This chapter concludes the overall of the dissertation. The overview of the relationship between dividend payment and the factors that affect it will be presented in section 5.1. After that, section 5.2 discusses the summary of the results of the research. Section 5.3 will talk about the implications of the research study and section 5.4 presents the trends of additional study. Section 5.5 ends the chapter.
5.2 Overview of the study method:
This research is prepared to test the relationship between six independent variables of dividend decision and dividend policy of ten nonfinancial companies listed in Muscat Securities Market. For that reason, the research has reviewed the literature theory for dividend policy, especially the Modigliani and Miller irrelevance theory which was inconsistent with some financial studies because they depend on perfect capital market, signaling theory, agency cost theory, bird in the hand theory, and tax preference theory. More to the point, the study also has reviewed the empirical literature about the relationship between dividend policy and the factors that influence it. Six independent variables are used as the proxies of the factors that affect dividend policy, specifically ownership structure, profitability, firm size, business risk, leverage, and growth opportunity. In addition to that, the measurement of these variables has been used in the previous studies.
In addition, this study makes significant contribution to the existing literature on dividend policy due to the lack of empirical studies in this regard on dividend policy in Oman. Moreover, the special features of Oman firms include most firms paying high dividends to the shareholders, highly leveraged firms, and high private or institutional ownership. In addition to these, due to the differences in the reporting policies of financial and non financial firms analyzing them separately can be more useful rather than studying them together unlike most studies. The study also is unique in the respect that it takes into account the effects of observations without dividends also.
This research has identified a total of ten large non financial companies which listed in the Muscat Securities Market as a sample of the study. The samples are come from industry and service sectors, namely Oman Telecommunications Company SAOG, Raysut Cement Company SAOG, Oman Cement Company SAOG, Renaissance Services SAOG, Shell Oman Marketing Company SAOG, AES Barka Company SAOG, Oman Cables Industry (SAOG) , Al Jazeira Services Company SAOG, Oman & Emirates Investment Holding Co SAOG, and Oman Oil Marketing Company SAOG. These firms were selected based on several factors. In this research, the data on dividend, profitability, leverage, beta, firm size, and growth ratios was gathered from the firm's balance sheets and income statements which provided by the website of the Muscat Securities Market. The data for ownership structure was taken from sample firm's annual reports. The period utilized for the data in this study is from 2005 to 2009.
This research used random effect model to test the six factors that have an effect on dividend policy in Oman. This is because the data series in this study is time series cross sectional data set. Random effect model is a statistical technique and it links between two variables; dependent and independent. The independent variables I uses in this research are ownership structure, profitability, firm size, leverage, business risk, and growth opportunities. The dependent variable is dividend payout ratio. This model is well known with nonfinancial companies. The random effect Tobit model is selected due to the special features of the non financial firms. Moreover, this model takes care of the observations with zero dividends. The Maximum likelihood function estimator is used as the most consistent estimator here rather than OLS.
The analysis of the study started with a discussion of the descriptive statistics. The results of this statistics shows that beta and growth rate have low standard deviation, while the other variables show high fluctuations and the independent variable leverage appears to have a high standard deviation. Multi collinearity test is used to examine the explanatory factors with help of the help of variance inflation. The results showed that the tolerance level of all the variables is near to 1. This suggests that Multi collinearity is low among the explanatory factors variables. As a result, the findings will not be misleading. The correlation matrix analysis was carried out to test the Multi collinearity. The results of correlation matrix indicate that the correlation between the explanatory variables is very low.
5.3 Summary of Results:
This study is organized to test the effect of six independent factors on dividend policy in ten nonfinancial companies. These samples are representative for Omani firms. The random effect model is used examine the explanatory variables. These explanatory variables are size of the firm, profitability, ownership structure, leverage, business risk, and growth opportunities. After descriptive statistics analysis and Multi collinearity, the estimation result of random effect tobit model show that the institutions ownership, leverage, size and the two proxies of profitability are significant with dividend payout ratio. It shows also that the measures of business risk, and growth opportunities which proxied by BETA and GROW are insignificant with dividend payout.
This study revealed that if the institutional ownership increase by on unit, the dividend payout ratio will increase by 0.834. This happened also with the size of the firm, and the two measures of profitability return on asset and return on equity. The dividend payout ratio increased as they increase by unit. On the other hand, the dividend payout decreased as leverage, business risk, and growth opportunity increased by one unit. These results support our hypotheses for the variables. The three factors firm size, profitability, and institutional ownership have a positive relationship with dividend policy. The other three factors leverage, business risk, and growth opportunity have a negative relationship with dividend payment.
The positive relation between profitability and dividend payment supports the results in (Wang et al, 2002). The leverage variable affected the dividend payout negatively where companies with high leverage prefer to bay low amount of dividend and it is supported by Rozeff (1982) results.
Since Oman is one of the emerging markets with the highest institutional ownership, the institutional ownership affects the dividend payout ratio positively. It can safeguard the rights of minority shareholders through the monitoring process which in turn increases the dividends. As the profitability of the firms increase, they can pay more dividends to the shareholders as incentives to them and hence the positive impact on dividend payout ratio.
Since this research is focused in Oman which is considered as one of the emerging country, it has an important consequences compared to the earlier studies that focused on developing countries markets. The results on dividend policy in developing markets show some different characteristics from that in emerging markets. The study on dividend policy in Oman still has no well structured empirical. the main important is to explain the importance of this study and its contribution to the existing literature on dividend policy.
In Oman most profitable companies pay 100% of their gains as a dividend to the shareholders and the companies are highly known for their high leverage through bank loans (Yahyaee etal, 2008). Profitability is an indicator of good financial health and liquidity of a company. This is because, the firms with higher profitability are likely to raise more funds and have less probability of bankruptcy since they have enough funds to meet their sources of financing.
The results on the study reveal that the most factor that influence dividend decision positively in Omani corporations is the size of the firm. The firm size has an impact on the financing constraints of the firms. The bigger companies can attract more funds from capital market than smaller firms and are less likely to be bankrupt. Hence as the size rise, the firms can pay more dividends to the shareholders and the positive impact on the dividend payout ratio. This result is important because Omani companies are well known for their high leverage through the banking loans.
The findings of leverage are different from that in firm's size. It has a negative impact on dividend policy of the firms. Firms which are more leveraged are less likely to get funds from the capital market due to the fixed charge requirements. Hence, they will not be able to pay high dividends to the share holders as compared to the less leveraged firms.
For institutional ownership the results show that there are two alternative hypotheses linking the institutional ownership and the dividend ratio. These two alternatives are agency cost based hypothesis and the tax based hypothesis. In addition, the dividend payment will increase because the powerful investors can safeguard the rights of minority share holders through the monitoring process. According to the study of (Omran et al, 2008), there are more than 80 percent of the firms have private or institutional ownership in Oman. Moreover, most of Omani companies have institutional investors. This explains why the relationship between institutional ownership and dividend payment ratio is very significant.
The results of this research also shows that Omani firms are likely to depend on debt financing which in turn reduces the ability to pay dividends to the shareholders, so this makes the companies with high growth opportunities use external financing for the working capital requirements. Therefore, the chance to pay dividend to the shareholders will be small. This also is supported by the fact that most firms in Oman are very profitable and have the capacity to meet their working capital requirements.
the findings of business risk which proxied by beta show
5.4 Trends for additional studies:
In order to get better results future studies should add more companies from different sectors to have more observations because as the number of companies increase the model used for the research will be more accurate. This dissertation focuses on six factors as independent variables to test their influence on dividend policy of Omani firms such as ownership structure, firm profitability, the size of the firm, business risk, leverage, and growth opportunity. On the other hand, there are additional factors that can be used to test the dividend policy for example, agency cost, tangibility, liquidity, and asset structure. As a result, these additional variables would assist further studies to have a superior understanding of the behavior of dividend policy of Omani firms listed on Muscat Securities Market.
Furthermore, there are some theories for dividend policy the further researchers should concentrate on them to know the effect of factors on dividend behaviuor. These theories are smoothing theory, residual theory, and catering theory. In addition, future studies are able to apply Linter model to know if the Omani firms have stable dividend or not. They can also use random effect tobit model to obtain a better results. There is also another method which is survey or questioner. This method will help future researchers to use their judgment to know the opinion of top management and investors about the firm's dividend policy. In addition, they can also use the interview method which involve face to face with the top management of the companies to their policy about dividend payment.
5.4 Implications of the research:
This study has tested the relationship between the factors that affect dividend policy and dividend payout of ten non financial companies listed in Muscat Securities Market. The limitation for any study is a short period the research covers because it may not correspond to the performance of the companies. In this dissertation I have covered 5 years periods which is good but a longer period may provide more accurate results of the study. This study also covers only ten companies from different sectors. Consequently, the results could not be decisive but will give us some information about the behaviuor of dividend policy in Omani firms. Furthermore, this study show that dividend policy has positive result with three factors selected which are ownership structure, profitability, and firm size. On the other hand, it has negative result with leverage, risk, and growth opportunity. The data for all factors are collected from Muscat Securities Market website, www.msm.gov.om which disclosed in the company annual report. For ownership structure variable the data were gained from the percentage of the institutional ownership in the company or the percentage number of shares owned by the government. As a result, the data may not signify the whole company.
5.5 Conclusion:
The overall summary of this research dissertation is presented in this chapter. The research method and the findings of the analysis also are discussed. In addition, the chapter provides the importance of the study and recommendations for future studies
