The Simultaneous Effect Dividend Policy and Debt Policy: Indonesian Evidence

This study aims to examine dividend policies for companies listed on the Indonesia Stock Exchange during the 2018-2022 period. Agency theory argues that dividend policy can reduce agency costs and reduce agency conflicts. The percentage of institutional ownership is used as a proxy for agency costs and can be used as a mechanism for lowering agency conflict. The total sample is 44 companies listed on the IDX. The estimation uses the pooling data method and 3SLS. This research develops a simultaneous system econometric model. This study argues that high institutional ownership leads to higher agency conflict, as management and institutions collaborate to prioritize their interests over other shareholders. Conversely, low institutional ownership leads to disputes between management, low institutional, and public shareholders. The entrenchment argument predicts higher conflict in high institutional ownership, while the convergence argument predicts common agency conflict in common institutional ownership.


Introduction
Problems in dividend policy and payment significantly impact investors and companies that will pay dividends. The impact of dividend policy and costs on investors and companies is essential. The payment of dividends is contingent on various factors, including the amount of profit earned, the company's policy, and the level of retained earnings. Businesses must establish a sustainable dividend policy aligning with their strategic goals and objectives. On the other hand, investors should carefully consider a company's dividend history and policy before making investment decisions. Ultimately, a sound dividend policy can enhance a company's reputation and provide investors with a reliable source of income. The amount of dividends depends on the amount of profit earned by the company and the dividend policy or decision regarding the amount of the profit share that will be distributed to shareholders and the part that will be retained by the company as retained earnings (Levy & Sarnat, 1990) The separation of institutional ownership conditions and the separation of shareholder interests can explain the phenomenon of substitution of debt and dividend policies by the agency theory. Therefore, the types and composition of firms' ownership structures are essential factors influencing agency problems (Saleh et al., 2020). The condition of high institutional ownership indicates that there is control over agency conflict, so the role of debt and dividend policies in controlling agency is no longer needed. This condition means that there is no debt and dividend policy on high institutional ownership, but only that the substitution phenomenon does not occur under these conditions. The interdependent relationship between debt policy and dividend policy is also the opposite of the condition of high institutional ownership. Thus, low institutional ownership leads to loose oversight of management. Firm ownership structure has a significant impact on agency problems. When institutional ownership is high, there is less reliance on debt and dividend policies to manage agency conflicts-conversely, low institutional ownership results in inadequate management oversight.

IJFBS VOL 12 NO 2 ISSN: 2147-4486
77 theory where dividends can be used to reduce agency conflicts. The findings from this study examine the relationship between agency costs and dividend policy and the interdependence between debt policy and dividend policy for the capital market in Indonesia. This research is expected to explain the relationship between financial policies in companies that go public in the Indonesian capital market. First, this study examines agency costs' effect on dividend policy. The second is to examine the existence of an interdependent relationship between debt and dividend policies and to test it under conditions of high and low institutional ownership. The estimation uses the pooling data method and three-stage least squares (3SLS). This research develops a simultaneous system econometric model. This study's simultaneous system econometric model thoroughly explores the correlation between debt and dividend policies and how they impact agency costs in the Indonesian capital market.

Theory And Hypothesis Development Dividend Policy
Deciding on a dividend policy is crucial for a company because it can help mitigate conflicts between owners and managers, reducing agency costs. However, dividend policy changes have two opposing effects: neglecting reserve interests if all dividends are paid or ignoring shareholders' interests if profits are retained. To balance both interests, financial managers can pursue an optimal dividend policy. Deciding on a dividend policy is crucial for companies as it can help to minimize conflicts between owners and managers, thereby reducing agency costs, Crutchley et al. (1999) from Easterbrook (1984) and Crutchley and Hansen (1989). Any change in dividend policy will have two opposite effects, Brigham and Gapelnski (1996). In order to mitigate conflicts and agency costs, companies need to establish a well-defined dividend policy. This decision requires careful consideration and analysis, as it can significantly impact the company's financial performance and shareholder value. By adopting a clear and consistent approach to dividend distribution, companies can enhance transparency, promote investor confidence, and support long-term growth objectives. A well-designed dividend policy is critical to effective corporate governance and prudent financial management.

Agency Theory
In agency theory, the principal refers to the shareholder, while the agent refers to the management responsible for the company. The main objective of financial management is to maximize shareholder wealth. As a result, managers appointed by shareholders are expected to act in the best interests of shareholders, despite the frequent conflicts that arise between management and shareholders due to differences in interests. Conflicts of interest can be minimized through a monitoring mechanism that aligns related interests. However, the implementation of this monitoring mechanism incurs agency costs.
Agency cost refers to the expense incurred by a principal in ensuring that an agent acts in their best interest. In a contract between managers (agents) and shareholders (principals), the agent is assigned to execute activities on behalf of the principal, including making decisions, Jensen and Meckling (1976). The term "agency cost" refers to the financial burden a principal must bear to ensure their agent acts in the principal's best interest. When managers, agents, shareholders, or principals engage in a contractual agreement, the agent is responsible for executing various tasks on behalf of the principal, which also entails decision-making. In agency conflict, monitoring activities by outsiders are needed. One of the monitors from outside the company is institutional investors (Jensen & Meckling, 1976); the more the number of monitors, the lower the possibility of conflict, and this means that it will reduce agency costs (agency costs), while the way to reduce agency costs is by paying dividends to shareholders (Jensen et al., 1992) The analysis developed by Jensen (1986) states that institutional ownership can be used as an external company monitor. When there is a higher level of institutional ownership, it results in more excellent monitoring activities being conducted. With this monitoring activity, shareholders will try to minimize the possibility of free cash flow. Thus, the profit earned by the company will be allocated more as dividends, not as retained earnings. Crutchley et al. (1999) found institutional ownership negatively related to dividends. The level of external control and agency costs is inversely proportional to an institution's ownership in a company, leading to decreased utilization of dividends (Crutchlely et al., 1999). The level of external control and agency costs is inversely proportional to the degree of ownership an institution has in a company, leading to a decrease in the utilization of dividends. If institutional ownership can reduce agency costs and managers make this choice in their policies, then managers will reduce their level of ownership, dividend policy, and debt policy. Efriana & Ardiansari (2016) found that agency problems significantly influence dividend policy in the company manufacturers listed on the IDX. Based on the explanation above, the following hypotheses can be developed: Hypothesis 1: Agency costs have a negative effect on dividend policy.

Debt policy and dividend policy
The relationship between debt policy and dividend policy is negative and significant. Debt reduces agency costs and conflicts between managers and owners but shifts the conflicts to owners and debtholders. Debt policy substitutes dividend policy in reducing agency costs. Increasing the use of debt reduces the conflict between managers and owners so that owners do not demand high dividend payments. Using debt in reducing conflicts between managers and owners will shift conflicts between managers and owners into conflicts between owners and debtholders. This condition is confirmed and supported by Chen and Steiner (1999). Jabbouri (2016) suggests that a high debt ratio increases the company's financial risk and financial costs, so companies tend to have a low dividend policy to reduce their financial risk, finding evidence of a negative relationship between dividends and financial leverage. Abdulkadir et al. (2016) also provide strong evidence for Rozeff's (1982) explanation because the results show that dividends decrease as leverage increases. Kuwari (2009), Lee. (2016), and Yusof, Ismail, and Ali (2016 found a negative relationship between dividends and capital structure. Jensen and Meckling (1976) argue that agency conflicts occur because of the separation of ownership and control. The more concentrated ownership is in one person or company, control will be more robust, so the tendency for agency conflicts can be suppressed. This argument is called Convergence. The entrenched argument, as put forward by Morck, Shleifer, and Vishny (1988), states that more significant agency conflict will occur in high institutional conditions because the conflict involves many parties, namely the institutional shareholders and managers versus public shareholders (Mahadwarta, 2005). High institutional conditions cause moral hazard to get worse because two parties carry it out, while low institutional conditions are carried out only by management.
The agency cost of equity and debt can be balanced through dividend and debt policies, known as agency theory. (Megginson, 1997:338). Debt policy divides the agency burden from shareholders to creditors so that equity agency costs are reduced but will incur debt agency costs. Decision-making on dividend and debt policies will affect the agency cost for shareholders and creditors so that agency cost can be controlled through the interdependence of dividend and debt policies. According to the entrenchment argument, institutional ownership limits itself in increasing shareholder wealth, prioritizes increasing its wealth, and ignores the wealth of other shareholders. This study argues that significant agency conflicts tend to occur in high institutional conditions due to more muscular institutional control over management. This causes management to act in the interest of institutional shareholders, which is detrimental to shareholder ownership.
Institutional ownership refers to the shares of a company owned by institutions, such as insurance companies, banks, and investment companies. The presence of institutional investors who own shares will promote better monitoring of management performance. The existence of share ownership by institutional investors will encourage more optimal monitoring of management performance. Gul et al. (2012) and Yegon et al. (2014) stated that institutional ownership significantly negatively affects agency costs because institutional parties can monitor company performance and manager behavior and will influence manager decision-making. Different results were put forward by McKnight and Weir (2009) and Chiang and Ko (2009), who stated that institutional ownership significantly positively affects agency costs because institutional shareholders cannot constantly monitor it effectively.
Higher agency conflicts arise in large organizations when both institutional and management parties engage in actions that harm other shareholders. In large institutions, high agency conflicts can occur when the institutional and management parties engage in actions that harm other shareholders. These conflicts can arise from a lack of alignment of interests and goals between the parties, leading to a breakdown in trust and cooperation. Such conflicts can have significant negative consequences for the institution, including a loss of reputation, reduced shareholder value, and legal and regulatory sanctions. As such, institutions need to take steps to manage and mitigate these conflicts, including implementing strong governance structures and ensuring transparency and accountability in decision-making processes. This causes debt and dividend policies to be carried out simultaneously to reduce agency conflicts so that the relationship between debt and dividend policies in conditions of high institutional ownership is positive. This is contrary to the predictions of agency theory which argues that the relationship between debt and dividend policy interdependence is substitutional negative because of the exchange of agency cost (Jensen & Meckling,1976;Megginson, 1997). On the other hand, agency conflict, which is lower in institutional ownership, requires only one way to control agency conflict. The interdependence relationship between debt and dividend policies in the agency theory argument is substitutional (negative) because applying both policies simultaneously to control agency conflict is excessive.
When institutional ownership is low, convergence and entrenched arguments agree that there is less external monitoring of management behavior. As a result, shareholders must rely more on dividend and debt policies to control management. Both of these ways of reducing agency conflict will affect company performance and directly affect the value of shareholder wealth (Jensen & Meckling,1976). Low institutional ownership may lead to inadequate monitoring, requiring either monitoring or binding. Low debt alone is insufficient to prevent management from using debt for personal gain. The higher the amount of debt will encourage better monitoring to ensure that management acts in the interest of shareholders and creditors.
It is important to note that high levels of institutional ownership can result in a contrasting relationship between debt policy and dividend policy due to their interdependence. Institutional ownership at low levels can lead to a dearth of management oversight. However, this issue can be mitigated by implementing binding measures such as dividends or leveraging external parties for monitoring debt. Balancing of agency theory is supported by the findings of Jensen, Solberg, and Zorn (1992) that management will make a result-off between dividend payment and fixed debt bills, so when debt is high, dividends distributed will be low. Increasing the use of debt is believed to reduce agency costs (Jensen & Mackling, 1976). Excessive debt can pose a significant risk to a business, increasing the likelihood of bankruptcy. To mitigate this risk, managers may reduce their ownership stake in the company. This cautious approach can translate into focusing on maintaining high dividend payments to shareholders. Based on the description above, the following hypotheses can be developed: Hypothesis 2a: There is a negative interdependence between debt and dividends Hypothesis 2b: The relationship between debt and dividend interdependence is positive when institutional ownership is high Hypothesis 2c: The relationship between debt and dividend interdependence is negative when institutional ownership is low

Research Method
The population for this study included all companies listed on the Indonesian Stock Exchange from 2018 to 2020. The sampling method used was purposive sampling, based on the specific criteria set by the company. First, companies listed on the IDX from 2018-2022. Second, the Company has published complete financial statements. Third, the Company pays dividends during the observation period. The research data utilized in this study consists of secondary data gathered from the financial reports of companies listed on the Indonesia Stock Exchange (IDX) between 2018 and 2022. The selection of these companies was based on their adherence to research qualifications. The investigation utilizes a methodology known as panel data regression analysis, which is commonly employed in academic and business settings. This approach involves analyzing data from multiple observations to identify patterns and relationships between variables. By employing this method, researchers can gain insights into the complex dynamics that underlie various phenomena and inform decision-making processes. Overall, the study's use of panel data regression analysis represents a rigorous and sophisticated data analysis approach widely respected in academic and business circles. Definitively the variables used in this study are dividend payout ratio as a dividend policy (DPOUT), agency cost (AGENCY), DEBT as prox debt policy variable (DEBT), tangible asset (TANG), market to book value of equity (MBVE), risk (BETA), institutional ownership (INST), sales growth (SALESG) and company size (SIZE). The measurement of research variables can be explained in Table 1:

Result
In this section, we will provide an in-depth examination of the selected regression analysis model and a detailed presentation of the findings generated by this model. Additionally, we will engage in an elaborate discussion that considers various aspects of the analysis. The discussion in this part begins with presenting the result of descriptive statistical analysis to describe the characteristics of the sample. The population is a company listed on the Jakarta Stock Exchange in the year of observation from 2018 to 2022. The research sample used is 44 companies that meet predetermined criteria.

Descriptive statistics
Table 2 describes the descriptive statistics of the variables used in this study. The DPOUT variable, which serves as a measure of a company's dividend policy, has an average value of 31.5526, a median value of 24.9300, a maximum value of 300.7, and a minimum value of 0.06 and a standard deviation of 35.43, indicating that there are relatively high dividend payout intervals. This figure provides insight into the company's approach to distributing profits to its shareholders. It is important to note that the dividend payout ratio can vary significantly across different industries and sectors. Therefore, analyzing this metric about comparable companies within the same industry is crucial to draw meaningful conclusions. With an average value of 31.5526, it shows that most companies in Indonesia pay dividends in a relatively high percentage because shareholders like significant dividends. The DEBT variable, a DEBT policy, shows the amount of DEBT in the company. The total amount owed by the company is erected in the DEBT variable, which indicates the company's debt policy. The DEBT variable has an average of 0.4641 and a median of 0.4542. It has a maximum value of 2.4684, indicating that a company uses a high percentage of DEBT to finance its operations and growth. It has a minimum value of 0.0054 and a standard deviation of 0.2672.

Model Selection
The model selection was based on a diagnostic panel employed in the study. The Hausman test was conducted using Eviews software, while the Chow and LM tests were performed manually. The results of calculations using the software are:

Pooled Least Square and Fixed Effects
The F-statistic test was conducted in selecting Pooled Least Square and Fixed Effect. The calculation results show the value of F(139, 968) = 2.6347 with a p-value of 8.52824e-18. This means that the results of calculating the p-value reject the null hypothesis, which states that pooled least squares can be used in research. That is, using the fixed effect model is preferred overusing pooled least squares.

Pooled Least Square and Random Effects
Bruesch-Pagan LM Test was conducted to choose between Pooled Least Square and Random Effect. The test result shows that the value of LM = 1183.881 with p-value = prob (chi-square (1) > 1183.881) = 4.9741e-225. The result of calculating the low p-value rejects the null hypothesis, which states that the pooled least squares model is sufficient to explain. The alternative Hypothesis is that using a random effect model is preferable to using pooled least squares.

Fixed Effects and Random Effects
The Hausman test can also be used to choose a model between fixed effects and random effects. The Hausman value obtained is 6.67 compared to the chi-square table value with df = 5 for sig = 5% table 11.07. The chi-square table value is greater than the calculated Hausman value, so the model chosen based on the Hausman test is a random effect model. According to the results of two out of three tests conducted, it was found that utilizing the random model was more effective than the other two models. This study employed the random effect approach as described.

Empirical Findings
The first model tests the effect of the Agency variable as a proxy for agency cost on dividend policy. Meanwhile, the last six models were used to test an interdependence relationship between debt and dividend variables and the interdependence between debt and dividends in high and low institutional ownership conditions. The dependent variables used are DPOUT and DEBT. While the independent variable used is AGENCY, using the control variables BETA, SALESG, MBVE, and LNSIZE.
A summary of the regression result is presented in Tables 3,4. and 5. Based on the regression analysis presented in Table 3, it can be inferred that the variable Agency exerts a statistically significant negative influence on DPOUT. Based on the results of the regression analysis, it has been confirmed that there is a correlation between agency costs and the dividend payout ratio. Thus, the first hypothesis, states that agency costs negatively affect dividend policy, is accepted and statistically supported. DEBT and LNSIZE as control variables significantly affect dividend policy (DPOUT).
DEBT and LNSIZE as control variables are proven to affect dividend policy, while MBVE and SALESG are not proven to affect DPOUT variables or dividend policy. The DEBT variable's regression coefficient was negative and significant at α = 10%. These results indicate that DEBT has proven to have an effect on dividend policy. This shows that the debt policy substitutes the dividend policy by reducing agency costs. -0.0600 (0.0588)** ***1%Significance level, **5%significance level, *10% significance level Table 4 presents the result of the three-stage least square regression used to test the interdependence of DEBT and dividends in equations (ii) and (iii). Equation (ii) the independent variable dividend (DPOUT) has a regression coefficient of -0.0746, significant at α = 10%. This means that dividend policy negatively influences DEBT policy (substitution relationship). Likewise, in equation (iii), the DEBT policy independent variable (DEBT) has a regression coefficient of -1.1051 and is significant at α = 5%. This means that the DEBT policy has a negative effect on the dividend policy (substitution relationship).
The Agency control variable was found to have a significant negative effect on DEBT and dividend policy, with the regression coefficient shown as -1.5023 and significant at the 5% level. The BETA control variable was found to have a negative and significant influence on the DEBT policy variable, which was shown at -1.0250 and was significant at the 1% level. The LNSIZE variable was also found to negatively and significantly affect the dividend policy variable. While the MBVE variable, TANG, was found not to affect DEBT policy, and SALESG was found not to affect dividends. From the result, it can be concluded that there is a significant negative relationship between DEBT policy on dividends, and dividends were found to be negatively significant to DEBT policy. Thus, the second Hypothesis (a) states that the interdependence between DEBT and negative dividends is accepted and statistically supported. Table 5 presents the result of the three-stage least square regression used to test the relationship of the interdependence of DEBT and dividend policies on conditions of high and low institutional ownership, equations (iv and v), and (vi and vii). Equation (iv) for the condition of high institutional ownership dividend policy (DPOUT) has a regression coefficient of -0.2146 and is significant at α = 5%. This means that dividend policy negatively influences DEBT policy (complementary relationship). In equation (v), the independent variable debt policy (DEBT) has a regression coefficient of -3.2864 and is significant at α = 10%. This means The debt policy has a negative effect on the dividend policy, indicating a substitution relationship. The variable INST had a significant positive effect on debt policy and a negative effect on dividends. The variable BETA was found to have an insignificant effect on the variable DEBT policy. In the context of dividend policy variables, it has been observed that the LNSIZE and SALESG variables exhibit a notable and negative influence. It was found that the MBVE variable and TANG had no significant impact on debt and dividend policies. Based on the findings, it can be inferred that a significant inverse correlation exists between the dividend and debt policies in cases where institutional ownership is high and conversely. Thus the second hypothesis (b) states that the interdependence relationship between DEBT and positive dividends on high institutional ownership is rejected. The rejection of the hypothesis that high institutional ownership positively correlates with debt and dividends is a notable finding. This result suggests that other factors may be more significant in determining the relationship between institutional ownership and these financial metrics. Further research may be needed to understand better the complex interplay of factors that impact these variables. Nonetheless, this rejection contributes to ongoing discussions and debates within the academic and business communities about the role of institutional ownership in shaping corporate financial practices.
Equations (vi) and (xii) for conditions of low institutional ownership, the independent variable dividend policy (DPOUT) has a regression coefficient of -3.3310 and is significant at α = 1%. According to this, the dividend policy has a negative impact on the DEBT policy, indicating a substitution relationship. Equation (ix), the DEBT policy as an independent variable (DEBT), has a regression coefficient of -5.6307 and is significant at α = 10%. This means that the dividend policy has a negative effect on the debt policy, indicating a substitution relationship. The INST variable was found to have a significant positive effect on DEBT policy and a negative on dividends. TANG as a control variable was found to influence DEBT policy variables significantly. The LNSIZE variable was also found to negatively and significantly affect the dividend policy variable. While the variables MBVE, BETA were found to have no significant effect on the debt and dividend policies. SALESG variable was also found to have no significant effect on dividend policy  İt can be concluded that in conditions of low institutional ownership, there is a significant negative relationship between DEBT policy and dividends, and contrarily there is a significant negative relationship between dividends and DEBT policy. In the context of institutional ownership, it has been observed that a negative correlation exists between debt policy and dividends. In contrast, a similar negative relationship exists between dividends and debt policy. This relationship is more pronounced when the level of institutional ownership is low. Thus the second Hypothesis (b), which states that the relationship between DEBT interdependence and negative dividends on low institutional ownership, is accepted and statistically supported.

Discussion
From the result of the regression test conducted, it was found that the regression coefficient of the agency cost variable has a negative and significant direction at the 10% level, then H1 of this study is accepted and supported, according to the prediction that the agency cost has a negative effect on dividend policy. It can be explained that the presence of agency cost affects dividend policy. The influence of agency costs on determining dividend policy is a crucial factor that warrants further examination. These results confirm the finding of Audita et al. (2014) that agency costs have a significant negative effect on dividend policy. These results also confirm the findings of D' Souza and Saxena (1999) and Jensen, Solberg, and Zorn (1992), stating that activity by outsiders is necessary for agency conflict. One of the monitors from outside the company is an institutional investor. The more the number of monitors, the lower the possibility of conflict. This means lowering agency cost, although there are other ways to reduce agency cost, is by paying dividends to shareholders. Institutional investors serve as one of the monitors for the company. The greater the number of monitors, the less likely conflicts will arise. This results in a decrease in agency costs. Dividend payments to shareholders can also help to reduce agency costs, among other methods. These results are from the analysis developed by Jensen (1986), stating that institutional ownership can be used as an external company monitor. Increased institutional ownership results in lower agency costs and heightened monitoring activities. According to Jensen and Meckling (1976), external monitoring activities from analysts, brokerage firms, and institutional ownership are necessary to control agency conflicts. This leads to a reduction in dividends.
The control variable in hypothesis 1, SALESG and MBVE, which describes the investment opportunity, is found to have a positive relationship to dividend policy. This shows that the greater the investment opportunity, the greater the dividends distributed. Observing the direct relationship between the potential for investment and the distribution of dividends is an enlightening experience. It serves as a valuable reminder that calculated risks can yield substantial returns. This underscores the importance of prudent decision-making when it comes to investment, as the potential for reward can be significant. The direction of this relationship is to the findings from Kallapur et al. (1999), but the result was not significant in this study. DEBT was found to have a negative and significant relationship to dividend policy, and this result is to the findings of Crutchey et al. (1999), Chen and Steiner (1999), where the relationship is substitutional, as well as the LNSIZE variable, which have a negative relationship with policy dividend.
Hypothesis 2a states that there is an interdependent relationship between DEBT and dividends. According to the results of this study, there is a negative relationship, also known as a substitution relationship, between debt and dividends. These results are the research findings by Crutchely, Jensen, Jahera, and Raymond (1999); Chen and Steiner (1999). A negative and significant correlation exists between the DEBT variable and dividend policy. DEBT policy substitutes dividend policy in reducing agency costs. A debt policy can be a viable alternative to a dividend policy in mitigating agency costs. Using debt to mitigate conflicts between managers and owners may lead to owners refraining from demanding high dividend payments and transferring the conflicts to debtholders. The result of this study supports the research of Chen and Steiner (1999). If agency conflict is controlled through debt (monitoring), dividends are unnecessary and can be substituted. So, each relationship is a substitute or replaces one another because only one mechanism is used to control agency conflicts. In the realm of business, it is common for relationships to be established between parties to achieve mutual goals. These relationships are often subject to agency conflicts, which arise when one party fails to act in the best interest of another. A mechanism called balancing off agency theory is employed to address these conflicts. This mechanism substitutes one relationship for another, effectively controlling agency conflicts fairly and equitably. The control variable for each Agency was found to have a significant negative effect on DEBT and dividend policies. The BETA control variable was found to have a negative and significant effect on DEBT policy variables. The LNSIZE variable was also found to negatively and significantly affect the dividend policy variable. While the MBVE variable, TANG, was found not to affect DEBT policy, and SALESG was found to affect dividends.
Hypothesis 2b states that the interdependence relationship between DEBT and dividends is positive (complementary) when ownership is high. These results were rejected because they did not match the predictions despite proving significant. The study found a negative and significant correlation between debt and dividend interdependence. The effect of DEBT on dividends and the negative effect of dividends on DEBT in agency theory is a substitution relationship in controlling agency conflict. In agency theory, the relationship between debt and dividends is characterized by a substitution dynamic that manages agency conflicts. These findings support the balancing of agency theory, which states that the cost of monitoring agency conflict must be minimized by using only one mechanism and reducing other mechanisms. As mentioned earlier, the results support the tenets of agency theory, which dictate that the cost of mitigating agency conflicts must be minimized by employing a singular mechanism while simultaneously reducing the use of other mechanisms. The entrenchment argument suggests that two controlling tools, dividends, and debt, are necessary to manage high institutional conditions and agency conflict. However, this argument is not supported. The control variable for each BETA was found to have no significant effect on DEBT policy variables. LNSIZE and SALESG variables were found to have a negative and significant effect on dividend policy variables. Meanwhile, the MBVE and TANG variables were found to have no significant effect on DEBT and dividend policy.
Hypothesis 2c. The interdependence relationship between DEBT and dividends is negative (substitution) when institutional ownership is low. The result is consistent with predictions in agency theory that the relationship between DEBT and dividend interdependence at low institutional conditions is negative. According to agency theory predictions, the interdependence between debt and dividends negatively correlates when institutional conditions are low. This suggests that when oversight and regulation are lacking, companies prioritize their interests over those of their shareholders, resulting in a decreased willingness to pay dividends and an increased reliance on debt financing. According to predictions, the interdependence of DEBT and dividends in low institutional conditions is negative. DEBT and dividends are substitute agency conflict is controlled through DEBT (monitoring), then binding through dividends is not carried out because it is redundant. So, each relationship is a substitute or replacement for another because they all use the exact mechanism to control agency conflicts: balancing off agency theory. The control variable for each TANG was found to influence DEBT policy variables significantly. The LNSIZE variable was also found to negatively and significantly affect the dividend policy variable. At the same time, the variables MBVE and BETA were found to have no significant effect on DEBT policy and dividend policy. SALESG variable was also found to have no significant effect on dividend policy.

Conclusions, Implications, and Limitations
The impact of agency cost, measured by institutional ownership, negatively and significantly affects the dividends. This suggests that institutional ownership influences the payment of dividends. External supervision and agency conflicts are necessary for this context, and institutional investors are one of the external supervisors. The more the number of external supervisors, the lesser the likelihood of conflicts arising, reducing agency costs. If institutional ownership can mitigate agency conflicts and costs, dividends can be utilized to reduce such conflicts.
The Three-stage least square regression results show that DEBT and dividend policies have a negative relationship (substitution). These results are consistent with the predictions of agency theory, which argues that the interdependence relationship between DEBT and dividend policies is substitutional (negative due to the exchange of agency cost). DEBT and dividends are substitutes. If agency conflict is controlled through DEBT (monitoring), binding through dividends is not conducted because it is redundant. So, each relationship is a substitute or replaces the other because only one mechanism is used to control agency conflicts. DEBT and dividend interdependence in conditions of high institutional ownership has a negative relationship (substitution). The effect of DEBT on dividends and the negative effect of dividends on DEBT in agency theory is a substitution relationship in controlling agency conflict. These findings support the balancing of agency theory that the cost of monitoring agency conflict must be kept as low as possible by using only one method (mechanism) and reducing other methods (mechanisms). The argument is that under high institutional conditions, agency conflicts require two control tools: dividends and unsupported DEBT. The interdependence of DEBT and dividends in conditions of low institutional ownership has a substitution relationship, and this is a mechanism for controlling agency conflicts where in conditions of low institutional ownership, agency conflicts that occur are lower. So, the substitution or mutual substitution relationship between DEBT and dividend policies, instead because only one mechanism is used to control agency conflict because it will be excessive if used together. This is because each method of monitoring and bonding requires a feel called the monitoring cost.
According to this study, institutional ownership serving as a proxy for agency costs has a negative impact on dividend policy. This written work intends to provide insight into how dividends can mitigate agency costs in companies, particularly those with high levels of institutional ownership. Further, it discusses how decision-makers can implement mechanisms to reduce agency conflict. As an essential aspect of corporate governance, agency conflicts can arise between shareholders and management due to divergent interests. One way to reduce such conflicts is to distribute dividends, which align the interests of shareholders and management. By distributing dividends, shareholders receive a portion of the company's profits, which can signal management's commitment to maximizing shareholder wealth. Additionally, dividends can reduce the company's excess cash holdings, which management could use in their interests. High levels of institutional ownership can exacerbate agency conflicts. However, dividend distribution can reduce agency costs in such companies. Decision-makers can implement mechanisms such as dividend policies, which clearly outline the company's dividend distribution approach. This can include setting a fixed dividend payout ratio or establishing a dividend stability policy. By implementing these mechanisms, decision-makers can create a more transparent and predictable dividend distribution process, which can help to reduce agency conflicts.
In conclusion, by distributing dividends, companies can reduce agency costs and align the interests of shareholders and management. In companies with high levels of institutional ownership, decision-makers can implement mechanisms such as dividend policies to reduce agency conflicts. Such mechanisms can create a more transparent and predictable dividend distribution process, enhancing corporate governance. This research is inseparable from several limitations: This research period only uses 44 sample companies.
Research with a larger sample may provide better results. This study uses samples from all industries without distinguishing each type of industry.