1.0 Introduction
Dividends are a part of company's profit that is paid to the shareholders based on their outstanding shares (Campbell, 2004; Finpipe, 2010). In other words, dividend is a type of reward that is given by the company to the shareholders for investing into the company (Custodio, 2010; RBC, 2010). Unlikely other expenses showed in income statement, dividend is taxable payments which must be decided and approved by the company's board of directors before payment are made (Scott, 2003). Besides, normally company will distribute the dividend either quarterly or annually. Example, the dividend distributed by many Australian Securities Exchange (ASX) listed companies is twice a year which meant that they are giving out interim and final dividends (ASX, 2010). Besides interim and final dividend, company will also may payout a dividend called special dividend in some event or circumstances such as company's anniversary celebration (financialMarkets, 2010). This special dividend is separate from annual dividend and it just pay in one-off basis which meant that it is not portion of a sustainable raise in dividend (Pietersz, 2010; financialMarkets, 2010). Example, when GDF Suez SA purchased the international Power Plc, it had payout a special dividend of $ 1.45 per share to that company's shareholders (Lundgren, 2010). However, there is no fixed time or period for a company to payout the dividend in the regulation, thus dividend can be declared anytime during the year (colom, 2006).
Besides that, although dividend is regularly pay in the form of cash dividend, but nowadays, there are several form of payments that can be used to payout the dividend (Choong, 2010). One of it is by distributing the stock which is known as stock dividend (MapXL, 2000). In this type of payment, the company's assets, liabilities and earning will not be affected (MistakeInTrading, 2008). In other words, the total market value of the company will remain unchanged (AccountingCoach, 2010). However, this stock dividend will be reduced the value of each share in the market (AccountingCoach, 2010). Another form of dividend payment is called property dividend which meant that the company is distributing the dividend in the form of assets (MapXL, 2000). Next, dividend can also be paid in the form of note payable which is known as Scrip dividends (Barrons, 2005). Example, some of the companies that payout their dividend in this form are the Prudential Plc, JJB Sports Plc and the Royal Bank of Scotland (Prudential, 2010; Sensatus, 2010). Besides all of this, the companies also can distribute the dividend in the form of bonus shares, warrant, and so on (Investorwords, 2010; Farlex, 2009; MapXL, 2000).
There are many advantages to a company for distributing dividends. Firstly, is fulfilling most of companies' basic aim and goal which are making profit to the company's owners (WorldIQ, 2010). Besides, it also can show a good image to the outsiders that the company is performing well in the business (Custodio, 2010). Example in TheDiv-Net's (2008) statement had stated that a company that is paying the dividend will show more fiscally liable than a company that is not distributing the dividend. Besides, in a research also showed that in the last 35 years, dividend paying stocks are better than the non-dividend paying stock (TheDiv-Net, 2008). Another advantage is the increase of confidence among the shareholders on their investment in the company (TheDiv-Net, 2008). It is because the distribution of dividend will show the ability to generate more profit by the company and proven that the company's financial statement's information like profit is real, reliable and not manufacture by the company itself (TheDiv-Net, 2008). Besides, dividend also can prove that the company is able to use their capital effectively and efficiently because distribution of a dividend needs strong cash flow within the company (Matt, 2010). Next, declaration of dividends by the company also can stimulate a raise in the company stock's value (Black, 2010). Lastly, dividend can indirectly attract the new investors for the company. It is because to investors, dividend paying companies will limit their risk and it will also guarantee that they can get something back from the company (Reeves, 2010). In addition, for the investor which buy stock for their future retirement fund, their main consideration is the company that can pay them a stable dividend (Reeves, 2010). Besides, dividend payout also can proved to the investors that the company is shareholder friendly which means that the company is very concern about their shareholders and with this, investor will more likely to purchase their company's shares.
Although there are many advantages to a company for distributing dividend to the shareholders, but there are also disadvantages that the company may faced if they payout the dividends. Firstly, even though dividend is not considered as expenditure, but it still is an obligation debt to the company, once it had declared (MapXL, 2000). Thus, it will indirectly cause the company's liabilities to increase (WorldIQ, 2010). Once the liabilities increase to high position and the assets do not increase consistently, then the company will have problems to pay back their creditors and the worst is that it will caused the company to go bankrupt (Kavitha, 2007). Next, it will reduced or limit the company's long term operation fund because the proportion of retain earning had been used for the dividends. Thus, if the company does not have a solid long-term fund it will restrict their chance to growth bigger in the future (WeSeed, 2010). Besides, it will also limit the company's ability in purchasing assets, expanding the business, employ more employee, running research and development for company's products and so on (Kennan, 2010; Tripod, 2007).
Overall of the above, we can know that companies will enjoy benefits by paying out the dividend, but at the same time, it will also have to bear the risk and serious disadvantage like bankruptcy if they payout the dividends. However, luckily distribution of dividend is not an obligation to the company in the law and regulation, so a company can decide either wants to distribute it or not (Investorwords, 2010). Thus, this had attracted my interest to know whether what factors that will influence the dividend payout in a Malaysia bank called as Public Bank Berhad.
Company background
Public Bank Berhad is a top-tier and most efficient bank in the Malaysia which was established in 1966 by Teh Hong Piow who was born in Singapore, starts his banking occupation in the year 1950 and has about 60 years of experience in this sectors (Public Bank, 2010). This means that, this bank had operated in Malaysia about 40 years by an experience founder. Next, the services provided by Public Bank are investment, commercial and Islamic banking and wealth management goods (Hinton, 2008; Bureau, 2004). Besides, it can be considered as a large group bank because it had 242 branches in Malaysia and 97 branches in oversea like Hong Kong, Vietnam, Laos and so on (Bureau, 2004). Besides it had more than 17160 employees inside the company to serve its customer better (Public Bank, 2010). In addition, Public Bank also is an industry leader in Malaysia which had a corporate mission of "to sustain the position of being the most efficient, profitable and respected premier financial institution in Malaysia" (Public Bank, 2010).
For the logo of the company which had ideated from two interlocking octagon which represent the connection and international of the group (Public Bank, 2010). Besides, the logo also demonstrates the security, strength and stability of the bank (Public Bank, 2010). Furthermore, the logo formation also likes an "eye" of vision of the bank (Public Bank, 2010). Lastly, Public Bank Berhad can be known as a strong, reputed and stable Malaysia based bank (Bureau, 2004). It is because it was not influenced by the global financial crisis which caused a seriously havoc in many major financial centres around the world (Public Bank, 2010). Besides, this bank also had received many best awards and appreciation for its services (Public Bank, 2010). Example, it had obtained 54 awards and one of it is the Best Retail Bank in Asia Pacific by the Asian Banker based in 2009 (Public Bank, 2010). Besides, in 2010, it also had obtained the Ranked No.1 in Best Corporate Governance (for Malaysia) in the Euromoney Best Managed and Governed Companies (Public Bank, 2010).
Research Objectives
The objectives of this research are:
To study the influence of company's profitability on the dividend distribution in Public Bank Berhad.
To study the influence of dividend taxes on the dividend distribution in Public Bank Berhad.
To study the influence of company's investment opportunities on the dividend distribution in Public Bank Berhad.
To study the influence of company's liquidity on the dividend distribution in Public Bank Berhad.
1.3 Research Questions
a. Is the company's profitability influencing the dividend distribution in Public Bank Berhad?
b. Is the dividend tax influencing the dividend distribution in Public Bank Berhad?
c. Are the company's investment opportunities influencing the dividend distribution in Public Bank Berhad?
d. Is the company's liquidity influencing the dividend distribution in Public Bank Berhad?
1.4 Scope of Study
The main focus for this study is on Public Bank Berhad in Malaysia. Inside this study, we will analyze the Public Bank's profitability, Malaysia's dividend tax, investment opportunities and the company's liquidity position in order to determine whether which factors of these will influencing the dividend distribution in Public Bank Berhad.
1.5 Significance of study
This research is able to help the investors in their investment decision making. Before purchasing a shares, the factors influencing the dividend distribution is an item that need to be consider by investors especially those whose purchase the share with an intention of getting the dividend in return. It is because by knowing it, the investors able to estimate and investigate whether and when the dividend will be payout by the company. For example if the company dividend is influenced by the profitability, then when the company profit increased, the shareholders also will know that the dividend will probably increase too. Besides, it will also able to reduce the misunderstanding of company by the shareholders on dividend issues. For instance, the Apple Inc's investors did not understand and clamoring why the company wanted to hold about $45 billion of cash in the company rather than to distribute some of its to the shareholders as dividend (Rogers, 2010; msnbc, 2010; Fool TV, 2010). However, if the Apple's investors know the factors that actually influencing the company's dividend distribution such as the growth opportunity, then they will not be in doubt and frustrated about this issue (msnbc, 2010).
2.0 Literature reviews
2.1 Company's profitability influences the dividend distribution.
Profit is the surplus left over from income of the business after deducting all its costs or expenses (Horn, 2006; tutor2u, n.d.). It is normally measured in money term and over a period of times such as annually or quarterly (Horn, 2006; tutor2u, n.d.). Besides, profit will show the viability and a long-term perspective of the business (hofstrand, 2009). It is because company's profit is the essential source of income for every company. It will be used by company for their daily operation such as purchase inventory, enhance the product's quality, expand the company's premises, repair and maintenance and so on (tutor2u, n.d.). Thus, without enjoy profit or suffering loss continuing, the company will be having difficulty to payout the expenses and the obligation liability consistently as well as the dividends (Spaulding, 2010). So, company's profitability is like an important guidance of the firm's ability to distribute the dividends to shareholders (Anil & Kapoor, 2008). In other words meant that the amount of dividends payout each year will influenced by the company's profitability (Malkawi & Husam, 2008; Few,et al, 2005). Example, in a survey of 562 New York Stock Exchange (NYSE) firms, there are 318 responses from utility, manufacturing, and wholesale companies, had stated that major determinants of dividend payout were the expected future earnings (Gale group, 2008).
In a finding of 1999 research 630 NASDAQ -listed companies also had stated changes in dividend per share are largely a function of a target dividend distribution based on the earning of the business (Gale group, 2008). Besides, in a research at Malaysia which regarding examining the dividends and earnings behavior of the firms listed on the Kuala Lumpur Stock Exchange (KLSE) on the period 1975 to 1989 had founded that the dividend distribution of the firms partially based on their current earnings (wee, 2006). Next, the result in a survey of NYSE companies also conclude that the major determinants of dividend distribution are future earning (ArticlesBase, 2010). Besides, the result of the study in the perception of dividends by Canadian managers and taken the sample of 291 listed companies on Toronto Stock Exchange (TSE) also founded that one of the important factor for determinants of dividend distribution is the level of current earning (Ahmed & Javid, 2009; Okpara,2010). In addition, in an examination of dividend policy of 34 listed companies in the Athens Stock exchange (ASE) during period 1972 to 1988 had conclude that current profits constitute the most essential variable that tend to influence the changes in dividend distribution (Eriotis, 2005).
In a survey of 1000 largest firm's financial managers also had stated that their company's current and previous profits are the major factor that will influence the amount of company's dividends payout (Anil & Kapoor, 2008). In addition, it also proven that profit and dividend had a positive relationship within each other (Anil & Kapoor, 2008). This meant that, when the profit of the company increase, the dividends distribution will be increasing too, vice verse. Besides, the relationship between profitability and dividend payout ratio are positive also had proven in a study of the factor influencing the dividend policy in Ghana too (Ahmed & Javid, 2009). In another research on 1950, also showed that more of the company will paying out their dividends based on company profitability and normally the company will fixed a rate of earning to calculate the dividend every year (Campbell, 1995). Example, the company will set up 45% of their earning each year will be distributed as dividends in their company's policy. Thus, when the firm had higher profit then the dividends distributed out will be higher too. Besides, another example is on 2004, Macquarie Bank's chairman had announced the company will pay out an interim dividend of 61 cents per ordinary share franked to 90 per cent for the half year ended 30 September, 2004 due to the company's profit increased of 17 per cent over the $242 million profit for the prior corresponding period (Macquarie, 2004).
Next, on 2004, operating profit (EBIT) of the Henkel Group, a laundry & home care, cosmetics/ toiletries and adhesive technologies company, rose by 172.1 percent to 1,920 million euros, thus its management had proposed in the Annual General Meeting a 10 eurocent increase in dividend distribution versus the previous year (Henkel, 2005). Fairwood Holdings Limited which is a fast food restaurant had reported that its interim net profit rise 43.4% to HK$70.7 million for the six months ended September 30, 2010, thus the firm had decided to declared an interim dividend of HK$0.20 per share and a special dividend of HK$0.08 per share, an raise of 55.6 percent in its dividend payout (Chen, 2010). Next, Globe Telecom Inc, the nation's second largest phone firm had states that its first half-net profit increased 38 percent from the previous year due to mobile subscriptions and effective cost management, this had drive the company to increased its dividend payout to 75% from 50% of the prior year's earnings (GMA, 2006). In addition, Nippon Yuken KK, an industry leader of shipping company in Japan had report its net profit surged to 71.3 billion on 2004, because of that it had announced big dividend increase from 10yen to 18yen per shares to its shareholders (vBullletin, 2005). Besides, another shipping company in Japan called Kawasaki Kisen Kaisha Ltd (K- Line) also give vast dividend rises to 16.50 yen per share from 10 yen, due to its net profit increase by 80.3% to 59.8 billion yen on that year too (vBullletin, 2005). According to Black (2010), if the company unprofitable in annually or quarterly, then the company may not issues the dividend to the shareholders. Joao (2008) also had the same view with Black, by stating that high incidence of dividend reduction by companies with persistent losses occurred. For instance, the second U.S. mortgage finance company of Freddie Mac had reported an unexpectedly wide net loss of $2 billion hence it had planned to cut down its fourth quarter dividend distribution by 50% (Rucker, 2007).
However, there are some finding had proven that the dividend distribution of the company will not influence by the company's profit. In other word meant that increase or decrease in profit will not affect the company's dividend payout. Example, FPL Group Inc had increased its dividend distribution even it had get a loss in 1990 (Collegetermpaper, 2008). Besides, SingTel which is a largest telecommunication firm in South-east Asia also had increase its dividend payout ratio to 55-70 per cent of underlying net profit from 45-60% even though the quarterly net profit had drop 6.8% due to the acquisition cost of Indian affiliate Bharti Airtel in June and investment in multimedia services in Singapore (reuters, 2010; Venkat, et al 2010). In Wee (2006) finding also had stated that, it is not surprising if some firms also give out the dividends to the shareholders as return even though they are getting a loss for that year. Besides, it also founded that this situation happened is due to the reluctance of firms to reduce or omit dividends due to research findings which have shown that shareholders, in both developed and emerging markets, responded negatively to a dividend cut down (Wee, 2006). In addition, British American Tobacco (Malaysia) Bhd (BAT) also give out a healthy dividend even though its net profit for the second quarter ended June 30, 2010 had decrease 7.7% to RM185.84 million compared with RM201.24million of 2009 (the star, 2010; The Edge,2010). On 2010, Petroliam Nasional Bhd (Petronas), an oil company in Malaysia had announced a 23.2% drop to RM40.3billion in its net profit, but it still maintained unchanged its dividend payout (the star, 2010). Washington Soul, a Australia's second oldest listed company stated that its net profit for the 12 months to July 31 was $218.3 million, declining 80% on the previous year's record $1.12 billion, however it's still declared a 20 cents of final dividend which is up from 19 cents in the previous year and a special fully franked dividend of 12.5 cents per share recognizes profits from the recent sale of New Hope's holding in Arrow Energy Ltd (Fairfax, 2010).
Dividend taxes influence the dividend distribution
Dividend tax is a type of taxes levied on the total gross amount of dividend declared or distributed by the firms (SlideShare, 2010). In other words mean that it is one of most common taxes that need to pay by the investors due to their investment (Kennon, 2011). Besides, taxes on dividend are practices in many countries in the world. Example, Malaysia had implemented a single tier dividend system to tax on the dividend distribution make by the companies (Chong, 2010). In United States (US), they are classified the dividend income received by the investor as a taxable distribution (Kennon, 2011). In India, dividend payout above 10% of the paid-up capital will be subject to 7.5% dividend taxes (MBA Resources, 2008). When government higher up this dividend taxes, this mean that the government are not favour the dividend distribution in this period and want to penalizing companies that pay it, vice verse (Hederman & Tyrell, 2010). Besides, increasing the dividend taxes is also a motivation to the companies to retain their earning in the companies rather than pay out it as dividends (Detroit, 2010). Thus, this type of taxes implemented will reduce the net amount of dividend payout by the company. It is because; there are some proportion of the dividends distributed must be paying to government as their income. This meant that, the higher of the tax rate on dividends, the more proportion of the total dividends will be pay to the government as dividend taxes and the total dividend that actually distributed will be decreased. Example, a company plan to give up all its profit after tax of $100 as dividend to the shareholders in the period of 20% dividend taxes, then the shareholders will only get $80 of net dividends.
Thus, generally companies will payout more dividend payment when the tax rate is low and reduce the dividend payout, when the tax rate is high (EEI, 2010). It is because, if the company payout the dividend in high tax rate, then the amount of dividend that company actually want to return to the shareholders as rewards will be decrease (Hederman & Tyrell, 2010). In this situation, it will not favour for shareholders as well as the companies (Lee, 2009). Besides, according to Powazek (2010) there are more advantages to the company in retaining their earning compared to distribute dividends to the shareholders when the taxes are high. For instance, on 1993 in US, the tax rate is high, thus many companies at there had reduce their dividend payout to the shareholder, while in 2003, many companies' dividends payout had increasing due to the tax rate had been temporarily reduced from 39.6% to 15% by the Jobs and Growth Tax Relief Reconciliation Act of 2003 (Hederman & Tyrell, 2010). Besides, the following six months after dividend tax cut in 2003 announced, the dividend payout by the companies in US had increased $ 3.8 billion and in the following 2 years time, the aggregate dividend distribution by the companies had increased more than 30% (Hederman & Tyrell, 2010). Example, company that takes advantage in this tax cut period is Microsoft which distributed more that $ 32 billion to its shareholders in second half of 2004 which the tax cut system still proceed (Hederman & Tyrell, 2010). Another example is Clear Channel Communications Inc also increase its company first dividend distribution in 2003 (Jouahn Nam, et al 2007).
Next, according to Brown & O'Day (2005), taxes are an important factor in the dividend payout decision. Besides, in the Detroit (2010) statement had stated that when dividend taxes increased, the companies will change it dividend payout structure which will affecting all its shareholders. In addition, Desai, et al (2001) also proven that tax consideration have obvious possible to influence the dividend distribution of a company. Overall of the above had showed that dividend taxes will influence the company's dividend distribution.
Nevertheless, there are some researchers found that the company's dividend will not influenced by the dividend taxes. In other words, there are not relationships between dividend tax and dividend distribution. Example, Mosebach & Ellen (2007) had stated that there are not significant proven that the family firms will increase their dividend payout when tax rate is decreasing. Besides, there are also a survey had proven that larger firms' dividend distribution will not affected by tax (GuruFocus, 2004). Example, McDonald's Corporation and Wal-Mart store had consistently increase their dividend payout for more than 30 years continuing, although the tax rate were changing during that period (GuruFocus, 2004). In addition, Liu & Jabbour (2004) also express that dividend policy of a firm did not affected by the changes of tax rate. Next, there are also some researches stated that dividend distribution will not affected by dividend tax especially in banking industries (Nnadi& Akpomi, 2008).
Next, in a survey of Managerial Response to the May 2003 Dividend Tax Cut had indicates that company's management will consider the change in taxes rate in their dividend payout decision, but the taxes are not first-order importance. Besides, commonly the tax rates will not seem to be an essential factor for dividend increase decisions made by companies that were already paying the dividends (Alon Brav,et al,2008). In addition, dividends taxes may be become a factor to the dividend payout only when the companies' dividend distribution is subject to taxes. So if the company's dividend distributions are not subject to tax on dividend, then the dividend taxes will not be a factor that will be consider by the company in their payout decision. In other word mean that, the dividend taxes will not influencing the dividend distribution in such company. Example, Master Limited Partnerships which had many energy and pipeline companies within its group and the Real Estate Investment Trusts, which are pooled funds of money, organized to invest in various types of real estate, their distributions are not subject to the 15% qualified dividend tax rate (Divman,2010).
Company's investment opportunities influence the dividend distribution.
In finance term, investment is the purchase of a financial goods or other item of value with a belief of profitable future return (WebFinance, 2010). In business, investment is the purchase by a maker of physical products, such as equipment, stock, shares, in the desire of improving the future of business (WebFinance, 2010). Overall, investment means that company uses its fund or cash invest into an item by hoping its will generate return to the company in the future (WebFinance, 2010). Thus, investment can be classified as an important element to the company because main objective of companies normally is to maximizing profit or generate highest incomes. To making an investment by a firm, it needs to have sufficient cash in the company. Thus, in this situation, company's investment will contra with the dividend distribution of the company. It is because, investment needed the fund in the firm to carry out and the dividend is types of expenses which also need the company's fund to declared it (Malkawi & Husam, 2008). Thus, if the company wanted to do an investment, then they have to sacrifice some proportion of dividend payout to the shareholders (Stacescu, n.d.). In other words mean that, if the company chooses to carry out an investment then dividend distribution will become the opportunity cost to the company, vice verse (Stacescu, n.d.). This situation will normally occur due to the insufficient of cash in the company to fulfill all need. Thus, investment opportunities of a firm will be one of the factors that will influence the company's dividend distribution (MBA Resources, 2008; Ben, 2010).
Generally, when the company in the situation of high investment opportunity, then the company wills more possibility to use the company's fund to finance those investment and in other hand, the company will reduce or temporary not distributed the dividend (Docstoc, 2010). It is because; if investment is high profitable potential then it will be benefit the company by generate more profit in long run, while dividend is not an obligation to the firm, thus it can pay it when the firm had sufficient fund. In other hand, when the company had lower investment opportunities, then the company will normally distributed the extra fund of the company as dividend payments to the shareholders (Nguyen & Harada, 2007; Article book, 2008). Besides, according to Kothari (n.d.), when reinvestment rate of the shareholders is higher than the reinvestment rate of company, then company will be in better position of giving out their profit to the shareholders as dividends instead of retain it for investment purpose. However, if the shareholder's reinvestment rate is lesser than the company's reinvestment rate, then retain the earning will be the better choices for the company (Kothari, n.d.). In addition, in Article Book (2008) also had proven that firm will only implement a low dividend and high retain earning policy when the profitable investment opportunities is available in the firm and if the earnings retained cannot be profitably used and the return from the company's investment may be lower than the expectations of shareholders, resulting in lowering of owners' treasure, then the company would be better to give out high dividends, so that shareholders can invest it at a higher rate of return.
Lasfer (2000) also state that companies will consider its optimal investment first before deciding their dividend level. In other words mean those dividend payouts are expected to be volatile and to be in negative position related to the investment opportunities (Lasfer, 2000). Next, in CiteMan (2006) article also proven that companies which have very limited avenue normally pursue a higher dividend distribution. Besides, according to Sinivasan (2010) statement, it had stated that if the companies run in the industries which are in growth stage of product life cycle then they will high dependence on earning retention for their operation and investments purpose, while, if the companies run in the industries which are in the maturity and decline phase then normally they will give up high dividends to its shareholders. Besides, in an empirical result of the determinant of dividend payment in Pakistan which had carry out in the sample of 320 non financial listed firms on Karachi Stock Exchange (KSE) which represent 85% of total firms in 2007 market and also cover the account of that 320 firms for the period of 2001 to 2006 had showed that the relationship between dividends payout policies and investment opportunities is negatively (Ahmed & Javid, 2009). This meant that, in Pakistan market's companies also will increase their dividend payment when the investment opportunities are low, vice verse. In addition, in a questionnaire survey examined the dividend distribution of China's listed companies also had founded that no distribution of cash dividend of listed companies is mainly due to there are good investment projects having in the companies (FreePapers, 2009).
Next, there are also some researchers said that the only factor a firm would distribute the dividend payment is because it had nothing to do with its company's fund in the world (taipan, 2010). Besides, in the view of Al-Kuwari (2009) also express that firm tended to use internal funding sources to finance investment activities if it had large growth opportunities and large investment projects, thus, these firms will choose to cut or distribute lower dividend in order to reduce the dependence of external financing. On other hand, firm which having a slow growth and less investment opportunities will give out higher dividend to prevent manager from over-investing or misuse the company fund (Al-Kuwari, 2009). Example, Microsoft is a fast growing technology company which doesn't distribute dividend to its shareholders in many years, but its shareholders still satisfied with its company's performance (marketinvestors, 2008; chris, 2010). Another example, the Hansen Natural Corporation (HANS) a producer of the popular Monster energy drink line which in high growing stage of product life cycle does not pay a quarter dividend to its shareholders and refer to the author, this company may be start distribute their quarterly dividends after the end of its high growth period (Gillete, 2010).
However, there are some researchers had found that although the company's investment opportunities its high level but the company still maintain its dividend distribution (Richard, et al, 2007). This circumstance means that company is willing to pass up its profitable project in order to maintain its current dividend distribution if the company does not has sufficient fund (Richard, et al, 2007). This statement has proven by a few researchers' survey in 2005 as they found that when limited fund available in the company which force the company to choose between investment and dividend, the dividend will be choose by the firm managers instead of investment (Richard, et al, 2007) . In other words mean that not matter how the companies' investment opportunities is, the dividend distribution by the companies will not affected by it. In this case, we can know that the company manager in this survey are classified their dividend distribution as a very important element to its companies compared with the investment o profitable project of the firm (Richard, et al, 2007). In this circumstance, we can conclude as dividend distribution will not affect by the company's investment opportunities.
Company's liquidity influence the dividend distribution
The last factor that will influence the dividend distribution is the company's liquidity (C& K, 2003). In a financial term, liquidity means the amount of cash that is available for investment (Amadeo, 2011). For an institution, liquidity means how easy it is raise cash to settle its obligation and needs (Holton, 2004). In other words mean that the more easily a company's asset is convert to cash, the more liquid it is, vice verse (JMW, 2010). Example, if the firms had $10 million in its current assets and only 1 million in its current liabilities, the firm seems in a very good shapes and strong positive in term of liquidity (JMW, 2010). Overall of this, we can know that liquidity is related to availability of, access to or convertibility into cash by the firms (Holton, 2004).
For dividend payout, it represents a cash outflow or a cash payment from the business (C& K, 2003; CiteMan, 2011). Besides, according to Ayub (2002), dividend payment is directly concerned with the availability of surplus cash after payments of the expenses and financing for the additional investment in the company. Thus, to determine the amount of dividend pay by a company, then it will surely highly depend on the liquidity position of the firm (Docstoc, 2010). In other word mean that company's liquidity position has a bearing on the dividend decision (CiteMan, 2011). This meant that, if the company's liquidity position is weak or having cash shortage, then the company's ability to payout the dividend will be low (Anil & Kapoor, 2008). In other hand, if the company's liquidity position is free or strong, then the company's ability to distribute the dividend will be high too (Anil & Kapoor, 2008). Besides, a company's current assets and more cash-rich, it is also a strong ability to distribute the dividend, when possible, high dividend policy, of course (FreePapers, 2006). However, if a firm was to increase its production or repay debt or loans which have been realizable assets and cash expenditure is nearly finished, it should not be taken high dividend policy (FreePapers, 2006).
In other words meant that, the company's liquidity is having a positive relationship with the dividends distribution (Anil & Kapoor, 2008). Example, in the statement of Kim & Gu (2008) had founded that liquidity to be positive correlated with dividend distribution. Besides, Norhayati (n.d.) also got proven that, generally, company will only distributed the dividends when it had a good liquidity position or free cash flow. Example, U.S. companies such as Nike, Intel, Baxter, UPS, Johnson Control which had large pile of cash and cash equivalents in their balance sheet on 2010 had announced an increase of dividend payout to its shareholders (David, 2010). Another example, when Wienerberger AG, the world larger brick producer had faced liquidity problem, it had proposed to suspend or stop its dividend payment in 2008 in order to improve the company's liquidity position (Wienerberger AG, 2010). Besides, Telefonica, a telecommunication company in Spain had stated that one of the factors that its company will take into consideration before paying the dividends to its shareholders is the fund or cash available in the company, in other word mean that, the company will take in consideration the liquidity position of its firm before making the dividend payout decision (Devpriya, n.d.). In addition, Nietvelt & Mock (2010) also had stated that because of strong 2010 cash flow of 1.4 billion of report cash and cash equivalents having by Evonik Industries AG, the company will likely payout high dividends to its shareholders. Other than that, in the thought of Springer (2010), Barnes & Noble will cut its dividend payout soon due to high debts of $630 million and small cash reserves of $27 million inside the company. Besides, Springer (2010) also stated that Nucor Corporation, a steel maker company's dividend could be in danger position next year if the company's cash flow or liquidity position doesn't improve.
Next, FreePapers (2009) also had expounded that the overall liquidity of the assets in the company as possible, the ability to distribute dividend is strong. Other than that, the statement also stated that if company large proportion of cash in the fixed assets and permanent working capital, the liquidity will be largely reduced and will not give priority to payment of dividends (FreePapers, 2009). Besides, in the statement of Afza and Mirza (2010) had also indicate that companies having a strong liquidity or greater cash flow generated from operations are expected to be in a better position to distribute the dividends rather than companies having negative operating cash flows or poor liquidity. In the survey of the panel data of stocks from Nikkei 225 index of Japan and the research in examination of the determinants of dividend payout in Indian Information Technology sector from 2000 to 2006 also had founded that dividend distribution by company is positively affected by the company's liquidity (Afza and Mirza, 2010). Besides, the author in a statement analyze on weak liquidity position of the Concern Kalina (JSC), largest producer of cosmetics and personal-care products in Russia on 2008, had expected in 2009 the company will refrain its dividend payout as one of the way or efforts to overcome the liquidity problem (CbondS, 2004). By this author's thought, it clear indicates that the company's liquidity position will influence the dividend distribution.
In a Watchdog Group and University of Technology MARA's survey which examines the companies' behaviour on dividend distribution over a three-year period of 2002-2004 on top 100 public-listed companies which market value ranged from RM983 million to RM41, 972 million as at 31 December 2005 had also concluded that liquidity are one of the essential ingredients for a healthy, dividend-paying public listed company (ArticlesBase, 2010). Example, the Deere & Co. (DE) had a consistent track record of quarterly dividend payout, due to its cash position and its ability to create a healthy and strong cash flow in the company (Zacks, 2010). Besides, Melissa & Frank (2004) also indicated that higher levels of liquidity to allow for dividend payoffs on potential implicit requirements. For instance, in the research of Canadian dividend payment issue, the researcher had founded that most of Canadian dividend paying firms are significantly having greater cash flow (Ahmed & Javid, 2009). Thus this had proven that dividend payment will be available only when the company has strong liquidity or free cash flow. Holder, et al (1998) also stated the greater the free cash flow or strong liquidity position, the higher the dividend payout ratio of a company. In addition, Srinivasan (2010)'s statement had also stated that the role of liquidity cannot be ignored in dividend distribution which mean that the total of dividend distributed proposed by the companies is critically depend on the company's liquidity position. Next, one of the factors influencing the surge dividend payout of the IT companies such as Infosys Technologies, Wipro Technologies and HCL Technologies is the high liquidity in these companies (SlideShare, 2010).
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(Kennan , 2010)
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