Generally, dividends are commonly defined as the distribution of earnings in real assets among the shareholder of the firm in proportion to their ownership. Many corporate managers carefully consider the choice of dividend policy because they believe such decision affect firm value and the shareholders wealth. Moreover, the investors also view dividend policy as important because they supply cash to firms with the expectation of eventually receiving cash in return.
There are many researchers have been done before this on the dividend and dividend policy by Lintner, 1956; Gordon, 1959; Miller and Modigliani, 1961; Baker and Powell, 1999; Mancinelli and Ozkan, 2006; Amidu and Abor, 2006; Zhou and Ruland, 2006. The researchers also create the term 'dividend puzzle' to illustrate the poor understanding of dividend payment policy. The researchers and company management still not clear about the dividend payment and also why investors need to pay on dividend.
A number of researchers have provided insights, theoretical as well as empirical, into the dividend policy puzzle. However, the issue as to why firms pay dividends is as yet unresolved. However, everyone agrees that the dividend payment is one of the most commonly observed phenomenon in corporations worldwide. The issue of dividend policy is important for several reasons. First, researchers have found that a firm uses dividends as a mechanism for financial signaling to the outsiders regarding the stability and growth prospects of the firm. Secondly, dividends play an important role in a firm's capital structure and another set of studies have established the relationship between firm dividend and investment decisions. According to the 'residual dividend' theory, a firm will pay dividends only if it does not have profitable investment opportunities, for example positive net present value projects.
As a developing country, Malaysia still lack of the research that investigated on the leading determinants of the dividend policy for the listed companies especially those that emphasize on certain industry. This paper reports on a study which explores the factors associated with dividend payout policy of public listed companies in Malaysia. Comparisons are made between various from four main sectors: consumer, construction and property, industrial and trading and services companies listed in main market of Bursa Malaysia. This study is based on published secondary data from 2009 till 2011, using regression analyses on dividend per share, debt equity ratio, past dividend, sales growth rate, cash flow, profit after tax, size of the firm and float of the selected companies.
LITERATURE REVIEW
According to WebFinance (2012) dividend is a taxable payment to a company's shareholders, which is declared by the company's board of directors from the company's current or retained earnings. Payments of dividend to shareholders depend on the company management's readiness to distribute their surplus of cash from their net income to shareholders or to retain it for other re-investment opportunities. Literature and research conducted under the topic of dividend policy, thus in order to narrow the scope of study, literature review was written under the following subtopics.
FACTORS INFLUENCING DIVIDEND POLICY
Over the years academicians have developed many studied and researches in order to come to a conclusion on the factors that influence dividend policies of a company. According to Talla M. Al-Deehani (2003), dividend policy does matter and that managers believe they are frequently motivated to pay dividends by factors that belong basically to three groups of determinants. In his research he states that determinant groups of dividend policy are clientele-effect and signalling set of motives. On the other hand, a research was conducted on Ghana companies' dividend policies. Mohammed Amidu and Joshua Abor, (2006) states in their research that there are positive relationships between dividend payout and profitability, cash flow, and tax. They have proven that firms with higher profits pays high dividend. Also good liquidity in firms allows the firm to pay dividends. Mohammed Amidu and Joshua Abor, (2006) also stated that there are negative associations between dividend payout and risk, institutional shareholding, growth and market-to-book value. Godfred A. Bokpin, (2011) also stated that profitability have positive influence on dividend payout and ownership structure of the firm is also have immense impact on its dividend policy. The more the companies' foreign investors, the higher dividend payouts are. According to them uncertainties of earnings and higher debt levels will reduce dividend payment significantly. In addition they have concluded that, the age of the firm also has negative influence on the ability of the firm to pay its dividend. An interesting factor put forward by N. Bhattacharyya, (2007) is that the longer the company has been paying dividends the stronger is the reluctance of the managers to reduce dividends. Sabur Mollah, (2011) empirical analysis identified leverage and size as the major determinants of dividend pay-out policy in an emerging market of Bangladesh. Determinants of dividend smoothing, company risk, size, and listing year perform crucial functions in the empirical explanation of the cross-section of dividend smoothing were presented by Jinho Jeong (2011). His study also identified that, riskier firms tend to pay more smoothed dividends. H. Kent Baker, Gary E. Powell, (2012) a study conducted on Indonesian public listed companies, presents that the determinants of dividends are the stability of earnings and the level of current and expected future earnings. They also view the effect of past dividends on shares and needs of current shareholders as important determinants in IDX-listed companies' dividend payout policies. Overall, H. Kent Baker and Gary E. Powell suggest that while no universal set of factors is likely to be applicable to all firms, some factors are consistently more important than others.
DIVIDEND POLICY IN MALAYSIA
Very limited studies were conducted in Malaysia on dividend policy among Bursa listed companies. Santhi A. and Lee Wei Sim (2011) developed a study which examines the most important determinants that affecting the dividend payment decision by the company management in Malaysia listed companies for food industries under the consumer products sector. In their study, the result confirms the fact that debt equity ratio and past dividend per share were the significant determinants of dividend payout. However Santhi A. and Lee Wei Sim (2011) research were only based on the 5 sample companies under food industries under the consumer products sector that declared cash dividend from year 2004 until 2008. This paper is developed to determine whether the same dividend policy applies to the Bursa Malaysia listed companies of various industries.
METHODS USED TO CONDUCT RESEARCH OF DIVIDEND POLICIES
Talla M. Al-Deehani (2003) from Kuwait University has developed his research on dividend policy determinants on Kuwait's case using the cross-sectional analysis. An article on determinants of dividend payout ratios in Ghana was presented by Mohammed Amidu and Joshua Abor, (2006) by using Ordinary Least Squares model to estimate the regression equation on using data derived from the financial statements of firms listed on the Ghana Stock Exchange for a six-year period. Godfred A. Bokpin, (2011) have developed a research on ownership structure, corporate governance and dividend performance on the Ghana Stock Exchange by using the data derived from year 2002 to 2007 for 23 firms and were analyzed within the framework of fixed effects techniques. Meanwhile, an article with a title of dividend policy in Indonesia: survey evidence from executives was written by H. Kent Baker, Gary E. Powell (2012) who uses an approach of gathering data by mail survey. The two-page survey instrument consists of three main sections: 22 factors for determining a firm's dividend policy; six questions that provide background information about the respondents and their firms; and 27 statements about dividend policy in general. Of the 163 firms surveyed, 52 firms responded, resulting in a response rate of 31.9 per cent. On the other hand, N. Bhattacharyya, (2007) developed a review on dividend policy by just indentifying and reviewing major theoretical and empirical papers on dividend policy. Sabur Mollah, (2011) who wrote an article on "Do emerging market firms follow different dividend policies? : Empirical investigation on the pre- and post-reform dividend policy and behaviour of Dhaka Stock Exchange listed firms" by using the Ordinary least square models to be tested on DSE data preceding (1988-1997) and following the financial crisis (1999-2003). Jinho Jeong (2011) in his study investigating dynamic dividend behaviour in Korea used Regression Model on the theoretical determinants of dividend. Finally but not the least, Santhi A. and Lee Wei Sim (2011) developed a study on leading determinants of dividend policy in Malaysia listed companies for food industry under consumer product sector. In their study, the relationship between independent variables with the current dividend per share as dependent variable is empirically analyzed through the Pearson correlation analysis and Regression Model.
PROBLEM STATEMENT
As general, there are many unsolved issues regarding dividend policies and dividend payout. Undisturbed by the previous statement, Malaysian listed companies and investors are highly involved with dividend payment.
In this research, the problem to be tackled would be regarding the determinants used for dividend payment decision. As according to Santhi and Lee (2011), dividend policy in Malaysia listed companies for the consumer sectors determining factor is debt equity ratio. More question then arise wondering if this debt equity ratio as a deciding factor for dividend payment applies to all sectors beside consumer sector.
This paper attempts to explore the factors that determine dividend payout policies of listed companies in Malaysia. Besides being a developing country with an emerging market in Asia, Malaysia is chosen in this study because of its unique concentrated business environment and multicultural population with different ethnic groups. Moreover different industries may have different patterns of paying dividends to their shareholders.
Related to all mentioned above, in what base does the listed companies of Malaysia pay dividends to the investors? Does strategy or dividend determinant policy varies as different industry?
OBJECTIVES
According to the above problem statement above, the main objective of this research is to discover how the dividend policy decision can be various accordingly with their determinants. The following is the research objective that going to achieve for this project.
To identify the impact of debt equity ratio, past dividends, sales growth rate, cash flow, profit after tax and float on the dividend payment decision.
To compare the similarity and difference in dividend payment policy among different industry in Malaysia.
To identify the major dividend policy determinant to majority of listed companies in Bursa Malaysia.
EXPECTED SIGNIFICANT CONTRIBUTION TO NEW KNOWLEDGE
In this research, all the independent variables which are debt equity ratio, past dividend, sales growth rate, cash flow, profit after tax, size of the firm and float are used to determine the relationship with the dividend policy.
Ho = Null hypothesis
Null hypothesis means no significant relationship between dependent variable and independent variables.
H1 = Alternative hypothesis
Alternative hypothesis means there is a significant relationship between dependent variable and independent variables.
The statement of hypothesis is as follows:
Hypothesis 1:
Ho: There is no significant relationship between the Debt Equity Ratio and Dividend Policy.
H1: There is a significant relationship between the Debt Equity Ratio and Dividend Policy.
Hypothesis 2:
Ho: There is no significant relationship between the Past Dividend and Dividend Policy.
H1: There is a significant relationship between the Past Dividend and Dividend Policy.
Hypothesis 3:
Ho: There is no significant relationship between the Sales Growth Rate and Dividend Policy.
H1: There is a significant relationship between the Sales Growth Rate and Dividend Policy.
Hypothesis 4:
Ho: There is no significant relationship between the Cash Flow and Dividend Policy.
H1: There is a significant relationship between the Cash Flow and Dividend Policy.
Hypothesis 5:
Ho: There is no significant relationship between the Profit after Tax and Dividend Policy.
H1: There is a significant relationship between the Profit after Tax and Dividend Policy.
Hypothesis 6:
Ho: There is no significant relationship between the Size of the Firm and Dividend Policy.
H1: There is a significant relationship between the Size of the Firm and Dividend Policy.
Hypothesis 7:
Ho: There is no significant relationship between the Float and Dividend Policy.
H1: There is a significant relationship between the Float and Dividend Policy.
RESEARCH METHODOLOGY
DATA, SAMPLE AND SAMPLING DESIGN
Analyses are made between four main sectors: consumer, construction and property, industrial and trading and services companies listed in main market of Bursa Malaysia. Based on published secondary data from 2009 till 2011, using regression analyses, basis data of Dividend per Share, Debt Equity Ratio, Past Dividend, Sales Growth Rate, Cash Flow, Profit after Tax, Size of the Firm and Float are tested for 100 companies randomly selected from various sectors mentioned earlier. Data is hand-collected from the annual reports of Malaysian public listed companies from their official website and Bursa Malaysia website. The obtained data is analyzed using linear regression models by SPSS.
THEORETICAL FRAMEWORK
The theoretical framework is the foundation for the entire research project. It is a logically developed, described, elaborated network of association among the variables deemed relevant to the problem situation and identified through such processes as literature survey and observations. From the theoretical framework below, the dependent variable is the company's profitability and the independent variables are capital structure. It's show the relationship between the independent and dependent variables. In short, the theoretical framework discusses the interrelationship between the independent variables and dependent variable, thus it helps in hypothesizing and testing certain relationship and also improves researchers understanding of the situation.
Dependent variable is the variable of primary interest of researcher. It becomes the main goal to understand and describe the dependent variable or to explain its variability or predict. Through the analysis of dependent variable, it is possible to find answers and solution towards the problem of this research. Dividend policy is the base policy or calculation used by the companies to determine the value of dividend received by the shareholders. For this research, the dependent variables will be the Dividend Policy.
The independent variable is the element that influences the dependent variable in both positive and negative way. It is also known as predictor variable. When the independent variables are present, the dependent variable is also present and with each unit of increase in the independent variables, there is an increase or decrease in the dependent variable. In this research, the researchers using the debt equity ratio, past dividend, sales growth rate, cash flow, profit after tax, size of the firm and float as the factors that influence the dividend policy.
Debt Equity Ratio
Debt Equity Ratio indicating the relative proportion of shareholder's equity and debt used to finance a company's assets. A low Debt to Equity Ratio indicates lower risk, because debt holders have fewer claims on the company's assets. A Debt to Equity Ratio of 5 means that debt holders have a 5 times more claim on assets than equity holders. A high Debt to Equity Ratio usually means that a company has been aggressive in financing growth with debt and often results in volatile earnings.
Past Dividend
Past dividends of the companies are derived from the past 3 years of the annual reports.
Sales Growth Rate
Annualized growth rate of revenue expressed as a percentage, used in measuring the performance of a new firm with little or no record of earnings.
Operating Cash Flow Ratio
The Operating Cash Flow Ratio is a measure of a company's liquidity. If the Operating Cash Flow is less than 1, the company has generated less cash in the period than it needs to pay off its short-term liabilities. This may signal a need for more capital. Thus, investors and analysts typically prefer higher Operating Cash Flow Ratios. However, having a low operating cash flow ratio for a time is not always a bad thing.
Profit after Tax
Profit after Tax is the net profit earned by the company after deducting all expenses like interest, depreciation and tax. Profit after Tax can be fully retained by a company to be used in the business. Dividends are paid to the share holders from this residue if it's declared.
Size of the Firm
Size of the Firm will be calculated by using net total asset.
Float
The total numbers of shares are publicly owned and available for trading. A float can also refer to a small portion of the money supply representing a balance that is simultaneously present in a buyers and a payer's account. A float results from the delay of occurring between the time that a cheque is written and the money actually being deducted from the writer's account. These balances are temporarily double counted as part of the overall money supply.
F = OUTSTANDING SHARES - RESTRICTED SHARES
EXPECTED BENEFITS
FOR RESEARCHER
Further knowledge and better insights on the dividend policies and companies decision management. This research would be an added value for us to pursue our career in related company's financial department.
FOR INVESTORS / PUBLIC
Investor could obtain better understanding on how the dividend payouts are calculated. Public could take calculated decisions before involving in the investment of the related industries.
