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JEL Classification System

M10, M20 and M30

Abstract

The mediating role of dividend policy on the impact of capital structure and corporate governance mechanisms on firm value was studied in this research. This study was conducted using the panel data of nonfinancial firms that were drawn from the firm’s financial statements and annual corporate governance report. The data were deracinated from the OSIRIS database, company website, and PSE Edge that were listed on the Philippine Stock Exchange for the years 2013 to 2016. To analyze the full model, the partial least squares–structural equation modeling approach was used with the statistical significance level of 0.05. With this, findings denuded that capital structure, the board size, and CEO duality have a negative significant effect, whereas executive compensation has a positive significant effect, both relating to firm value. However, board independence and institutional ownership have a positive but not significant effect on firm value. It was also ascertained that the impact of capital structure and corporate governance mechanisms on firm value was not mediated by dividend policy. These infer that markets are imperfect and firms do follow specific payout policies to enhance their value. Market factors such as legal, taxation, issuance cost, and informational asymmetry among investors, managers, and shareholders as well as different degrees of rationalization or psychological behaviors affect how dividend payment becomes a significant factor in increasing or decreasing firm value.

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