, is an attempt to extent the exploratory study by Rahman (2006) which found that cumulative abnormal return (CAR) for Shariah-compliant firms is higher than CAR for non-Shariah compliant firms. Based on the information content hypothesis and agency cost literature, this study is attempted to provide empirical evidence on whether Shariah-compliant firms pay higher dividend than non-Shariah-compliant firms. Further, this study also attempted to provide empirical evidence on whether Shariah and non-Shariah compliant firms have different level of agency cost. The result supports the hypothesis that Shariah-compliant firms pay higher dividend to their shareholders than non-Shariah compliant firms. It implies that dividend may become a source of higher CAR gained by Shariah-compliant firms. The result also support the notion that dividend will mitigate agency cost between owners and management, as shown by evidence that Shariah-compliant firms facing less agency cost than non-Shariah-compliant.
Key words: Dividend signaling, agency cost, shariah index
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