The Determinants of Dividend Policy: Evidence from Malaysian Firms

Abstract

The aim of this study is to investigate the relationship between dividend payout ratio in Malaysian firms with profitability, size, growth opportunities, free cash flow, business risk and market to book value. The paper used a sample of 284 firms listed on the Kuala Lumpur Stock Exchange (KLSE) from seven sectors viz., Consumer Products, Industrial Products, Construction, Finance, Technology, Properties, and Telecommunication. In order to decipher the relationships as stated above, multivariate regression analysis is used to test the hypotheses. The study found that at the pooled data level for All sectors, free cash flow, return on assets, return on equity, earning per share, market to book value and market capitalization have significant positive correlation with dividend payout ratio. The variable Beta, however, has a strong negative correlation with dividend payout ratio. The findings however differ from sector to sector; results reflect that Market capitalization; Beta, ROA and ROE are the common variables which have influence on DPR across various sectors except in technology sector where as the variable Market capitalization is not significantly associated with DPR. Similarly, ROA, which is significant determinant variable of DPR in four sectors like Construction, Consumer Products, Properties and Telecommunication Sector, it has no influence on the dividend payout ratio of the companies in the Industrial, Technology and Finance sectors.

Keywords: dividend payout ratio, profitability, size, growth opportunities, free cash flow, business risk, market to book value, market capitalization, Beta.