Chapter 1: Research Overview 3
1.1 Introduction 3
1.2 Background of the study 3
1.2.1 Dividend Policy in Malaysia 3
1.3 Problem Statement 4
1.4 Research Objectives 5
1.4.1 General Objective 5
1.4.2 Specific Objectives 5
1.5 Research Questions 5
1.6 Scope of study 5
1.7 Significance contribution of study 5
1.8 Limitation of study 5
Chapter 2 Literature Review 6
2.1 Dividend Theory 6
2.1.1 Agency Theory 6
2.1.2 Signalling Theory 6
2.1.3 Bird in Hand Theory 6
2.1.4 Pecking Order Theory 6
2.2 Review of Literature 6
2.2.1 Dividend Policy & Leverage 6
2.2.2 Dividend Policy & Liquidity 6
2.2.3 Dividend Policy & Profitability 6
2.2.4 Dividend Policy & Growth Opportunities 6
2.2.5 Dividend Policy & Corporate Taxation 6
2.2.6 Dividend Policy & Firm Size 6
2.3 Hypotheses Development 6
2.4 Research Framework 6
Chapter 3: Research Design Methodology 7
3.1 Sample Selection 7
3.1.1 Population 7
3.1.2 Sampling Technique 7
3.1.3 Sample 7
3.2 Data Collection Method 7
3.3 Description of Variables 7
3.3.1 Independent Variable: Leverage 7
3.3.2 Independent Variable: Liquidity 7
3.3.3 Independent Variable: Profitability 7
3.3.4 Independent Variable: Growth Opportunities 7
3.3.5 Independent Variable: Corporate Taxation 7
3.3.6 Dependent Variable: Dividend Policy 7
3.3.7 Control Variable: Firm Size 7
3.4 Data Analysis 7
3.4.1 Descriptive Analysis 7
3.4.2 Normality Test 7
3.4.3 Correlation Analysis 7
3.4.4 Multicollinearity 7
3.4.5 Multiple Regression 7
Chapter 1: Research Overview
Dividend decision referring to decision in deciding the amount or portion of earnings to be distributed to the shareholders as a dividend as well as decide the amount to be retained by the company. Dividend distribution could be seen as a form of reward to the shareholders due to their willingness in financial investment contribution to the company, hence this method of reward could fulfil their objective in maximising their interest.
On the other hand, the level of investment opportunities will help the company in deciding the amount of earnings to be retained. Therefore, it is possible for the companies to develop and manage an optimum dividend policy divides the earnings into dividend and retained earn¬ings.
Dividend policy is “the practice that management follows in making dividend pay out decisions or, in other words, the size and pattern of cash distributions over time to shareholders” (Yusof & Ismail, 2016). In decade, dividend decisions raise financial issue and it is one of the top ten complex matters in finance, due to its expressive effect towards investment and financial decision (Thirumagal & Vasantha, 2016).
Yusof & Ismail (2016) expressed that the companies would be relied and depends more on debt or other external financing method in the case if the companies pay extremely high dividend, since it would result in less retained earnings to finance the future profitable project or investments. In contrast, the company’s dependence on the external financing would be reduce if the companies decide to pay fewer dividend, indicate that the company will have more internal earnings for future project plans.
The evolution of dividend policy has been started by Litner (1956), in which introduce with the Litner Model.
1.2 Background of the study
1.2.1 Dividend Policy in Malaysia
Bursa Malaysia website (2018) has been provided with guidance on setting Dividend Policy for public listed companies in Malaysia in which can be considered by the companies in managing company’s level of dividend’s payment. The factors that mentioned in was including the level of availability of liquidity in the companies, return on equity (ROE) and retained earnings of the companies, as well as companies levels of capital expenditure and plans on other investment, if any.
1.3 Problem Statement
While Bursa Malaysia (2018) has provided the public listed companies in Malaysia with the guidance on factors to be considered for dividend policy decision, Focus Malaysia (2017) however highlighted that Malaysian public listed companies seem not show their interest in maximizing shareholder’s wealth, since they do not even establish with their dividend policy in explaining the cash dividend levels to pay as a percentage of their net yearly earnings.
Even there are many empirical research on determinants of dividend policy around the world either in developed economies or in emerging economies, however, there are no general consensus factors that can be considered for dividend policy decision (Mui & Mustapha, 2016). In other words, there is no dividend policy can be familiarly accepted and hence, managers in the company will find it difficult in deciding the distribution of cash dividend to the shareholders.
Thus, this study aims to examine which determinants could influence dividend policy decision among public listed companies in Malaysia. This study tends to fill in the gap through extending the study done by the previous empirical research on determinants of dividend policy in Malaysia context by using the recent years’ data as well as in adding additional factors of Corporate Tax in determining dividend policy.
1.4 Research Objectives
The research objectives in this study was based on the problem above along together with the additional factors of Corporate Tax in determining dividend policy.
1.4.1 General Objective
To examine factors that influence the Dividend Policy decision among Malaysia public listed companies.
1.4.2 Specific Objectives
• To examine whether leverage has significant relationship with dividend policy.
• To examine whether liquidity has significant relationship with dividend policy.
• To examine whether profitability has significant relationship with dividend policy.
• To examine whether investment opportunities has significant relationship with dividend policy.
• To examine whether corporate tax has significant relationship with dividend policy.
1.5 Research Questions
The following research questions were addressed to gain and seek understanding the factors that influence Dividend Policy of Malaysia public listed companies.
• Does leverage has significant relationship with dividend policy?
• Does liquidity has significant relationship with dividend policy?
• Does profitability has significant relationship with dividend policy?
• Does investment opportunities has significant relationship with dividend policy?
• Does corporate tax has significant relationship with dividend policy?
1.6 Scope of study
1.7 Significance contribution of study
1.8 Limitation of study
Chapter 2 Literature Review
2.1 Dividend Theory
2.1.1 Agency Theory
Agency theory views that the relationship was exist in link between the manager as an agent and owner as a principal. The relationship exist when the shareholder, who is the owner of wealth in the company engaged the agent to manage and control the wealth on their behalf. The principal-agent relationship has created a problem that the agent are not share the same interest as principal, hence conflict of interest problem arise. The principal and manager’s interest may be diverged, since agent seem the acceptance of the agent status give them opportunity in maximize their own interest and utility. The principal need to incur cost in monitoring the behaviour of the agent, so that the agent will act in the best interest of the principal. This cost incurred by the principal known as agency cost. Since separation of ownership and control between principal and agent will rise the agency cost bear by the principal, therefore, dividend policy is one of the alternative that was believed in reducing agency cost (Mui & Mustapha, 2016).