DETERMINANTS OF DIVIDEND YIELD OF MALAYSIAN FIRMS

Teresa Liew Phit Sia

HG 4026 L722 Corporate Master in Business Administration 2011 2011

.flusat Khidmal Maklum [Aku em . !lJNlVERSm MALAYSIA SARAWAK

p.KHIDMAT MAKL.UMAT AKADEMIK

111111111 ~i'~ii 111111111 1000246507

DETERMINANTS OF DIVIDEND YIELD OF MALA YSIAN FIRMS

TERESA LIEW PH IT SIA

A dissertation submitted in partial fulfillment of the requirements for the degree of Corporate Master in Business Administration

Faculty of Economics and Business UNIVERSITI MALAYSIA SARA W AK

2011

APPROVAL PAGE

I certify that I have supervised and read this study and that in my opinion it conforms to the acceptable standards of scholarly presentation and is fully adequate, in scope and quality, as a research paper for the degree of Corporate Master in Business Administration.

Dr. Mohammad Jais Supervisor

This research paper was submitted to the Faculty of Economics and Business, UNIMAS and is accepted as partial fulfillment of the requirement for the degree of Corporate Master in Business Administration.

Professor Dr. Shazali Abu Mansor Dean, Faculty of Economic and Business UNIMAS

11

DECLARATION OF COPYRIGHT

Name ' : Teresa Liew Phit Sia

Matric Number : 08031512

I hereby declare that this research is the result of my own investigation, except where otherwise stated. Other sources are acknowledged by footnotes giving explicit references and a bibliography is appended.

Signature

Date

Copyright by Teresa Liew Phit Sia and Universiti Malaysia Sarawak

111

ACKNOWLEDGEMENT

I.

-Author would like to express a sincere appreciation to the supervisor, Dr Mohammad Jais, for his patient, guidance and helpful criticisms towards the completion of this research paper. A special thank is also extended to the Dean and all the staffs of Faculty of Economics and Business.

IV

ABSTRACT

(:hiS study focuses on the perfonnance of 788 finns over a 10-year period from year 2000 to 2009 that provide infonnation on market capitalization, net income, tota~ assets, total common equity, net operating cash flow, the earning per share and the date the finn was first listed on Bursa Malaysi, The result of statistics summary provide support to the previous studies that Malayslan dividend payers are more profitable, having higher net operating cash flow and investment opportunities but lower debt equity ratio than the non-payers. The result of Logit regression shows that profitability has the strongest positive influence, debt equity has moderate negative influence and cash flow has mild positive influence on the probability of dividend yields. Investment opportunities have been found with no significant contribution. The influence of the financial variables on dividend yield varies when finns are examined within the context of size and age of finns. The only exception here is profitability which consistently shows positive influence and its impact increases across size and age of finns.

v

ABSTRAK

Kajian ini tertuju kepada pencapaian 788 finna-finna sepanjang tempoh sepuluh (10) tahun, iaitu dari tahun 2000 sehingga tahun 2009 di mana makIumat mengenai nilai pasaran, pendapatan bersih, jumlah aset, jumlah ekuti umum, aliran tunai bersih dari operasi, pendapatan atas saham serta tarikh finna mula tersebut di Bursa Malaysia adalah tersedia ada. Keputusan yang diperolehi dari ringkasan statistik menyokong kajian-kajian terlebih dahulu bahawa pembayar dividen di Malaysia adalah lebih beruntung, mempunyai aliran tunai bersih dari operasi serta peluang pelaburan yang lebih tinggi, tetapi nisbah ekuti hutangnya adalah lebih rendah berbanding dengan finna-finna yang tidak membayar dividen. Keputusan regresi logit menunjukkan bahawa keuntungan mempunyai pengaruh positif yang paling kuat, ekuti hutang mempunyai pengaruh negatif yang serdehana dan aliran tunai mempunyai pengaruh positif yang lemah ke atas kebarangkalian hasil dividen, sedangkan peluang peIaburan didapati tidak mempunyai pengaruh yang ketara. Pengaruh dari pembolehubah­pembolehubah kewangan terhadap hasil dividen berubah-ubah ketika finna-finna diteliti mengikut kontek dari segi saiz serta umur finna. Satu-satunya pengecualian di sini adalah keuntungan dimana ianya sentiasa tetap menunjukkan pengaruh positif dan kesannya bertambah mengikut saiz serta umur finna-finna.

VI

Pusat Khidmat Maklumat AkaderraJ< UNIVERSm MALAYSIA SARAWAK

T ABLE OF CONTENTS

APPROVAL PAGE. . .. ... . ..... . .. . .. . .. ... . .. . .. . .. . .. . .. . .. . .. . ........ . .. . ... ......... 11

DECLARATION OF COPYRIGHT PAGE.. ......... ...... ..... ... ............ .... ... 111

ACKNOWLEDGMEN .................... ............................................... IV

ABSTRACT ................................................................................ V

TABLE OF CONTENTS. . ..... . .. . .. ... . .. ... ...... ... ...... ... ........ . . .. . .. .. . ....... Vll

LIST OF FIGURES ................................... .. ................. . ................ IX

LIST OF TABLES. . .. . .... . . .. . ......... .. . .. . .. ....... .. . .. ...... . .. . .. . .. .... .. . ... . ..... X

APPENDIXES ...................... .. ...................................... ... ........... . Xl

CHAPTERl

INTRODUCTION............ . ................ ............... ... ................... . ...... 1

CHAPTER 2

LITERATURE REVIEW. ..... ... . . .. . .. . .. . .. . .. . ..... ......................... .. . .. . .. .. 4

CHAPTER 3

RESEARCH METHODOLOGY

3.1 Data Collection Procedure. . .. . ..... . ... .. ... ... . .. ... . .. .... .. ... ... ... . .... .... . . 13

3.2 Selection of Variables ........................................ .. ................. ... 14

3.3 Condition of Data .................................... . .............................. 17

3.4 Method of Analysis............... .. ........ ..... ............ ... ................. .... 18

Vll

CHAPTER 4

FINDINGS

4.1 Comparison between Dividend payers (DP) and Non-dividend payers (NDP) 21

4.1 .1 Profitability... . ..... . ..... ..... ..... ...... .... ..... ......... ... ................ ............ 23

4.1.2 Investment Opportunities. . .. . .. . .. ...... . . ....... . . .. .. .. ....... . ... . .. ...... 24

4.1.3 Debt Equity........ ...... . . .......... .......... . ....... ....... ... ............ .. ... 26

4.1.4 Cash Flow... . . ..... . . .... . . . . ... .. . .. . ............... .. . ...... .. . .. . .. . ..... ... . . 28

4.2 Comparison within Dividend payers with regards to size and age of firms 31

4.2.1 Characteristics of Dividend payers by size... .. ...... .. ...... . ............. 33

4.2.2 Characteristics of Dividend payers by age...... . . . .... .. . . ..... . ..... . ..... 35

4.3 Result of Logit Regression . . .. ...... .. ..... ....... . ...... . ..... . ........ .. .... .. ... 37

CHAPTERS

CONCLUSION AND RECOMMENDATION

5.1 Summary .. ."................. ......... . .. ........... .. .... .. ........ .. ............ . ... 13

5.2 Recommendation . ...... . .... .... .... . . . ...... ...... . . . . . .... . .... .. . ....... ....... .. 14

REFERENCE 45

Vlll

LIST OF FIGURES

Figure 1 Dividend Yield (Dividend Payout/Share Price) of Dividend paying firms 2000 to 2009 .......... . ... .. . ... . ..... ......... .. . . .. .. ......... . . .. . 22

Figure 2 Profitability (NIIITA) - Mean and Median of Dividend and Non-dividend paying firms 2000 to 2009 .... .. .. ...... .. ..................... 23

Figure 3 Investment Opportunities (CIA) - Mean and Median of Dividend and Non- dividend paying firms 2000 to 2009 .............................. 24

Figure 4 Debt Equity (TD/CE) - Mean and Median of Dividend and Non-dividend paying firms 2000 to 2009 ..................................... 27

Figure 5 Cash Flow (NOCF/A) - Mean and Median of Dividend and Non-dividend paying firms 2000 to 2009 . . .. . ..... . .. ................. . ...... 28

Figure 6 Market Earning Growth (CEPS) - Mean and Median of Dividend and Non- dividend paying firms 2000 to 2009 ............ .. .. ........ .... .. 29

IX

LIST OF TABLES

Table 1 Dividend Yield (Dividend Payout/Share Price) of Dividend paying firms 2000 to 2009 ...................... . . . ... .. ............... . .............. 22

Table 2 Profitability (NIIT A) - Mean and Median of Dividend and Non-dividend paying firms 2000 to 2009 . ....................................... 23

Table 3 Investment Opportunities (CIA) - Mean and Median of Dividend and Non-dividend paying firms 200 to 2009 .. ................. .. ............ ... 24

Table 4 Debt Equity (TD/CE) - Mean and Median of Dividend and Non-dividend paying firms 2000 to 2009 ............... .. ....................... 27

Table 5 Cash Flow (NOCFIA) - Mean and Median of Dividend and Non-dividend paying firms 2000 to 2009 ...... . ................................. 28

Table 6 Market Earning Growth (CEPS) - Mean and Median of Dividend and Non-dividend paying firms 2000 to 2009 .......... . ....................... 29

Table 7 Characteristics of Dividend Payers within the context of size and age offirms . .. . . .............. ... . .............. .... . . . ........................... ... 32

Table 8 Percent of small, medium and large Dividend Payers against the four tinancial variables. . ............................... . . ................ .......... 33

Table 9 Percent of young, stable and mature Dividend Payers against the four financial variables.... .. ........................ . ........... . .... .............. 35

Table 10 Logit Regression to confirm the influence of profitability, investment opportunities, debt equity and cash flow on the probability of dividend yield of Dividend Payers.......... . ........ . .. . . . . . . . .. . ...... .. . . 37

Table 11 Logit Regression to confirm the influence of profitability, investment opportunities, debt equity and cash flow on the probability of dividend yield in different size and age of firms ................. ...... .... 39

x

APPENDIXES

Appendix 1

Appendix 2

Appendix 3

Appendix 4

Appendix 5

Appendix 6

Appendix 7

Appendix 8

Appendix 9

Count of firms by sectors selected from year 2000 to 2009......... 49

Count and percents of firms in different dividend groups......... 49

Count and percents of firms in respective sector that pay dividends in year t. ...... . .. . .. . .. . .. . .. . .. .......... .. ... . ... ..... . .. .... 50

Characteristics of Dividend Payers by combination of size and age. .... ....................... .............................. ............... 51

Percent of Dividend Payers sorted in 3 categories (low, mid, high) by holding investment opportunities constant with size profitability, debt equity and.. ................. ............... . .. . ..... 52

Percent of Dividend Payers sorted in 3 categories (low, mid, high) by holding debt equity constant with size, profitability, investment opportunities and cash flow. . .. . .. . .. . ................... 52

Percent of Dividend Payers sorted in 3 categories (low, mid, high) by holding investment opportunities constant with age, profitability, debt equity and cash flow ........ ....................... 53

Percent of Dividend Payers sorted in 3 categories (low, mid, high) by holding debt equity constant with age, profitability, investment opportunities and cash flow. .......... ................... 53

Logit Regression to confirm the influence of profitability, investment opportunities, debt equity and cash flow on probability on dividend yield by combination of the size and age of firms ................................................................... 54

Xl

CHAPTERl

INTRODUCTION

Fear and Greed have always dominated the stock market. They become magnified in

times of great stress. In recent years, the turbulent stock market has made many ordinary

investors tum to dividend-paying stocks. It is an intelligent attempt to balance their

investment portfolio's risks and return due to uncertainty in capital gain from share price

appreciation. Many know that this defensive investing could preserve the value of their

investment and ease them through the turbulent times without eliminating their stake in

the firms or at least keep it at a negligible risk while waiting for the next market

adjustment to reap the capital gains.

Like most forms of other investment, investors will examine the current and future

overall health of the economy; understand the industry involved, the maturity of the

industry and the effect of macroeconomic factors on the industry before putting their

money in it. Despite this, many investors are often drawn to and got trapped by low­

priced, high yielding stocks. To counterbalance, investors should also place emphasis

on the value of the dividend paying firms by looking at their financial variables and

understand their underlying influence on dividend yield before making decision to act.

Firms generally have two options to utilize their profit - to either retain it or distribute it

in the form of dividends to their shareholders. This major decision is often influenced

by the consideration of reinvesting the fund to generate more future stream of earnings,

financial leverage and the cash flow constraints of firms. Sometimes, the preference and

orientation of the investors, and the macroeconomics, both domestic and global are also

taken into account. The management also looks at a number of other complexities that

can affect the finn. Some of these are the corporate structure, the agency problems and

the legal and contractual constraints imposed on firms in different economic and

political scenarios. Each firm will consider all these factors and appropriately adopt a

dividend policy that best suits its interests and capabilities. However, it often cannot go

beyond the underlying financial values of the firm.

For the average investor, a convenient indicator when choosing dividend-paying stock is

the amount of cash dividend payout. However, this can be very misleading. A better

way would be to look at the dividend yield or dividend payout ratio as a measure of risk

and investment screening. Dividend yield is the ratio of the dividend payout to the

share price and provides a better measure for the dividend policy of a firm as the total

return from dividend is balanced out with stock price appreciation. Caution should be

given as the dividend yield can be artificially inflated by fluctuations in stock price.

Dividend payout ratio, which is the total dividend payout over the earnings of the firm,

is usefid for estimating potential dividend payout in the future periods in relation to the

earning of the firms.

A review of literature on the subject of dividend policy of dividend paying firms shows

that numerous empirical studies have been done in the developed markets. Malaysia

can be considered a semi-developed capital market where research in this market is

limited. There are a few studies focusing on Malaysian companies listed of! Bursa

2

'"7.

Malaysia. They have identified certain characteristics of dividend paying and non­

dividend paying firms. The three financial variables namely profitability, investment

opportunities and debt equity have been narrowed down as common factors having

significant influence on dividend yield of dividend-paying firms.

Motivated in part by studies done in developed markets and the need for similar studies

in Malaysia, this study examines all firms listed on Bursa Malaysia, over the period

from year 2000 to 2009, with the following aims:

1. To see if characteristics of dividend CDP) and non-dividend payers (NDP) in

this study substantiate earlier findings

2. To examine the influence of the 4 financial variables namely profitability,

investment opportunities, debt equity and operating cash flow on dividend yield

3. To examine the influence of the above four financial variables on dividend

yield within the context of age and size of firms

It is hoped that the findings of this study will not only be of academic interest but will

also provide a useful guide to the Malaysian investors who are interested in dividend

paying stocks.

The rest of the contents of this study is organized sequentially in a manner where

chapter 2 captures the literature reviews, chapter 3 depicts the data collection technique

and method of analysis, chapter 4 discusses the findings and chapter 5 concludes the

findings.

3

CHAPTER 2

LITERATURE REVIEW

Despite numerous previous theoretical and empirical studies, many researchers are still

trying to unveil the behavior of dividend policy in both developed and emerging

markets and it remains the most debatable issue in the field of corporate finance.

Dividend payout policy is perceived as an indicator of the financial health of a firm.

Miller and Modigliani (as cited in Jin, 2000), by assuming perfectly efficient market

with no taxes and bankruptcy costs, demonstrate that the dividend policy and values of

firms have no significant relationship. However, perfect markets do not exist in reality.

Instead, numerous literatures putting forth various dividend policy theories all show that

firms of higher financial values are inclined towards dividend payout but using it with

different strategies. Some of these strategies are termed as the Clientele theory,

Catering theory, Bird-in-hand theory, Agency theory, Signaling theory and Lifecycle

theory.

The Catering Theory developed by Baker et at (2004) suggests that dividends are

highly associated with share value. Managers tend to use dividend as a reward and

would initiate dividends when investors are willing to pay for a relatively high price

dividend-paying stocks. When they sense investors migrating away to stocks that do

not pay dividend, they would then omit dividend payout.

4

Pusat Khidmat Maklumat Akademik UNIVERSm MALAYSIA SARAWAl(

In a reverse strategy, some firms manipulate the clientele effect by directing their

dividend policies towards attracting investors. Investors take the finn's dividend

payment as a signal of its future free cash flows. Therefore, finns that hold back

dividends are perceived as lesser in value than those paying dividends. The stock price

of these dividend-paying firms then becomes more positive the higher the dividend rises..

Similarly, the stock price decreases if the firms reduce their dividends. This Clientele

effect is supported by Jais (2007), where it is observed that the post-operating

performance of dividend payers listed in Bursa Malaysia improves following a dividend

increase.

Lintner's (as cited in Griffin, 2010) famous argument states that firms tend to set long-

term dividend policy based on dividend to earnings ratios. In other words, earnings are

the most important detenninant of dividend payout policy and dividends are not paid or

the quantum will not be increased until the managers are confident that the next

earnings level is sustainable. Consistent with Litner's study, the result from the survey

presented by Brav et at. (2005) reveals that managers in the 21 51 century still perceive

stability in earnings as being crucial in setting dividend payout policy.

Firms that adopt the earnings approach show a trend in dividend yield that is much

more stable even if earnings may fluctuate. A study carried out by Teary et at. (2010) on

1,000 firms from the period 1985 to 2005 finds that US firms of rich cash flow, with

low growth prospects and weaker governance and are monitored by institutional

investors tend to smooth more. Younger and smaller firms, finns with low dividend

yields and higher earnings volatility smooth less.

5

Subsequently, Damodaran (2010) presents the annual aggregate earnings and dividends

of U.S. SP500 firms from 1960 to 2008, and shows that the standard deviation of

dividends is 5.2% while the standard deviation in earnings is about 14.7%. The standard

deviation in earnings across firms is significantly higher than that of the dividends

yields. Hence, the variation in dividend yields across firms is much lesser than the

variation in earnings.

Typically, more profitable firms pay dividends. However, firms that do not pay

dividends are not necessarily without profits. If firms perceive the growth opportunities

are optimal, as many young firms in the developed and efficient market do, then they

will withhold short- term rewards to shareholders and will pay no dividends but will

reinvest all earnings to generate further growth for the business. Only firms that could

no longer grow at the unprecedented rate it has previously achieved would start to

reward shareholders in the form of dividends. The maturity hypothesis by Grullon et al.

(2002) suggests that mature and stable firm pay higher dividends as opposed to small

and younger firms that tend to retain earnings for business growth thus pay lower

dividends.

The concept of lifecyde is rarely applied in corporate finance. The most prominent

example would be the study of DeAngelo et at. (2006) that uses retained earnings as a

proxy for financial life cycle. It reports that a positive association of paying dividend

with a firm's retained earnings is more likely to occur as firms mature and reach a

steady state of profitability. The lifecycle progression of Microsoft has demonstrated the

relationship between dividends and growth opportunities well and indicates that the

6

firm has entered into the maturity stage of its life cycle and has grown into a large and

stable firm with huge cash flow (Wenning 2010).

The study by Fama et al. (2001) on the difference between the dividend payers and non­

payers focused on profitability, investment opportunities and firm size. They use the

results from both relative frequency and logit regression, confirms that firms that do not

have substantial investment opportunities would distribute cash to their shareholders

instead of reinvesting it into the business and that more profitable firms are more likely

to pay dividends. Positive indication is also observed on the effect of firm size on the

probability of dividend payout, that is, larger firms are more likely to pay dividends.

Contradictory to the belief that substantial reinvestment of retained earnings will bring

faster future earnings growth, the evidence provides by Amott et al. (2003) strongly

suggests that expected future earnings growth is fastest when current payout ratios are

high and the reverse is observed when payout ratios are low. The study uses the payout

ratio of the u.s. equity market to forecast future aggregate earnings growth. It indicates

that managers are signaling their earnings expectations through dividends. The finding

offers a challenge to investors and financial analysts or market observers who are of the

opposing view that low dividend payouts is a sign of strong future earnings. The

contradictory perceptions pose the question or cast a doubt on whether the governance

and financial structures of these firms are efficient and transparent.

The above study by Amott et al. (2003) can be taken as evidence for the Signaling

Theory propounded by John et al. (1985). The theory explains that dividt::mds signal

7

fundamentals that are used to convey information about the future prospects of the firms.

However, a survey and interview of financial executives in US by Brav et al. (2005),

finds that managers reject the notion that dividends are signaling devices and generally

agree that it is too costly for firms to do that.

Corporate debt and dividends play a significant role in financial strategy and in the

creation of corporate value of firms in the capital markets. Based on the principal and

agent framework, debt and dividends can be used as control mechanisms to reduce the

conflicts of managers and shareholders. Hence, this helps alleviate the problem of

overinvestment when firms lack growth or investment opportunities. Within the context

of Agency Theory, Jensen's free cash flow hypothesis (Jenson, 1986) implies that in

corporations with large cash flow, managers tend to invest in projects with lower

internal rate of returns and debt is used to counter this, thus taking away the free cash

flow. Richardson (2000) shows overinvestment is mainly concentrated in firms with

higher level of free cash flow. The two studies by both Jensen and Richardson do not

deal with the issue of dividends but provide indirect empirical inference that firms with

huge cash flow may not necessary increase its dividend payout as suggested by the free

cash flow hypothesis.

Theis (1999) exammes the agency relationships and capital structure of property

management firms in United Kingdom. His findings indicate significance in the inverse

relationship between corporate debt and dividend yield. The result obtains by Stacescu

(2006) on the study of dividend policy in Switzerland infers that firms tend to lower

their gearing status by increasing the retained earnings and hence, theY.pay lower

8

dividends as compared to low-geared firms.

Empirical results from other matured capital market provide similar results to those in

the US market. Eije et al. (2006) observe the evolution trend in dividend paying from

the 3400 European firms in fifteen nations over a period of 15 years from 1989 to 2003.

The main deciding factor for their dividend payment is the earnings of the firm. Rapid

growing companies are less likely to pay and make less dividend payments. Other

findings include firms of larger size have higher propensity to pay and the amount of

dividend paid increases when relative size of firm increases. High leverage finns

reduce both.

Baker et al. (2007) conducts a study on 291 listed firms on Toronto Stock Exchange

about the perception of dividends by Canadian managers. The result reveals that

Canadian dividend paying firms are generally larger and more profitable, having greater

cash flow. The most influencing factors in their dividend payout are the level of the

firms' expected future earnings, stability in earnings, pattern of past dividends payout

and the level of current earnings. The study also suggests that most Canadian managers

make dividend payout decision according to Linter's famous arguments that managers

prefer to increase or maintain dividends consistency.

Coulton et al. (2009) reports that the Australian dividend-paying firms are larger in size

and generally are more profitable than the non-dividend paying firms. They have fewer

growth opportunities and higher retained earnings to assets as well. Ordinary dividends

remain as their most popular way of distributing cash to their shareholders. .

9

Varouj (2003) studies the dividend policies of finns in emerging markets where the

financial systems are significantly different from those in the United States and

compares them with developed markets. He examines a sample of finns from eight

emerging markets that include Malaysia, Thailand, South Korea, Jordon, India, Turkey

and Zimbabwe, and a sample of ninety-nine finns from the United States.

The empirical results reveal that profitability affects dividend payments for both U.S.

finns and emerging market finns. Finns with high ROE tend to pay higher dividend.

This finding provides strong support to the residual cash flow theory of dividends.

Other findings that include lower dividend payments for finns with higher debt ratio,

suggests that the financial constraints affect dividend policy of the finns. There is little

evidence to show that dividend policy is affected by the size of the finns. The results of

this study show that the dividend policies of finns in emerging markets react to

variables similar to those in the United States but their sensitivity to these variables

varies across countries.

In other nearby emerging markets, the outcome observed by Admed et al. (2009) on the

determinants of dividend payout policy of 320 non-financial finns listed in Karachi

Stock Exchange for the period 200 I to 2006 shows almost similar results. Their

dividend payout depends on current earning and past dividend per share. Profitable

firms with more stable net earnings and larger cash flow pay larger dividends. Their

investment opportunities and leverage, on the other hand, have the reverse impact.

10

The investigation done by Reddy (as cited in Ahmed, 2009) shows that generally the

dividend paying finns in Indian market are more profitable, larger in size and in the

growing life cycle.

In an attempt to fiB the limited literature gap in Malaysia, Pandey (2003) examines the

corporate dividend policy and behavior of finns listed on Bursa Malaysia from 1993 to

2000. The focus of this research is on finns in an emerging market in Southeast Asia

and to study their dividend payments and whether they follow stable dividend policies,

as in the case of developed markets. The result of multinomial logit analysis provides

evidence that Malaysian finns follow less stable dividend policies but the dividend

payments are sensitive to changes in earnings. At the same time, finns are reluctant to

omit dividends when earnings decrease. Empirical studies generally indicate that the

dividend policy of Malaysia finns is positively related to profitability but negatively

related to investment opportunities and debt equity.

Few et al. (2007) study 100 public finns listed on Bursa Malaysia from year 2002 to

2005, and have successfully provided evidence of dividend policy in the semi­

developed Malaysian capital market. They use the coefficient of correlation method

involving 5 financial variables namely, market to book ratio, return on assets, return on

equity, total revenue and debt equity. By comparing the means of the financial

variables, the characteristics of dividend payers are identified as having less investment

opportunities, higher profitability and lower debt equity than the non-dividend payers.

The coefficient of correlation also reveals that profitability is the strongest positively

11

associated variable with dividend yield followed by growth opportunities. Its

association with Debt equity is mild and negative.

Another study, by AI-Twaijry (2007), usmg the Pearson correlation, covers 300

Malaysian listed firms randomly selected from Bursa Malaysia. It supports the findings

by Few et.al (2007) besides providing additional information that age and size of firms

do not have any impact on the dividend payout per share. The regression result,

conducted by Jais (2007) on the entire sample size of Bursa Malaysia over the period

from 1997 to 2007 has substantiated the findings where dividend payers are generally

more profitable but his study presents a contradictory result that ample investment

opportunities and firm size are relevant factors to the dividend payout policy of

Malaysian firms.

12