UNIVERSITI UTARA MALAYSIA COLLEGE OF BUSINESS

NAME LAM KOK WAI (806830) PREM KUMAR A/L VIJAYA PANICKAR (806863)

RESEARCH TOPIC THE DETERMINANTS OF DIVIDEND PAYOUT OF THE TOP 200 MALAYSIAN PUBLIC-LISTED COMPANIES

UNIVERSITI UTARA MALAYSIA COLLEGE OF BUSINESS

RESEARCH REPORT

ACADEMIC YEAR 2010 - 2011

NAME LAM KOK WAI PREM KUMAR A/L VIJAYA PANICKAR

RESEARCH TOPIC THE DETERMINANTS OF DIVIDEND PAYOUT OF THE TOP 200 MALAYSIAN PUBLIC-LISTED COMPANIES

SUPERVISOR : ROHAFIZ SABAR

JANUARY 2011
This research report is submitted in partial fulfilment of the requirements for the BPMG 6073. @Universiti Utara Malaysia, 2011 all rights reserved. No part of this publication may be reproduced without the written permission of the copyright owner.

ACKNOWLEDGEMENTS

We would like to take this opportunity to express our sincere gratitude to our supervisor, Dr Rohafiz Binti Sabar. Her advice, guidance and encouragement throughout the course of this project are very much appreciated. We would like to thank her for her guidance in Research Methodology.

We extend our appreciation and thanks you to Ms Wi Swee Ping of Interactive Data Systems (M) Sdn Bhd and her firm, for having provided us the financial data required to carry out this research project.

We would also like to thank our parents, coursemates and friends for their support, advice and encouragement

DECLARATION

We hereby declare that: 1) This BPMN6073 Research Methods is the end result of our own work and that due acknowledgement has been given on the references to ALL sources of information be they printed, electronic, or personal. No portion of this research project has been submitted in support of any application for any other degrees or qualifications of this or any other universities, or other institutions of learning. The word count of this research report is 9,509.

2)

3)

Name of student:

Student ID:

Signature

Lam Kok Wai

806830

Prem Kumar A/L Vijaya Panickar

806863

Date: 18 Jan 2011

ABSTRACT

This study attempts to investigate what are the factors that influence dividend payout ratio of the top 200 Malaysian public-listed companies. The study measures the relationship between these factors and dividend payout ratio, and if there is a significant relationship between these factors and dividend payout ratio in different industries. Six null hypotheses were developed and tested on the overall sample and by industries.

The findings suggested that the study is unable to develop a good model which can predict the dividend payout ratio of the top 200 Malaysian public-listed companies. This may be due to some limitations in the current study. The objective of the study to find out the determinants of dividend payout ratio remains inconclusive. As it is, corporate dividend policy is puzzling (Black, 1976). However, some findings revealed that out of the six independent variables used, four showed significant relationship with dividend payout ratio and in the direction of significance which are consistent with the findings of past literatures. They are size, profitability, cash flow and debt ratio of firms.

1
1.1

INTRODUCTION
Background

A dividend is money that is paid out of a companys profit to holders of stock. Dividend policy describes how a company will decide whether or not to pay dividends. Dividends can be paid out in cash or more stock to the stockholders (Morgenson and Harvey, 2002).

Dividend policy involves determining how much earnings to be retained to finance investments on one hand and how much to pay out cash dividends on the other. The amount of dividends paid relative to the companys earnings is known as the dividend payout ratio. Some public-listed companies (PLCs) make known their dividend policy to their shareholders. For example, Bursa Malaysia Berhad announces its dividend policy in its website which states:

We expect to declare and pay annual dividends of not less than seventy five per cent of our Profit After Tax (PAT) after Minority Interest (MI) in respect of any year. However, in considering the level of dividend payments, we take into account various factors including: i) the level of our available cash and cash equivalents; ii) return on equity and retained earnings; and iii) our projected levels of capital expenditure and other investment plans. (Bursa Malaysia Berhad: Dividend Policy & Payment. (n.d.). Retrieved March 8, 2009, from http://bursa.listedcompany.com/dividend_policy.html)

Many researchers have devised theories and provided empirical evidence regarding the determinants of a firms dividend payout policy. Unfortunately, the

theory on dividend is replete with controversies. The dividend policy issues remain unresolved (Black, 1976; Bernstein, 1996; Aivazian and Booth, 2003). The factors that influence decisions and the manner in which these factors interact are not fully comprehensible. Past researchers (Baker et al., 2001; Fama and French, 2001; Arnott and Asness, 2003; and Gwilym et al., 2006) had focused mainly on companies listed in markets of developed nations such as United States of America (USA) and Europe. Therefore, the conclusions reached may not be applicable in countries with different corporate cultures and economic framework such as Malaysia.

In this study, the researcher attempts to examine the relationship between the various selected determinants and dividend payout of large public-listed companies in the semi-developed market of Malaysia. Al-Twaijry (2007) in his study on dividend policy and payout ratio of PLCs in Malaysia covering five years from 2001 to 2005, found that firm size has a significant effect on dividend payout. For this reason, a sample of the top 200 companies in terms of market capitalisation on 31 December 2005 will be selected to examine their behaviour on dividend distribution over a three-year period from 2005 to 2007. These companies are large in size typically, based on their total assets.

1.2

Problem Statement

There is a great deal of evidence in the finance literature on the role of dividends in corporate policy, primarily concerned with providing explanation on why firms actually pay dividends. However, till today the role of dividends in corporate policy remains an unsettled issue. 7

Past researchers (Bernstein, 1996; Aivazian and Booth, 2003; and Brook et al., 1998) found that dividend policy remains controversial and involved judgement by decision makers. There is no reason to believe that corporate dividend policy is driven by a single goal. Black (1976), in his study concluded that it was unable to show that dividends matter, though the study was also not willing to assert that dividends definitely do not matter. The effectiveness of dividend policy is still regarded as puzzling.

In a study by Al-Twaijry (2007) on dividend policy and payout ratio of PLCs in Malaysia, several factors such as net Earnings per share (EPS), cash available per share, book value of the share, company size, company age, past dividends, and past and future earnings and their relationships with dividend payout were examined. Correlation and mean comparison analyses were employed to examine the possible effect of these factors. This study did not use selected determinants such as financial ratios, for example, and did not examine how these factors work together and interrelate with each other at the same time in determining the dividend payout of the firms.

In a study conducted by Papadopoulos and Charalambidis (2007) on the determinants of dividend payout policy of companies listed on the Athens Stock Exchange, determinants such as firm size, capital structure, financial leverage, profitability, liquidity and cash flow, were used to examine how they together possibly influence dividend payout of the firms. A multiple regression analysis was used in this study to derive the regression equation and to make conclusions about the relationship between the dependent and the independent variables. In this study, it 8

was found that cash flow was positively related to dividend payout and appears to be the most important determinant of dividend payout. Size of firm and profitability were also positively related to dividend payout. However, capital structure (that is, total liabilities/total assets as defined in this study) has a positive relationship with dividend payout. This is inconsistent with findings by Miller and Modigliani, 1961. Finally, liquidity enters no model and this contradicted with the findings from other studies (Van Horne and McDonald, 1971). The results obtained from the model in this study was not satisfactory as the model has a low R-square value. Thus, it seems that the independent variables used cannot explain, to a great degree, dividend payout.

A similar approach was used by Amidu and Abor (2006) in their study on determinants of dividend payout ratio in Ghana based on the model used by DSouza (1999). However, different and more determinants were used to explain the relationships between the dependent and the independent variables and the results were compared with predicted relationships. The independent variables used were profitability, risk (variability in profit), cash flow, corporate tax, institutional holdings, sales growth and market-to-book value. As expected, profitability and cash flow indicate a positive relationship with dividend payout. The results show that risk, institutional shareholding, growth in sales and market-to-book value have negative relationship with dividend payout. As for corporate tax, the results show that is has a positive relationship with dividend payout and this is unusual as it contradicts existing literature (Masulis and Trueman, 1988). The R-square value obtained for this model was 0.9224 and it suggests that this model is a reasonably good predictor of the dependent variable.

From the review of past studies, there does not appear to be a conclusive model to explain the factors that affect dividend payout. The findings by Papadopolous and Charalambidis (2007) was not conclusive as some results obtained were not able to explain clearly the relationship between the independent variables and dividend payout. Thus, this current study intends to adopt a model used by Papadopolous and Charalambidis (2007) with some modifications to the variables and use financial ratios to find out the relationships between the selected determinants and dividend payout of PLCs in Malaysia using multiple linear regression analysis. This study hopes to shed some light if financial ratios do influence dividend payout in a different market in Malaysia and if this model can be a good predictor of the dependent variable, as the study by Papadopolous et al. (2007) was inconclusive and did not yield satisfactory results.

1.3

Research Questions

This study attempts to address the following research questions:(1) What are the factors or determinants that influence dividend payout in the Malaysian PLC? (2) Is there a relationship between the factors or determinants with dividend payout? (3) Is there a relationship between the factors and dividend payout with different industries?

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1.4

Objectives

The objectives of this study are as follows:-

(1)

To explore the factors or determinants that influence dividend payout of Malaysian PLC.

(2)

To investigate the relationship between the factors or determinants with dividend payout.

(3)

To investigate the relationship between the factors and dividend payout with different industries.

1.5

Significance Of The Study

1.5.1

Knowledge

This study will provide insights to our understanding of stock dividend phenomenon in a different market with different features. Malaysia is a fast-growing market which is in a state between developed and developing (Thanoon et al., 2005). It is also setting out to transform its economy through industrialisation to realise its Vision 2020 to become a fully developed country by the year 2020. Malaysias form of economy might require a unique and different dividend policy from those used in developed or developing markets (Al-Twaijry, 2007).

This study attempts to use a set of financial ratios which explains the financial position and performance of companies and use them to find out if they influence dividend payout and their relationships with dividend payout. Ratio analysis is widely used by management, current and prospective investors (shareholders, investment fund managers, lenders), financial market intermediaries such as analyst, and auditors. 11

The ratios used cover important aspects of a business, namely, profitability and efficiency, liquidity, and how the firm is financing its assets. If the findings show that the relationships between the dependent and independent variables are significant, then the model adopted can be used to assess or predict dividend payout of PLCs in Malaysia.

1.5.2

Managerial perspective

According to a study by Jensen (1986) based on the principal-agent framework, dividends are used by shareholders as a device to reduce overinvestment by managers. The managers control the firm and therefore, they might invest cash in projects with negative net present values, but which increase the personal utility of the managers in some way. A dividend reduces this free cash flow and thus reduces the scope for over-investment.

In another study, Easterbrook (1984) hypothesizes that dividends are used to take away the free cash from the control of the managers and pay it off to shareholders. This will drive the managers to approach the capital market in order to meet the funding needs for new projects. The need to approach the capital market imposes a discipline on the managers, and thus reduces the cost of monitoring the managers.

For mature companies with highly stable cash flows, paying too little dividends could lead managers to investing excess cash flow in projects or acquisitions with insufficient net present values. (Baker and Powell, 1997). On the other hand, for high growth firms, paying out too much in cash dividends may reduce the firms financial flexibility and it is forced to pass up valuable investment 12

opportunities that arise. Both situations could negatively affect a firms value over time. Despite much research intended to resolve the dividend puzzle, dividend policy remains one of the most judgmental decisions that a manager must make.

1.5.3

Investors perspective

In a study by Dong, Robinson and Veld (2005) on the Dutch market on why individual investors want dividends, it was found that investors have a strong preference to receive dividends. If the company cannot pay cash dividends, they prefer to receive stock dividends compared to not receiving dividends at all. This shows they are definitely not neutral towards the dividend policy.

This study does not find much support for the uncertain resolution theory of Gordon (1961, 1962) (also known as bird-in-the-hand theory) and that investors partly want dividends because of transaction costs. The results are inconsistent with the agency theories of Easterbrook (1984) and Jensen (1986). However, there is strong support for the signalling theories of Bhattacharya (1979), and Miller and Rock (1985).

1.6

Conclusion

This chapter described dividend policy and dividend payout and the independent variables used by past researchers in an attempt to find out the factors that influence dividend payout in markets in selected countries. The research questions and objectives of this current study have also been outlined here. Besides this, the importance of dividend from managerial perspective and investors perspective have been discussed in this chapter.

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2
2.1

LITERATURE REVIEW
Introduction

This chapter will discuss the three leading theories on dividend, namely, (1) Dividend is irrelevant, (2) Bird-in-the-hand theory and (3) Tax preference theory and other extensions from these three main theories. They include (1) Residual dividend theory, (2) The clientele effect, (3) The information/signalling effect, (4) Agency costs theory and (5) Expectations theory.

Past studies on dividend payout which are related to this current study are reviewed to better understand dividend payout and the factors that influence it. This is followed by the formation of the research model and hypotheses development for this current study.

2.2

Theory

There is much controversy surrounding dividend policy and many researches have been carried out to unravel this dividend puzzle for a long time. There are many reasons why companies should pay or should not pay dividends. Yet figuring out why companies pay dividends, how much to pay and why investors pay attention to dividends are still puzzling (Black, 1976; Bernstein, 1996; and Brealey and Myers, 2002). Theoreticians find themselves divided between those who contend that firms should pay more dividends and those who argue for fewer dividends, while yet others say that dividend is irrelevant. The next section will look at three leading theories regarding dividend issues.

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2.2.1

Dividend Is Irrelevant

Miller and Modigliani (1961) argue that dividend is irrelevant. Their study showed that in a perfect capital market the dividend policy of a firm does not affect its value. The firms value is determined only by its basic earning power and its business risk. They opined that when firm does not pay dividend the investor would be compensated in the form of share price appreciation.

This theory rests on two preconditions. First, it is assumed that investment and borrowing decisions have already been made, and that these decisions will not be altered by the amount of any dividend payments. Second, perfect capital markets are assumed to exist. Perfect capital markets are capital markets where:(1) investors can buy and sell stock without incurring any transaction costs, such as brokerage commissions; (2) (3) (4) (5) (6) companies can issue stocks without any cost of doing so; there are no corporate or personal taxes; complete information about the firm is readily available; there are no conflicts of interest between management and stockholders; financial distress and bankcruptcy costs are non-existent.

(Keown, A.J., Martin, J.D., Petty, J.W., & Scott, Jr., D.F. (2005). Financial management: principles and applications (10th ed.). Upper Saddle River, NJ: Pearson Prentice Hall.)

The first assumption is made so that we can find out the effect of dividend decisions on a stand-alone basis, without mixing in other decisions. The second 15

assumption, that of perfect markets, also allows us to study the effect of dividend decisions in isolation. Given these assumptions, the effect of a dividend decision on share price may be stated unequivocally: There is no relationship between dividend policy and stock value.

In the aggregate, investors are concerned only with total returns from investment decisions. They are uninterested whether these returns come from capital gains or dividend income. They also acknowledge that the dividend decision, given the investment policy, is really a choice of financing strategy. To finance growth, a firm (1) may chose to issue stock, thereby allowing internally generated funds (profits) to be used to pay dividends; or (2) may use internally generated funds to finance its growth, thereby paying less in dividends, but not having to issue stock. In the first case, shareholders receive dividend income and in the second case, the value of their stock should increase, providing capital gains. The nature of the return is the only difference. Total returns should be about the same.

The firms dividend payout could affect stock price if the shareholder has no other way to receive income from the investment. However, assuming the capital markets are relatively efficient, a stockholder who needs current income could always sell shares. If the firm pays a dividend, the investor could eliminate any dividend received, in whole or in part, by using the dividend to purchase stock. The investor can thus personally create any desired dividend stream, no matter what dividend policy is in effect.

16

2.2.2

Bird-In-The-Hand Theory

The belief that a firms dividend policy is not important absolutely assumes that an investor should use the same required rate of return whether income is obtained through capital gains or through dividends. However, dividends are more predictable than capital gains. Management can control dividends but it cannot dictate the price of the stock. Investors are less certain of receiving income from capital gains than from dividends. Investors would value a dollar of expected dividends more highly than a dollar of expected capital gains. This view, which says dividends are more certain than capital gains, has been called the bird-in-the-hand dividend theory.

Gordon (1961, 1962) supports this view and argues that shareholders prefer a high dividend policy. This is because they prefer a dividend today to a highly uncertain capital gain from a questionable future investment. This theory suggests that because the dollar of dividends is received today it should be valued more highly than an uncertain capital gain that might be received in the future. The fundamental premise of this position is that the cash dividend in investors hand, placed there today by the firms payout policy is more certain and less risky than a possible capital gain.

2.2.3

Tax Preference Theory

This theory proposes that dividends actually hurt the investor. This argument has largely been based on the difference in tax treatment for dividend income and capital gains which changes frequently in some countries. Most investors do pay

17

income taxes. For these taxpayers, the objective is to maximise the after-tax return on investment relative to the risk assumed. This objective is realised by minimising the effective tax rate on the income and, whenever possible, by deferring the payment of taxes (Keown et al, 2005).

For example, in the United States dividends are taxed more highly than capital gains. As the difference is material it provides a substantial incentive for investors to prefer to generate income by selling some of their shares and to receive no dividends. This situation came to an end when the tax cut package was passed in May 2003. Under the new legislation, dividends and capital gains will be taxed at the same rate of 15%.

DeAngelo (2004) proved that investors preference or aversion to any dividend policy depends on the relationships among three tax rates, namely, a) that of corporate income, b) that of dividends and c) that of investors personal income. For example, when dividend tax rate is smaller than capital gains (personal income) tax rate, investors prefer dividends and vice versa. Furthermore, some firms form their dividend policy with the aim of sheltering owners, mainly the major ones, from paying taxes (De Jong, Van Dijk and Veld, 2003). This gives rise to a reduction in dividend payout after tax rates increase.

Papadopoulos et al. (2007) in their study concluded that the effect of taxes on corporate dividend policy depends on the extent to which individuals can elude taxes. If individuals and institutions can successfully reduce the tax burden, the effect of taxes on corporate dividend policy would be minimal. 18

Besides the above three leading theories, several plausible extensions have been developed by researchers. The more popular ones are briefly discussed in the following section.

2.2.4

The residual dividend theory

This theory asserts that the dividends are paid only if profits are not completely used for investment purposes, that is, only when there are residual earnings after the financing of new investments. This theory is consistent with the pecking order theory of finance as described by Myers (1984). It implies that the dividends to be paid should equal the equity capital remaining after financing investments.

In summary, dividend policy is influenced by (i) the companys investment opportunities, (ii) the capital structure mix, and (iii) the availability of internally generated capital.

2.2.5

The clientele effect

It is the belief that individuals and institutions that need current income will invest in companies that have high dividend payouts. Other investors prefer to avoid taxes by holding securities that offer only small dividend income, but large capital gains as the capital gains are deferred until realised. In other words, there would be a clientele effect where firms draw a given clientele, given their stated dividend policy (Keown et al., 2005). 19

In a study by Pettit (1977), it was found that safer companies with older and poorer investors tended to pay more in dividends than companies with wealthier and younger investors. Overall, dividend yields decreased as the tax disadvantage of dividends increased.

2.2.6

The information/signalling effect

Bhattacharya (1979) and Miller and Rock (1985) found that information asymmetries between firms and outside shareholders may induce a signalling role for dividends. Information asymmetry is the difference in accessibility to information between management and investors that may result in a lower stock price than would occur under conditions of certainty. They show that dividend payments communicate private information in a fully revealing manner.

Investors may use a change in dividend policy as a signal about the firms financial conditions, especially its earnings power. Thus, investors may read a dividend increase that is larger than expected as a signal that management expects significantly higher earnings in the future. On the contrary, a dividend decrease, or even a less than expected increase, might signal that management is forecasting less favourable future earnings.

2.2.7

Agency costs theory

Agency costs is described as the costs, such as reduced stock price, associated with potential conflict between managers and investors (shareholders) when these two 20

groups are not the same people (Keown et al., 2005). A firms dividend policy may be perceived by owners as a tool to minimise agency costs and to control the overinvestment problem.

Easterbrook (1984) argues that dividends reduce the overinvestment problem because the payment of dividends increases the frequency with which firms (managers) have to go to capital markets in order to raise additional capital. In the process of attracting new equity, firms (managers) subject themselves to the monitoring and disciplining of these markets. This lowers agency costs.

2.2.8

Expectations theory

It is the idea about the effect of new information about a company on the firms stock price depends more on how the new information compares to expectations than on the actual announcement itself (Miller, 1986).

As the time approaches for management to announce the amount of the next dividend, investors form expectations as to how much that dividend will be. When the actual dividend decision is announced, the investor compares the actual decision with the expected decision. If the amount of dividend is as expected, the market price of the stock will remain unchanged. However, if the dividend is higher or lower than expected, investors will reassess their perceptions about the firm and their reactions will cause a movement in the stock price. The unexpected dividend change has information content about the firms earnings and other important factors that are conveyed to the investors. 21

2.3 Dividend payout approaches

In practice, most firms may choose one of several commonly practised dividend payout approaches (Keown et al., 2005). They are as follows:

(i)

Constant dividend payout ratio

In this policy, the percentage of earnings paid out in dividends is held constant. Although the dividend-to-earnings ratio is stable, the dollar amount of the dividend will thus fluctuate from year to year as profits vary.

(ii)

Stable dollar dividend per share payout

This policy maintains a relatively stable dollar dividend over time. An increase in the dollar dividend usually does not occur until management is convinced that the higher dividend level can be sustained in the future. Similarly, management also will not reduce the dollar dividend until there is clear evidence indicating that a continuation of the present dividend policy cannot be supported.

(iii)

Small, regular dividend plus year-end extra dividend payout

A firm which adopts this policy pays a small regular dollar dividend plus a year-end extra dividend in prosperous years. The extra dividend is usually declared toward the end of the financial year, when the companys profits for the period can be estimated. The managements objective for doing so is to avoid the connotation of a 22

permanent dividend. However, this purpose may be defeated if recurring extra dividends become investors expectations over time.

2.4 Past Studies

Over the past several decades, researchers have done studies to identify

the

determinants of corporate dividend policy. Some come up with theories and others have developed and empirically tested various models to explain dividend behaviour. A number of factors or determinants have been used in previous empirical studies to test if they influence the dividend payout of firms and their relationships with dividend payout. They include profitability, risk, cash flow, agency cost, growth, firm size, capital structure, financial leverage and liquidity, to name a few (as seen in Higgins, 1981; Rozeff, 1982; Lloyd et al., 1985; Pruitt and Gitman, 1991; Jensen et al., 1992; Alli et al., 1993; DSouza, 1999; and Papadopoulos and Charalambidis, 2007).

Profits have long been regarded as the main indicator of a firms ability to pay dividends. Pruitt et al. (1991), in their study report that current and past years profits were important factors in determining dividend payments. Baker et al. (1985) also found that a major determinant of dividend payment was the anticipated level of future earnings.

Pruitt et al. (1991) find that risk (year-to-year variability of earnings) also determines firms dividend policy. A firm that has relatively stable earnings was often able to predict approximately what its future earnings will be. Such a firm is therefore 23

more likely to pay out a higher percentage of its earnings than a firm with fluctuating earnings. DSouza (1999) found that there was significant negative relationship between the beta value of a firm (indicator of its market risk) and dividend payout.

The liquidity or cash flow position of a firm was also an important determinant of dividend payouts. A poor liquidity position means less generous dividend due to shortage of cash. Alli et al. (1993) reveal that dividend payments depend more on cash flows, which reflect the companys ability to pay dividends, than on current earnings, which are less heavily influenced by accounting practices. The study claims that current earnings do not really reflect the firms ability to pay dividends. The study by Papadopoulos et al. (2007) on firms listed on the Athens Stock Exchange, was found that cash flow is the most important dividend payout determinant and is positively related to the proportion of earnings distributed either as a regular or as total dividend.

Green et al. (1993) questioned the irrelevance argument and investigated the relationship between the dividends and investment and financing decisions. Their study showed that dividend payout levels were not totally decided after a firms investment and financing decisions have been made. Dividend decision was taken along investment and financing decisions. Their results did not support the views of Miller and Modigliani (1961).

Amidu and Abor (2006) in their study on determinants of dividend payout of listed firms in Ghana found that there are positive relationships between dividend payout and profitability, cash flow and tax. The results suggest that profitable firms 24

tend to pay high dividend and firms with good liquidity increases a firms ability to pay dividend. The results also showed negative associations between dividend payout and risk, institutional shareholding, growth and market-to-book value.

In a study by Al-Twaijry (2007) on the determinants of dividend payout of listed firms in Malaysia, it was found that current dividends are affected by its past and future. Also dividends were associated with net earnings but less strongly. Neither the age of the paying dividend company nor its home sector (industry and nonindustry) influence dividend payout. However, size has a significant effect on the Dividend Per Share (DPS). It was also found that the firms level of leverage has a negative (sometimes significantly) relationship with the dividend payout ratio, and the strongest determining factor of dividend payout is its past ratios.

Baker and Powell (1997) used a total of 198 responses from mail surveys sent to Chief Financial Officers of USA firms listed on the New York Stock Exchange, to find out the determinants of dividend policy. The results showed that the most important determinants of a firms dividend policy were the level of current and expected future earnings and the patterns or continuity of past dividends. These factors were similar to those identified by Lintner (1956) in his behavioural model of dividends.

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2.5

Research Model The research model used in this current study is as follows. Independent variables SIZE DEBT RATIO FINANCIAL LEVERAGE PROFITABILITY LIQUIDITY CASH FLOW (Figure 1) DIVIDEND PAYOUT Dependent variable

2.5.1

Definition of dependent variable and independent variables Dependent variable Dividend payout ratio: Measures the proportion of dividend paid out in relation to its net earnings.

Independent variables (i) (ii) Size: Is measured by the total assets of the firms Debt ratio: assets. (iii) Financial leverage: Means financing a portion of the firms assets It indicates how much debt is used to finance a firms

with securities bearing a fixed (limited) rate of return in hopes of increasing the ultimate return to the common stockholders (iv) Profitability: Tells us about how much profit the business makes in relation to its sales, or asset base. 26

(v)

Liquidity:

Is the ability of the company to meet its short-term

obligations (liabilities) (vi) Cash Flow: Represents the after-tax cash flows generated from

operating the business.

2.5.2

Relationship between independent variables and dependent variable

Independent variables Size

Debt ratio Financial leverage Profitability (ROCE)

Expected relationship with Adopted from studies by: dependent variable Al-Twaijry (2007); Positive Papadopolous and Charalambidis (2007) Papadopolous et al. (2007) Negative Negative Positive Papadopolous et al. (2007) Baker et al. (1985); Pruitt and Gitman (1991); Amidu and Abor (2006); Papadopolous et al. (2007) Papadopolous et al. (2007) DSouza (1999); Amidu et al. (2006); Papadopolous et al. (2007)

Liquidity(Quick Ratio) Cash Flow

Positive

Positive

Source: Compiled by the author (2011)

2.6 Hypotheses Development

The independent variables that will be used to test their relationship with dividend payout are firm size, debt ratio, financial leverage, profitability, liquidity and cash flow. The six null hypotheses that will be tested are as follows:

H1:

There is no relationship between firm size and dividend payout.

27

H2: H3: H4: H5: H6:

There is no relationship between firm debt ratio and dividend payout. There is no relationship between firm financial leverage and dividend payout. There is no relationship between firm profitability and dividend payout. There is no relationship between firm liquidity and dividend payout. There is no relationship between firm cash flow and dividend payout.

2.7 Conclusion

This chapter reviewed the theories relating to dividend and the commonly practised dividend payout approaches. Past studies by the various researchers who used different determinants to study their relationship with dividend payout have been discussed and their importance towards dividend payout have been highlighted. The independent variables and dependent variable used in this current study have been defined and their expected relationships are shown. This led to the formation of six null hypotheses which will be examined in the following chapters.

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3
3.1

RESEARCH METHODOLOGY
Introduction

This chapter outlines the research design, describes the sample population and sampling procedures and method used for data collection. The measurements and formula (definition) for the dependent variable and independent variables used in this study are shown and the data analysis technique used will be explained.

3.2

Research Design

The top 200 companies listed on Bursa Malaysia in terms of market capitalisation on 31 December 2005 are selected and the required financial data are collected over a three-year period from 2005 to 2007.

This period is chosen as Malaysia registered commendable Gross Domestic Product (GDP) growth for the three years ( 2005: 5.30%; 2006: 5.80%; 2007: 6.30% ). The Kuala Lumpur Composite Index (KLCI) also rose alongside the GDP growth. As at the end of 2004 the KLCI stood at 907.43 points. As at the end of 2005, it was 899.79, 2006 at 1,096.24 and 2007 at 1,445.03 . Chart 3.2.1 shows the GDP growth alongside the rise of the KLCI for the three years from 2005 to 2007.

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Chart 3.2.1
KLCI vs GDP (Year 2005 to 2007)
1600 1400 1200 1000 800 600 400 200 0 6.30% 1,096.24 899.79 5.30% 5.80% 1,445.03 6.40% 6.20% 6.00% 5.80% 5.60% 5.40% 5.20% 5.00% 4.80%

KLCI

GDP

KLCI GDP

2005

2006

2007

Year

Source: GDP World Development Indicators database, April 2009 (http://www.worldbank.org) KLCI Bursa Malaysia Berhad (http://www.klse.com.my)

3.3

Population And Sampling Procedures

The sample of 200 companies are selected based on their market capitalisation on 31 December 2005 and all companies are listed on the Main Board of Bursa Malaysia with the exception of one which is listed on the Mesdaq. Details of the companies can be found in Appendix 1. Market capitalisation is used as a selection criteria as companies with big market capitalisation are large in size typically. The focus of this current study is on large companies.

Companies that do not pay dividends for three years consecutively from 2005 to 2007 and those that have missing data in any one year will be excluded. Those companies that have negative dividend payout ratio are also excluded so as to avoid the distortion of the regression results. throughout the analysis period. 30 Sample companies must also be listed

From the initial sample of 200 companies, forty nine have been eliminated as they did not meet the selection criteria. The sample population are made up of companies from various business sectors. The final samples by sectors are shown in the Table 3.2.2 and chart 3.2.3 below. Table 3.2.2

Sector Construction Consumer Products Finance Hotels Industrial Products Infrastructure Plantation Properties REITS Technology Trading/Services Mesdaq Total

Number of companies 6 17 18 2 31 3 15 15 1 5 37 1 151

Chart 3.2.3
Sample companies by sector 40 35

No. of companies

30 25 20 15 10 5 0

Co ns Co t ru ns ct i um on er Pr od uc ts Fi na nc e

tel s al Pr od uc ts In fra str uc tur e Pl an ta tio n Pr op er tie s RE IT S Te ch no Tr log ad y ing /S er v ic es

Sector

Ho

In

du st r i

es da q

31

3.4

Data Collection Method

Secondary data are used for this study. The required financial data are obtained from a financial research company which keeps databases of financial information of companies and supplies them to leading business publications such as The Edge.

3.5

Variables And Measurements

The dividend payout ratio, which is the dependent variable, is defined as the dividend per share divided by earnings per share. The independent variables are as follows:Size (S) = Log (Total assets) Debt ratio (DR) = Total liabilities / Total assets Financial leverage (FL) = Profit before interest and tax (PBIT) / PBIT Interest Profitability (P) = PBIT / Capital employed (Return on capital employed) Liquidity (L) = (Current assets Inventories) / Current liabilities (Quick ratio) Cash flow (CF) = Log (Net income (Profit after tax) + depreciation) (Operating cash flow)

The scale of measurement used in this research project is based on the ratio scale.

32

3.6

Data Analysis Technique

A multiple linear regression method will be used to test how the six independent variables when put together determine the dividend payout of the sample companies. Multiple linear regression analysis is a statistical technique used to predict the variance in the dependent variable by regressing the independent variables against it (Sekaran, 2003).

The result of regression is an equation that represents the best prediction of a dependent variable from several independent variables. All the analyses were carried out using Statistical Package for Social Science (SPSS) computer software.

The relationship between the dependent variable and the independent variables in this study can be expressed as follows:

Payout, D1 = b0 + b1 S1 + b2 DR1 + b3 FL1 + b4 P1 + b5 L1 + b6 CF1,

t = 2005 to 2007

3.7

Conclusion

This chapter explained the research methodology for the current study. It covered areas on research design, population and sampling procedures on how to obtain the final sample of 151 companies, and the data collection method. The variables used and the scale of measurement are outlined here. Finally, the data analysis technique used which is multiple linear regression was explained. 33

4
4.1

DISCUSSIONS AND FINDINGS

Introduction This chapter gives a descriptive analysis of the selected sample, presents the

results from the multiple linear regression analyses and will discuss and interpret the research results. Based on these results, this study will decide whether to reject or not to reject the six null hypotheses outlined in para 2.6 in Chapter 2.

4.2

Sample Characteristics

The sample of 151 companies are made up of the sectors as shown in Table 4.2.1 . The sample which is broken down into sectors that will be tested using multiple linear regression analysis is shown in Table 4.2.2 and Chart 4.2.3 .

Table 4.2.1 (Companies Sample) Sector Construction Consumer Products Finance Hotels Industrial Products Infrastructure Plantation Properties REITS Technology Trading/Services Mesdaq N 6 17 18 2 % 3.97% 11.26% 11.92% 1.32%

31 20.53% 3 1.99% 15 9.93% 15 9.93% 1 0.66% 5 3.31% 37 24.50% 1 0.66% 151 100.00%

34

Table 4.2.2 (Multiple Linear Regression Analysis) Sector Consumer Products Finance Industrial Products Plantation Properties Trading/Services Others: Construction Hotels Infrastructure REITS Technology Mesdaq Total N N 17 18 31 15 15 37 18 6 2 3 1 5 1 151 100.00% % 11.26% 11.92% 20.53% 9.93% 9.93% 24.50% 11.92%

Chart 4.2.3 (Multiple Linear Regression Analysis)

Sample companies by sector

Consumer Products 11% Finance 12% Industrial Products 21% Plantation 10%

Others 12% Trading/Services 24% Properties 10%

From Chart 4.2.3, it can be observed that Trading/Services and Industrial Products sectors made up 24 per cent and 21 per cent, respectively, of the sample size. The other sectors represent between 10 per cent and 12 per cent of the sample size.

35

Table 4.2.4
Based on 2007 data
Size (Total assets) RM N %

100M 500M 500M - 1,000M > 1,000M Total

18 30 103 151

11.92% 19.87% 68.21% 100.00%

Based on 2007 data, the number of companies with assets value exceeding RM1 billion was 103, representing about 68 per cent of the sample. The number of companies with assets value between RM500 million and RM1 billion was 30 (19.87 per cent) and there were 18 companies with assets value between RM100 million and RM500 million (11.92 per cent).

Table 4.2.5 Dividend payout ratio of sample companies

Year 2005 2006 2007 N 151 151 151 Minimum 0.0769 0.0758 0.0337 Maximum 2.0354 7.5000 2.1101 Mean 0.6399 0.7055 0.5889

For the years from 2005 to 2007, the companies in the sample have a minimum dividend payout ratio of between 0.0337 and 0.0769, and a maximum of between 2.0354 and 7.5000. The mean dividend payout ratio was 0.6399, 0.7055 and 0.5889, for years 2005, 2006 and 2007, respectively. The high maximum payout ratio of 7.5000 registered for year 2006 was paid by Pacificmas Berhad. It appears to be a one-off high payout as its payout ratio was 0.8065 and 0.7143, for year 2005 and 2007, respectively. Out of the initial sample of 200 companies, 151 companies (75.5 per cent) paid dividend for the three years consecutively.

36

4.3

Hypotheses Testing

A multiple regression (Enter method) is used to regress the six independent variables against dividend payout (dependent variable). These variables include size, debt ratio, financial leverage, profitability, liquidity and cash flow. The desired level of statistical significance for the tests is set at the alpha level of 0.05 (p-value = 0.05). The null hypotheses can be rejected when p-value is < 0.05 .

The test results for the multiple linear regression analyses presented in the following section will begin with result for all sectors (overall sample) and followed by individual sectors.

4.3.1

Test results for all sectors (overall sample)

The first test includes all 151 companies in the sample which represent all sectors in the sample. The test results are as follows.

Table 4.3.1

All sectors

37

The Model Summary table provides the correlation coefficient (R), which indicates the strength of the relationship between the combination of independent variables in the model and dependent variable. The R value obtained in this model is 1.77, which indicates a very weak relationship.

The value of R square obtained is 0.031. This means that 3.1% of the variation of the dependent variable, dividend payout ratio, can be explained by the six independent variables. From the Coefficients table, the following were obtained:1. Total assets (p-value = 0.042 and < 0.05): Indicates a significant positive relationship between size and dividend payout ratio. 2. ROCE (p = 0.001 and < 0.05): Indicates a significant positive

relationship between profitability and dividend payout ratio. 3. Cash flow (p = 0.021 and < 0.05): Indicates a significant negative relationship between cash flow and dividend payout ratio.

38

There is significant positive relationship between size and dividend payout ratio which suggests that large firms tend to pay more dividends. This is consistent with the findings by Al-Twaijry (2007) and Papadopoulos et al. (2007).

As expected, profitability has a significant positive relationship with dividend payout ratio. This suggests that a firm is likely to pay more dividends when its profitability increases. A firms profitability is considered an important factor in influencing dividend payment. This result appear to be consistent with the findings by Baker et al. (1985), Pruitt and Gitman (1991), Amidu et al. (2006) and Papadopoulos (2007).

The significant negative relationship between cash flow and dividend payout ratio was not expected and this is not consistent with the findings by Amidu et al. (2006) and Papadopoulos et al. (2007). Their findings showed that a good liquidity position increases a firms ability to pay dividend.

Therefore, this study can reject the null hypotheses of H1, H4 and H6. H1: H4: H6: There is no relationship between firm size and dividend payout. There is no relationship between firm profitability and dividend payout. There is no relationship between firm cash flow and dividend payout.

From the Coefficients table, we can deduce the regression equation as follows:D = 0.613 + 0.328S 0.184DR 0.039FL + 1.470P + 0L 0.372CF where, D = Dividend payout ratio S = Size (Total assets) DR = Debt ratio 39

FL = Financial leverage P = Profitability (ROCE) L = Liquidity (Quick ratio) CF = Cash flow

4.3.2

Test results for Consumer Products sector Consumer Products sector

Table 4.3.2

The R value obtained in Table 4.3.2 for Consumer Products sector is 0.788, which indicates there appears to be a strong relationship between the combination of independent variables in the model and the dependent variable. The R square obtained is 0.622, which means that 62.2% of the variation of the dependent variable can be explained by the six independent variables.

40

From the Coefficients table, the following were obtained:1. Total assets (Size) (p = 0.000 < 0.05) : Indicates a significant negative relationship between size and dividend payout ratio. 2. Cash flow (p = 0.003 < 0.05) : Indicates a significant positive relationship between cash flow and dividend payout ratio

The significant negative relationship between size and dividend payout ratio is not consistent with the findings by Al-Twaijry (2007) and Papadopoulos et al. (2007), where their findings showed that large firms are inclined to pay dividends. As expected, there is significant positive relationship between cash flow and dividend payout ratio and this is in line with their findings and the findings by Amidu et al. (2006).

Therefore, this study can reject the null hypotheses of H1 and H6. H1: H6: There is no relationship between firm size and dividend payout. There is no relationship between firm cash flow and dividend payout.

4.3.3

Test results for Finance sector

The R value obtained in Table 4.2.3 for Finance sector is 0.456, which indicates that there appears to be a weak relationship between the combination of independent variables in the model and the dependent variable. The R square obtained is 0.208, which means that 20.8% of the variation of the dependent variable can be explained by the six independent variables.

41

There is insignificant relationship between the six independent variables and dividend payout ratio as all the independent variables registered p-value of > 0.05 . Therefore, for Finance sector this study cannot reject all the six null hypotheses.

Table 4.3.3

Finance sector

4.3.4

Test results for Industrial Products sector

The R value obtained in Table 4.3.4 for Industrial Products sector is 0.804, which indicates there appears to be a strong relationship between the combination of independent variables in the model and the dependent variable. The R square obtained is 0.647, which means that 64.7% of the variation of the dependent variable can be explained by the six independent variables.

42

From the Coefficients table, the following were obtained:1. Debt ratio (p = 0.000 < 0.05) : Indicates a significant negative relationship between debt ratio and dividend payout ratio. 2. Financial leverage (p = 0.000 < 0.05) : Indicates a significant positive relationship between financial leverage and dividend payout ratio

There is significant negative relationship between debt ratio and dividend payout ratio which explains that a firm with lower debt ratio tends to pay more dividend. But financial leverage has a positive sign which was not expected to be as firms with higher financial leverage are expected to pay lower dividends and vice versa.

Table 4.3.4

Industrial Products sector

43

Based on the results, this study can reject null hypotheses H2 and H3. H2: H3: There is no relationship between firm debt ratio and dividend payout. There is no relationship between firm financial leverage and dividend payout.

4.3.5

Test results for Plantation sector Plantation sector

Table 4.3.5

The R value obtained in Table 4.3.5 for Plantation sector is 0.510, which indicates there appears to be a moderate relationship between the combination of independent variables in the model and the dependent variable. The R square obtained is 0.260, which means that 26.0% of the variation of the dependent variable can be explained by the six independent variables.

44

There is insignificant relationship between the six independent variables and dividend payout ratio as all the independent variables registered p-value of > 0.05 . Therefore, for Plantation sector this study cannot reject all the six null hypotheses.

4.3.6

Test results for Properties sector Properties sector

Table 4.3.6

The R value obtained in Table 4.3.6 for Properties sector is 0.220, which indicates there appears to be a weak relationship between the combination of independent variables in the model and the dependent variable. The R square obtained is 0.049, which means that 4.9% of the variation of the dependent variable can be explained by the six independent variables.

45

There is insignificant relationship between the six independent variables and dividend payout ratio as all the independent variables registered p-value of > 0.05 . Therefore, for Properties sector this study cannot reject all the six null hypotheses.

4.3.7

Test results for Trading/Services sector Trading/Services sector

Table 4.3.7

The R value obtained in Table 4.3.7 for Trading/Services sector is 0.436, which indicates there appears to be a weak relationship between the combination of independent variables in the model and the dependent variable. The R square obtained is 0.19, which means that 19.0% of the variation of the dependent variable can be explained by the six independent variables.

46

From the Coefficients table, the following was obtained:1. ROCE (p = 0.011 and < 0.05): Indicates a significant positive

relationship between profitability and dividend payout ratio.

The significant positive relationship between profitability and dividend payout ratio is consistent with the findings by Amidu et al. (2006) and Papadopoulos et al. (2007). Their findings showed that profitable firms are inclined to pay dividends.

There is insignificant relationship between the other five independent variables and dividend payout ratio as all of them registered p-value of > 0.05 . Therefore, for Trading/Services sector this study can only reject null hypotheses H4. H4: There is no relationship between firm profitability and dividend payout.

4.3.8

Test results for Others sector

Table 4.3.8

Others sector

47

This sector is made up of a combination of sectors in which these sectors have a smaller number of companies. The sectors are Construction, Hotels, Infrastructure, REITS, Technology and Mesdaq.

The R value obtained in Table 4.3.8 for Others sector is 0.552, which indicates there appears to be a moderate relationship between the combination of independent variables in the model and the dependent variable. The R square obtained is 0.305, which means that 30.5% of the variation of the dependent variable can be explained by the six independent variables.

From the Coefficients table, the following were obtained:1. Total assets (p = 0.015 and < 0.05): Indicates a significant negative relationship between size and dividend payout ratio. 2. ROCE (p = 0.000 < 0.05) : Indicates a significant negative

relationship between profitability and dividend payout ratio. 3. Cash flow (p = 0.016 < 0.05) : Indicates a significant positive

relationship between cash flow and dividend payout ratio.

48

The significant negative relationship between size and dividend payout ratio is not consistent with the findings by Al-Twaijry (2007) and Papadopoulos et al. (2007). Their findings showed that large firms are inclined to pay dividends.

It is the same with profitability which has a negative relationship with dividend payout. This is unusual and is not in line with the findings by Baker et al. (1985), Pruitt and Gitman (1991), Amidu et al. (2006) and Papadopoulos (2007).

As expected, there is significant positive relationship between cash flow and dividend payout ratio and this is in line with the findings by Amidu et al. (2006), AlTwaijry (2007) and Papadopoulos et al. (2007).

4.4

Discussion of research results

The results for overall sectors (Table 4.3.3) did not produce a strong model that can predict the dividend payout ratio of all the firms as the R square value obtained was very small (p = 0.031). However, the significant positive relationships between independent variables, size and profitability, and dividend payout is consistent with past literatures as mentioned in paragraph 4.3.1 above.

Based on the results for individual sectors, only two sectors, namely, Consumer Products and Industrial Products, have high R square value of 0.622 and 0.647, respectively. These two models show that 62.2% and 64.7% of the variation of the dependent variable, dividend payout ratio, can be explained by the six independent variables.

49

In Consumer Products sector, the significant negative relationship between size and dividend payout ratio is not in line with expected results and findings by AlTwaijry (2007) and Papadopoulos et al. (2007). But as expected, cash flow has a significant positive relationship with dividend payout ratio.

In Industrial Products sector, financial leverage has a significant positive relationship with dividend payout ratio which was not expected but debt ratio has negative sign and is consistent with expected results.

All

the

other

sectors,

namely,

Finance,

Plantation,

Properties,

Trading/Services and Others, have low R square value. Their results did not produce a good model to predict dividend payout ratio of the firms in the respective sectors. For Finance, Plantation and Properties sectors, all six independent variables showed insignificant relationship with dividend payout ratio as p-value obtained was > 0.05 .

In Trading/Services sector, only profitability shows a significant positive relationship with dividend payout ratio which was expected. As for Others sector, cash flow has a significant positive relationship with dividend payout ratio which was expected. The other two variables, size and profitability, showed a negative significant relationship with dividend payout ratio which is not consistent with past literatures mentioned in paragraph 4.3.8 .

50

5
5.1

CONCLUSION
Summary of the study chapter

This study was carried out to find out the determinants of dividend payout ratio of the top 200 Malaysian public-listed companies (by market capitalisation). In chapter 1, this study presented the background on dividend and dividend policy. It mentioned briefly some of the studies done by past researchers to uncover the factors that influence dividend payout of companies in different markets which is still regarded as puzzling. The research questions and objectives of this study were outlined in this chapter.

Chapter 2 reviewed the theories related to dividend and the commonly practised dividend payout approaches. It also covered some past studies done by previous researchers who used different factors in their attempt to find out the factors that influence dividend payout of companies. The research model used in this study, the definition of the six independent variables (size, debt ratio, financial leverage, profitability, liquidity and cash flow) and the dependent variable (dividend payout ratio), and the six null hypotheses that will be tested were outlined here.

Chapter 3 explained the research methodology for the current study. It covered areas such as research design, population and sampling procedures and data collection method. The final sample obtained was 151 companies. It also explained the variables used and the scale of measurement and the data analysis technique used which is multiple linear regression.

51

Chapter 4 reported the test results of the multiple regression where the six independent variables were regressed against the dependent variable, dividend payout. The results of each test for all sectors (overall) followed by Consumer Products, Finance, Industrial Products, Plantation, Properties, Trading/Services and Others sectors were shown and important findings were highlighted. For each sector, the study concluded with which null hypothesis that can be rejected. This chapter concluded with the discussion of the research results.

Finally, Chapter 5 gave a summary and the conclusion of the current study. The limitations of the study were mentioned and recommendation for future studies was proposed.

The model used by this study which was adapted from the model by Papadopoulos et al. (2007) did not obtain conclusive results in determining the dividend payout ratio of listed firms (all sectors) on Bursa Malaysia. The low R square value showed that the model is not a good predictor of dividend payout ratio. It only showed that 3.1% of the variation of the dependent variable, dividend payout ratio, can be explained by the six independent variables.

For all sectors result, there are only two independent variables, namely, size and profitability, which showed significant positive relationship between them and dividend payout ratio. This is consistent with past literatures, whereas, cash flow showed a negative sign and it conflicts with past literatures.

52

On a sector basis, only the models from Consumer Products and Industrial Products sectors showed high R square values which are 0.622 and 0.647, respectively. These models showed that 62.2% and 64.7% of the variation of the dependent variable can be explained by the six independent variables, in Consumer Products and Industrial Products, respectively. These models can perhaps be used to predict the dividend payout ratio of the firms listed on these sectors.

The other sectors such as Finance, Plantation, Properties, Trading/Services and Others, did not produce conclusive results as the R square value in these models were low. Most if not all the dependent variables showed insignificant relationship with dividend payout ratio.

5.2

Limitations

Firstly, the sample size of 151 companies selected and data collected for a period of three consecutive years may not be large enough to generate reliable results that can assist this study to make solid conclusions on the determinants of dividend payout ratio of the sample companies. Some sectors in the sample have less than ten companies each and they have to be combined together as Others sector to run the regression analysis. As such, this study was unable to analyse the findings of each of this sector.

Secondly, the choice of variables included in or omitted from a model and the definition (formulae) used in the estimation of important factors can significantly

53

influence a studys results. Perhaps, more suitable ratios or other factors can be included.

5.3

Recommendation for future studies

The above findings suggest a further research of dividend payout determinants. First of all, one may study the suitability of the statistical method used in studying dividend payout policy. The relationship between dividend payout and its determinants may not be in linear form.

Secondly, one may have to give attention to a better choice of determinants and their definition (formulae) as they are important in influencing a studys results. This can be done by having a more extensive research into past studies and their choice of determinants used.

Thirdly, this study is restricted to the top 200 public-listed companies in Malaysia by market capitalisation. One may consider taking the whole population of companies listed on Bursa Malaysia to conduct a thorough analysis which may provide a clearer insight in dividend payout determinants of listed firms in Malaysia without imposing restriction to a certain category/criteria.

5.4

Conclusion

This study is unable to develop a good model which can predict the dividend payout ratio of the top 200 Malaysian public-listed companies. This may be due to the 54

limitations mentioned above. The objective of the study to find out the determinants of dividend payout ratio remains inconclusive. However, some findings revealed that out of the six independent variables used, four showed significant relationship with dividend payout ratio and in the direction of significance which are consistent with the findings of past literatures. They are size, profitability, cash flow and debt ratio of firms.

55

Appendix 1 No. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39

LIST OF COMPANIES IN SAMPLE Sector Construction Construction Construction Construction Construction Construction Consumer Products Consumer Products Consumer Products Consumer Products Consumer Products Consumer Products Consumer Products Consumer Products Consumer Products Consumer Products Consumer Products Consumer Products Consumer Products Consumer Products Consumer Products Consumer Products Consumer Products Finance Finance Finance Finance Finance Finance Finance Finance Finance Finance Finance Finance Finance Finance Finance Finance

Name of company Gamuda Bhd Hock Seng Lee Bhd IJM Corporation Bhd WCT Bhd YTL Corporation Bhd Zelan Bhd Asia File Corp. Bhd. British American Tob. Bhd Carlsberg Brewery (M) Bhd CCM Duopharma Biotech Bhd Dutch Lady Milk Ind Bhd Fraser & Neave Hldgs GoldIs Bhd Guinness Anchor Bhd Hong Leong Ind Bhd JT International Bhd Nestle (M) Bhd Oriental Hldgs Bhd Pelikan Int'l Corp Bhd PPB Group Bhd QL Resources Bhd Tan Chong Motor Hldgs Bhd UMW Holdings Bhd Affin Holdings Bhd Bumiputra-Commerce Hldg B Bursa Malaysia Bhd EON Capital Bhd Hong Leong Bank Berhad Hong Leong Financial Grp Hwangs-DBS (M) Bhd Jerneh Asia Bhd LPI Capital Bhd Malayan Banking Bhd Manulife Insurance (M)Bhd MNRB Holdings Bhd M'sia Bldg Society Bhd OSK Holdings Berhad Pacificmas Bhd Public Bank Bhd (L)

56

No. 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81

Name of company RHB Capital Bhd TA Enterprise Bhd Landmarks Berhad Shangri-La Hotels (M) Bhd Ann Joo Resources Bhd APM Automotive Hldgs Bhd Chemical Co of M'sia Bhd Esso M'sia Bhd Evergreen Fibreboard Bhd Hume Ind (M) Bhd Industrial Concrete Prod. Jaya Tiasa Holdings Bhd Keck Seng (M) Bhd Kian Joo Can Factory Bhd KNM Group Bhd Kossan Rubber Ind. Bhd. Krisassets Holdings Bhd Lafarge Malayan Cement LCTH Corporation Bhd M'sia Smelting Corp Bhd Petronas Gas Bhd Scomi Group Bhd Shell Refining Co Bhd Subur Tiasa Holdings Bhd Supermax Corporation Bhd Ta Ann Hldgs Bhd Titan Chemicals Corp Bhd Top Glove Corporation Bhd UAC Bhd Uchi Technologies Bhd Wah Seong Corporation Bhd White Horse Bhd Wijaya Baru Global Bhd WTK Hldgs Bhd YTL Cement Bhd Lingkaran Trans Kota Hldg Puncak Niaga Hldgs Bhd YTL Power Int. Bhd OSK Ventures Int'l Bhd Asiatic Development Bhd Batu Kawan Bhd Boustead Hldgs Bhd

Sector Finance Finance Hotels Hotels Industrial Products Industrial Products Industrial Products Industrial Products Industrial Products Industrial Products Industrial Products Industrial Products Industrial Products Industrial Products Industrial Products Industrial Products Industrial Products Industrial Products Industrial Products Industrial Products Industrial Products Industrial Products Industrial Products Industrial Products Industrial Products Industrial Products Industrial Products Industrial Products Industrial Products Industrial Products Industrial Products Industrial Products Industrial Products Industrial Products Industrial Products Infrastructure Infrastructure Infrastructure Mesdaq Plantation Plantation Plantation 57

No. 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 100 101 102 103 104 105 106 107 108 109 110 111 112 113 114 115 116 117 118 119 120 121 122 123

Name of company Chin Teck Plantations Bhd Far East Holdings Bhd IJM Plantations Bhd IOI Corporation Bhd Kuala Lumpur Kepong Bhd Kulim (M) Bhd Kwantas Corporation Bhd Tradewinds (M) Bhd TSH Resources Bhd Unico-Desa Plantation Bhd United Malacca Bhd United Plantations Bhd Daiman Development Bhd Eastern & Oriental Bhd GuocoLand (M) Bhd IGB Corporation Bhd IOI Properties Bhd KLCC Property Hldgs Bhd KSL Holdings Bhd Mah Sing Group Bhd MK Land Bhd Naim Cendera Holdings Bhd S P Setia Berhad Selangor Properties Bhd SHL Consolidated Bhd Sunrise Bhd YNH Property Bhd Axis Real Estate Investmt D&O Ventures Bhd Globetronics Technology Green Packet Bhd M'sian Pacific Ind Bhd Unisem (M) Bhd AEON Co. (M) Bhd Amway (M) Holdings Bhd Astro All Network PLC Berjaya Land Bhd Berjaya Sports Toto Bhd Bintulu Port Holdings Bhd CNI Holdings Bhd Dialog Group Bhd Dreamgate Corporation Bhd

Sector Plantation Plantation Plantation Plantation Plantation Plantation Plantation Plantation Plantation Plantation Plantation Plantation Properties Properties Properties Properties Properties Properties Properties Properties Properties Properties Properties Properties Properties Properties Properties REITS Technology Technology Technology Technology Technology Trading/Services Trading/Services Trading/Services Trading/Services Trading/Services Trading/Services Trading/Services Trading/Services Trading/Services 58

No. 124 125 126 127 128 129 130 131 132 133 134 135 136 137 138 139 140 141 142 143 144 145 146 147 148 149 150 151

Name of company Genting Bhd Hap Seng Consolidated Bhd Jobstreet Corporation Bhd KPJ Health Bhd MBM Resources Bhd Media Prima Bhd MISC Bhd MMC Corporation Bhd M'sia Airports Hldgs Bhd M'sian Bulk Carriers Bhd MTD Infraperdana Bhd NCB Holdings Bhd NST Press (M) Bhd Padiberas Nasional Bhd PBA Holdings Bhd Petra Perdana Bhd Petronas Dagangan Bhd Pharmaniaga Bhd PLUS Expressways Bhd QSR Brands Bhd Resorts World Berhad Sarawak Energy Bhd Scomi Marine Bhd Star Publication (M) Bhd Taliworks Corporation Bhd Tanjong Public Limited Co Telekom (M) Bhd Tenaga Nasional Bhd

Sector Trading/Services Trading/Services Trading/Services Trading/Services Trading/Services Trading/Services Trading/Services Trading/Services Trading/Services Trading/Services Trading/Services Trading/Services Trading/Services Trading/Services Trading/Services Trading/Services Trading/Services Trading/Services Trading/Services Trading/Services Trading/Services Trading/Services Trading/Services Trading/Services Trading/Services Trading/Services Trading/Services Trading/Services

59

Appendix 2

References
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Renneboog, L. & Trojanowski, G. (2007). Control structures and payout policy. Managerial Finance, Vol 33 No. 1, 43-64 Sekaran, U. (2003). Research Methods for Business - A Skill Building Approach (Fourth Edition). United States of America: John Wiley & Sons, Inc.

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