EMPIRICAL ANALYSIS OF DETERMINANTS OF DIVIDEND PAYMENT:

PROFITABILITY AND LIQUIDITY

Norhayati Mohamed, Wee Shu Hui, Normah Hj. Omar, Rashidah Abdul Rahman,

Norazam Mastuki, Maz Ainy Abdul Azis, Shazelina Zakaria

Accounting Research Institute &Faculty of Accountancy,

Universiti Teknologi MARA, 40450 Shah Alam, Selangor, Malaysia.

Phone: +603-5544-4975

e-mail: weesh411@salam.uitm.edu.my; wee.shu.hui@gmail.com

1
Abstract: Thispaerempiricalyzendthedterminatsofdv
i dienpaymtforthe

top 200 companies in tersm of market c apitaliztion, listed on the Maslay ian share

market.Largeirf sm werechosentoincreasethelikhodfcapturingdvidenpray s.

The findgs showed that irf sm paid out on average, about 40 percent of their earnsig

as dividsen . Furthermore, a quarter of their operating cash flow was used to pay

v
id edi .
n Lastl,
y the studycrifno sm the caft that proitf abilty and liqutywere important

determinatsdiv
of pidenamyt.

Not:e WeodluwekitothknatheMionrti yShra rehdlo WatgohdcGropu(MSWG)foMasaly airof

thrie robalc ta oi.
n The tad a eltco ed ofr thsi stuyd saw pra t of a obarlc atv
i e orw k bte enw
MSWGnUi ad TM.

2
 INTRODUCTION

The topic of dividen sha ben xtensively studie. Yet it reainmed s one f the most

controversial subjects in Finace. Studies in the past have covered anmy facets of

dividens; oangm them are efcts of dividen payment on irf m value, reasons orf

pa i d v
ngy idens,determinatsodfiv,
ipolcyden andividentrends,oamngthers.

Despite the many theories and models put forth to explain the dividen phenoma,

empirical evidenc is cnessary to establish the practice fo theoretical conepts. Such

evidencasdeocunmtethd roughstatisticaltest swouldircnf mtherelevancoeftheories

ordispthel emastmy hs.

Problem Statement

In Maslay ia, dv
i iden enpamty matters. Several studies have shown that an

anoeuctm of dividen crease (decrease) was dwefol by an icrease (decrease)

ni shra e rp seci (Norathy i, 2005, dna Nur-Adrnai a et al., 2002). With the proliferation f

unit trusts in Malasy ia, investors were adem more awre of returns in the orf m of

v
id edisn . Furthre rom e thse eusdnf rerp se tne na ropmi tantnivse tign ra mthatv
ni se ts ni

shares that give god returns in the orf m of capital gains and dividen payments.

Theroref e, a study on determinats of dividen policy w eb a rel evant decision view

thfo si hpenom.

3
There are many cop haracteristics that have bn oufd to be related to dividen

policy such as the irf sm pritof abilty, liqu dity, size, ownership structure and capital

structure, among thers. Among these chartac e ristics, proiftabilty and liqudty are the

two ainm variables that afect a mangers cdeision to pay dividen for that finacl

perio d.

Usualy only firsm that are profitable wil pay dividens. Soem firms in Maslay ia have

very hig dviden opayut ratio (DPR). According to a survey performed by Noramh et

al.(2006),thehigstdividenpayoutaverage orf years2003 2005of212companies

surveedy was about 83 percent. This showed the heavy pehmasis that some irf sm

placed on dividen paymt. On the other hand, it is not surprising f some irf ms also

paid out dividens even though they reported a loss orf that eary . This is due to the

reluctance of irms to cut or omit dividens due to research findgs whic ave shwon

that investors, in both developd an emrgin markets, react negatively to a dividen

cedrsae e (Ahra noy da Swar,

y 1980; Dinamle d Opephnrmi , 1984; Baaj dna Vijh

(1990, Densi , Densi dna Sar,

ni 1994; NurAdian et .
la , 2002 nad Norhaty i, 2005;

ognmathers).

Liquidty is usualy emsured by the firms cas h flow. It is very important to copmare a

irf sm liqudty position relation to its di viden pamty . Lo,

c g a i l y a i fr m w i l o n y p a

dividen if it has a strong cash position. However, many peimrical researches have

conetrated only on profit lowf and ignored the fect on cash low.
f Cash divdeni

distribution not only depns on the profitabilty of firms but also depns on the fre

sac h ,
wolf hwci s the nuomta fo rep ta gni sac h wolf te v
o re tfa er apnemyt rof catip la

pxetidn ru se . Accordnig to Liu dna Hu (2005), fi the csa h v

id dine s sel s than the rf e

sac h ,
wolf ti snaem the irf m has resilaud csa h, fi cash v
id edin si rom e than the rf e

cash flow then it means the irf m neds finacg to met the requiremnt of cash

4
dividen. The agency cost explantion has ben poularly used to evalute this

phenomaditwluiberf therelabor ta denithxentsect.

noi

The study therefore adresses the question whether profitabilty and cash lowf are

porim tant determinats in dv

i dien pamenyt in Malasy ia. In other words, do the

companies thatpaydividen a l s o av
h e strongprioftabiltya ndliqutypositions? Italso

attemptstoseewhthertwoerdif entmeasur emntsofproitf abilty,namelyrnigsper

share and return on equit,

y can be used interchange ably as a prxyo ofr pritof abilty in

saem urgnithdeternimta sodv

fi apidnemyt.

LITERATURE REVIEW

Inthissecton,
i theparwilpresnte afewbsicareasofdividenresearch.First,itwil

briefl y discuss a few fin d gs corne nig divnide trends. Second, it wil isd scu s the

determinats of dv
i dien p,
olicy specifal y the study by Litn ren (1956), dna cnapomy

characteristicssuasch profitabilt,
y liqudtandysize.

Dividend Trends

In the study fo v
id nedi tresdn , Faam dna Frehcn (2001) dnuof that the eprecntaeg fo

dividen ingypa irf sm in the United States (US) fel rf om 67 percent of listed firsm in

1978 to 21 percent in 1999. Ferris, Sen ad Yui (2006) documented siilarm infdgs in

the United Kingdom (UK) market, a arm ket that is similar to that of the US in tersm of

breadthand mturit.
y Theirindfgs showed thatthe numbrof dividen pagyfrms in

theUKndecsli overthesampleriodansosm tpronucedfrthelastfiveary sof

theirasnly is. At thebgniofthesampleriod,nearly76percentofUKirf sm paid

5
dividens, but by 2002, only 54.5 percent of the sample firms pay dividens. They also

oundfasimilarfrdeclin 60.2
om percentto28.6percentfornewlisy tedirf msinthUK.
e

For the mrgin arm ket, Norhaty i (2005) deocunmted a siimlar pattern i her study of

companieslistedontheKualLumpurStockExchange(nowknsa BursaMalasy ia);

hwov
e re , the apttern sedem to relate very umch to the ceoimn cley. Her sapmel

exclud ompanis in the Finace d Unit Trusts sectors and ws itlm ed only to final

v
id edin ncauotem s. Her gnidfs shwode rf mo raey s 1981 to 1991, the

rep ctne ega fo rif sm that apdi v

id disne newt nwod rf mo 75 rep ctne to 63 rep nect,

however, the percentage of peray s increased to 83 percent in 1992 and continued to

increase up ntil 1997, and wet on a dwonrd trend rf om that eary where there wre

only 55 percent inafl dividen erpay s in eary 2000. Plaese be noted that Maslay ia

expriencd two icenm dwturns in the sample ary s, one i 1987 and the other in

1997. And the downard trend in dividesn coindse with the years before the

ocewdimnturdnaltre kcipudeatf re theocreymn cover.

de

Determinants of Dividend Policy

Many theories and dmoels have ebn put orf th to examin the numerous facets of

dividen stud.
y The seminal article by Mi ler and Modiganl (1961) is probaly the

watershed in the theoretical modeling of divdensi , whic first propsed divenid

irrelevance. On the other hand, theories wich suport dividen relevnace include tax

prefrenc,signali,andgecyxpltions. Otherresearchershavedvelopdan

empiricaly tested various models to explani dividen hav

be ior. Some conduted

survesy of corporate mangers to learn the m so t ropmi tatn edtre naimts of corpro ta e

divideactn ivit.
y

6
The first empirical study of dividen policy was perorf med by Lintner (1956). Through

his interviwe with anmgers of 28 selected ompancies, he discv

o ered that mangers

tend to value stable dividen polices, dividens are increased graduly and rarely cut

and that most companies have reasonably defintive target paouyt ratios. Over the

eayrs, the cponamy wil daujst the v

id nedis ta a rap ticraul yl spde of dasuj tmnet, so

thatthacetupaolytratmov
i esclosertothetargetopauytratio.

Profitability

Company chracteristics that a fect irf ms dividens policy n clude the firms profitabilt,
y

liqudty, size, ownershpi structure and cpital structure, aongm thers. The dsi cussion

herweiclontrateonprioft abilt,
y liqudtansidy ze.

Several survesy provide usulef insights into what actf ors infacl germ s conserid ed

som t iropm tant ni ted re gnim thrie irf sm divide n p .

olcy Baker, Farrely, and Edanelm

(1985) and Farre,

ly Baker, and Edelman (1986), surveyed 562 New York Stock

Exchange (NYSE) firsm with normal kinds of divdien polcs in 1983. Based on theri

sanly is of 318 responses rf om utilty, manucfturing, and whoelsle/

a retail firsm , they

oundf that the major determinats of dividen enpamty s were the anticpated level of

ufturearnigsandthepatteronpasf tdivdiens.

Pruitt and Gitman (1991) surveeyd finacl mangers of the 1,000 largest US irf ms

about the interplay among the investment, infacg, and dividen ecisd sion in their

irf sm . Their evidenc sugested that important influecs on the amount of dividens

paidwerecurrentandpsteary spriofts, the yar-to-eary variabltyofearnigs,andthe

rg woth ni era gnis. Barek dna Polew (2000) dnuof surop t rof thrie hopythessi thta the

7
most porim tant acftors influecg a firms v
id idne opcily ra e the v
el el of ucrretn nad

pxetc deufturrae nisg dnathetap terron noctinutopfasy tdivdneis.

Aivazin, Booth and Cleary (2003) found that emrgin market irf ms exhibt divenid

behavior similar to US firms, in the sense that dividen s are explai ned by profitabilt,
y

debt, and the arm ket-to-bok ratio; however, theri sensitivity to these variables varies

acrosscountries.

DeAngelo te al. (2004) posited that the hi gh/increas ing i v

d iden cntoe ration may be

the result of hig/increasing earings oncetration. Their indgsf suported this

contention ad they found that just as divdeni cotration had incraesed; so di the

nocetratoin fo rae nisg . Earnisg ni tob h 1978 dna 2000 fo the sapelm rif sm ra e

nocetrated oagnm a retal v

i yle ewf rif sm ta the top ned fo the sid triubtino, dna that

suchntoe rationsnotablgry eaterin2000thanitwasin1978.Therewasalsostrong

link betwne losses nad the ailufre to pay divdiens. Their findgs sugest that

rae nisg odhv

a soe emcapitnoidvedinapmyt.

Goergen et a.
l (2005) ansly ed the decision to change the dividen orf 221 Geranm

irf sm over 19841993. Their results shwedo that net earnigs were the key

determinatsofdividenchags.Inaditi on,thrie idnfsg shodewthta thecoru recne

of a loss is a key dterminat in adtion to the nt earnigs level. They observed that

80 percent of the loss-incurring German firms, with at least five years of positive

earnigsdiv
an idensprecthding loess,omitthdeivindetheary ofthlose s.

BakerandSmith(2006)surveedy309saplemfirmsexhibtingbehaviorconsistentwitha

residual v
di deni policy and their matched counterparts to learn how they set theri

dividen polices. Theri results showed t hta ofr the salpme adn amtchde irf sm , the

8
pattern of past dividens, t he level and stabilty of earnig s, and desire to maintain a

long-terdimvdiepnaoyutratieloctthehi ghestlevagrofel emntrf omrespondets.

Ferris et al. (2006) found mixe results orf the relation betwen a firms earnigs and its

abiltyto paydividens. FewU.K.irf sm wi th negativearnigspaydividens ilweh73%

of cmparable Japasne e irf sm do. The UK econmy ireasingly resembls a tw-

o tier

system with a smal set of very hig earners providng a disproprtionate prcentage of

ag regate dividen s.

In Maslay ia, Annuar and Shamsher (1993) investigated the dv

i idens and earnigs

behavior of firms listed on the Kual Lumpur Stock Exchange (KLSE). The data used

nocssi t fo aunl aersgni dna v

id sdnei orf the rep doi 1975 to 1989. Thrie dnifsg

werethatthedividencssion ofthefi rmspartialydepn otheri currentearnigs

and pst dividens, and irf sm have long-term target divdien whc is cndoitioned up

theirearnigsabilty.

Inconlusn,
io proitf abiltisy animportantdeterminatoairf sm dv
i i po den l c .
y

Size

FamandFrench(2001)foundthaterpay sando- epray serdif interm sofprofitabilt,

y

investment oprtunities, and size. Their evidenc sugests that thre undamftals

profitabilty, investment oprt unities, and size are acftors in the decision to pay

dividens. Dividen rpya s tend to be large, profitable firms with earnigs on the order

of investment outlasy . Firsm that have nveraidp re smaler and they seem to be lss

rp ifotelba thna v
id nedi apry s, ubt they h ave orm e investment oprtunities, and theri

investment outlasy are much larger than thei r earnigs. The salient characteristics of

orf mer divenid rpay s are low earnigs and wef nivestmetn s. Mitton (2004) wrto e that

size and growth, in adition to proiftabilt y has ben proven to be positively correlated

9
tiw hv
id dineuoyapts. LiadnLie(2006)rerop ted thta irf sm areorm e ylkito rasi e theri

dividens if they are large and proitf able and the past dividen ield,
y debt ratio, cash

ratio, and market-to-bok ratio are low. Firms are orm e elyik to cut theri divsiden if

thhv
aey epro eporatemocnig,olsacw cnalbhse ,dnaolrmw ekt-to-rakob tio.

Cash Flow

Liu and Hu (2005) in his study of Chinese listed irf sm found that cash dividen youpat

ratio f sm t firms were btwen 20 to 50 percent,eanimg thatcash dividen pamty

was igher than the acounting prioft. However, he found that50 percent of the sample

irf sm had dividen sca h enmpaty higer than the fre cash flow. He attributed this

indfgto the rulingmade bythe securitycomission fChina 2000 whicstatedthat

listed companies must have sca h dividen enamtpy in the past thre eary s. This

shortagocefashwasusualy inacthedf rough selishng ares orrightissue.

One theory that can be used to explain why firms borrow oneym to pay for dividens is

the agency theor.

y Agency theory has also ben a poular view in the discussion of

dividens relev,
ancy as ben advanced by Jensen and Meckling (1976), and later

txe dne by Rofez (1982) dna Easterrb ko (1984). Agycne throe y sop ti s that there si

a conflit of interests betwen the mangers (agents) and the outside shareholdrs

(princpals). Managers may conseum excssive perisqu ites out of undistributed

earnigs or they am invest the arnigs in sle s than optimal nvestments. This conflit

ofinterestsisreferredtoasagencyosts.Divenidhasnbeidtifedasaechmnism

thatcanreduceagnyosts.Bypingayoutalrgedividen,itreducestheamountof

undsf avbleai orf angmers to spend exsc sively on perquisites. Furthermore, the

largerdivndiemtpay forces theirf mtoseekxternalfi nacig,whiclsubjectitto

the scrutiny of the capital market for new funds and reduces the possiiltb y orf

10
suboptalim nvestments. Theroref e, acording to the agncy theory this wil reuced the

tinom orgni costs to the rif .

m In short, if t he costs involved in pagy dividens are lss

than the benfit gained from the aditional monitoring, then it makes sense orf

apmocsein tohaveral egv

id dineuoyapts. Rozfe(1982)sop tutal se dnasif v
e cne di

that firms establish hgeri dividen opuayts when insiders hold a werlo rf action of the

equity and/or a greater number of stockholders own the outside quity. This evncide

suports the view that dividen mtpay s are aprt of the firms optimu ontoring ad

dnobpisekcage rvetoreduceganoysts.

DATA DESCRIPTION AND SAMPLE CONSTRUCTION

This study was ctondu ed on Maslay ian companies over a 3-year period from 2003

2005. The sapelm saw tanek rf om the top 200 apmocsein sil ted no the amni raob d fo

Bursa Masyal ai bsde no ram tek ctipa aziltnoi sa ta 31 Decrebm 2005. For the ray s

2003 and 2004, ten pcoamies we re exclud rf om the sample due to the unavailbty

of inorf mation. Thereorf e, the total bnuerm of pcoanimes for the thre eyars was 580.

According to several studies, biger firms tend to be pary s of dividens and they also

tendtopayhgierdivdeni(FamandFrench,2001;Mitton,2004;andLiandLie,2006,

to name few). For this study, we chose to include the gbir firms, whic are the top

200rif sm absaenormd ketpacti aziltnoi,orni red topacturethv

ide dpineary s.

For each ompacn,

y the inforamtion on dv
i ndie per share (DPS), earnigs per share

(EPS), return o equity (ROE) and csh flow per share (CFPS) orf the thre ary s were

coleted. TheywrecoltedfromDataStreamndwere veriedfbychkngthrough

eachompnsy anulreport. DPSisthetotalcshdividen(interimandl)f paidby

thefirmforeachnumbrofshareoutstandig.EPSisnetincomeprshare,ROEisnet

11
eocnim epr ehca rintig v
ni se ted yb the shra heodlrs, dna CFPS aemsru es the

operating cash earsnig per share of the company. EPS and ROE are proxies ofr

prioftabiltwyCFPS
hi l e si thperorxfy liqudt.
y

Statistical tests in the form of correlation and regressino tests were undertaken to

i ne xam whether liqu d ty an d profitabilty afect the distribution of dividens.

Theoretic,
aly as disscu sed ea rlier, liqudty and pritof abilty deterinem the abilty of

companiesdisn tributdiv
ng id en s .

FINDINGS

Thsi setc noi rp se tne s the idnfsg fo the stud.

y First, ti descrbise the rep ctne ega fo

apery s versus no-reyap s ni the saelpm v

o re the thre raey s. Second, ti v
ig se the

dividen distributional characteristics of th e sample firms. Third, it disscu ses the

v
id edin uoytap hcra catersi tisc . Foru th, ti sid suc ses the statsi tiacl sylan si ni tersm fo

thceorrelataiondregressireon sults.

Percentage of Payers and Non-Payers

This section descrsibe the findgs in term s of whether or not the companis are payrs

of dividens. A comparison of percentage of paery s to no-peary s was zaednly on a

eayrlbasy isrf oav

m adiltbe a.Themajoritocyfmpaniespdiv
a idsen .

The study nuofd thta 87 rep ctne diap v

id edi n s, whether interim or final, in the eary

2003. The perctne ega of dv

i idne apery s saw atnim anide ta 7
8 percent ni 2004 but ni

2005, there was an icrease to 91 percent. The majority of cmpanies paid videns in

the thre-eyra eprdoi sa shwon ni Table 1. Wheli the tredn of pmocseina niygap

12
dividens si rising, some companies have ty to consider inpagy dividen ad to state

theirdividpenfolrcy ththe reary s.

Table 1: Percentage of Dividend Payers versus Non Payers, 2003 2005

2003 2004 2005

Payers 7
8 % 8 7% 91%
Non-Payers 13% 13% 9%
Total 100% 100% 100%

Dividend Distributional Characteristics

In Table 2, the saplem was divide into paery s and no-paery s category. The payers
st
category was further dv
i ide into arqu tiles where the irf st (1 ) qrau tiel snoc si ts fo the
nd
bottom most 25 percent of divdien paery s, the second (2 ) quartile consists of the

second 25 percent of the lowest dividen epayrs, and so on and so forth. As can be

seen rf om the table, those companies not inpayg dividens are those with the lowest

profitabilty as indcated by EPS and ROE, and also the lowst liqtud y as indcated by

the lowst acsh flow. On the other end are those whic pda the hgsi t dv
i idens and

theirprofitabiltandliquytwery ealsothehigst.

Table 2: Distributional Statistic of Dividend per Share

Quartile Noof DPS EPS ROE CFPS

Observatnoi (RM) (RM) (%) (RM)
Noeaprny s 67 0.000 0.027 25.7 2.163

1st 128 0.021 0.113 25.0 8.280

2nd 128 0.059 0.200 34.0 10.830

3rd 128 0.114 0.297 44.3 12.627

4th 129 0.315 0.544 1

8 .5 17.388

Whsaelo pmel 580 0.113 0.259 43.9 11.121

13
Dividend Payout Characteristics

This sectionpresents ayerlyansis amongerpy s,on the relationshipbetwenach

ofthecharacteristic,naelmy,prioftabiltyandli quidty,withDPS.Pr oitf abiltisy measured

by EPS and ROE while liqudty is measured by CFPS. Referring to Table 3 one can

calute the dividen paouty ratio (DPR) by taking EPS divide by EPS. The yearly

average DPR ranges from 38.7 percent to 44.8 percent. This eansm that on average,

the firms in the sample paid out about 40 percent of their earnigs in the orf m of

v
id edisn . The resutl s lsa o shwo thta on v
a re ,
ega the dv
i dneis snoc emu batuo noe

quarterofthfire mscashflow.

Table 3: Yearly Analysis on the Association between average DPS and EPS, and
DPS and CFPS, 2003 2005

2003 2004 2005

DPS (RM) 0.10 0.12 0.13
EPS (RM) 0.25 0.31 0.29
CFPS (RM) 0.41 0.48 0.43
DPR (%) 40.0 38.7 44.8
DPS/CFPS (%) 24.4 25.0 30.0

Statistical Tests

A roc retal oin test of the ruof cidnators, DPS, EPS, ROE and CFPS wsa run to xeanim

whether the above-mentioned associations of relationships could be established. The

correlationresultsasshowniTaebl4indcatesiicgantf positiverelationshipsbetwen

DPS and EPS, CFPS and ROE. This icronf ms t hat proiftabilty and liquty are strongly

relatedtodividsen tributpiolcny.

14
 Table 4: Correlation Matrix of Regressors

DPS EPS CF ROE

DPS 1.00
EPS .526** 1.00
CF .462** .676** 1.00
ROE .369** .668** .266** 1.00
Notes:Thcore relatficento sarbase dtheon fie ansal 58
elfopm 0rif -
m eray sbo re vatsnoi .**0.05elvle
fsio ecnifga

Regression Results

Howv
e er, further test is ned to positively id entify that liqudty and profitabilty are

determinats of dv
i iden distribution policy . Podelo rerg se sino sanyl si wsa enod to

iexanm whther such a relationship exsted. Thre regressions were run, the results of

whaicrshe oTainw bles5,6and7.

The first regression wsa done to inexam wh ether EPS, CFPS and ROE are siicgantf

determinats of dividen paymts. It can be seen i Taebl 5 that in each of the thre

eayrsanditotal,thethreindcatorsaresignifcatdeterminatsofdv
i idenpamty s.
2
The stregnth fo the relatsnoi hpi si nitacd de yb the sujda ted R . In 2003, the thre

indcators explain orf 63 percent of the dividen neampty s but thsi slaf to 43 epretcn ni

2004 and decreases to 35 percent in 2005 but they are al siicgantf . When the thre

eayrs are poled together, the result confirms that the thre indcators are siicgnfat

determinatsdiv
of pidenamyts.

15
 Table 5: Determinants of Dividend per Share; EPS, CFPS and ROE

Pooled 2003 2004 2005

EPS .295** .260** .362** .231**
CFPS .233** .214** .204** .294**
ROE .110** .457** .174** .168**
2
AdujsteRd .300 .633 .431 .336
F-value 83.78** 109.55** 48.99** 34.71**
Firm-eary 580 190 190 200
Notes:**0.05levlofsie ifcgnae

One amy rgue that there are two indcators of profitabilt,

y EPS and ROE and this may

skew the results. So, a second regression swa run without ROE. The result in Table 6

indcates similar results. The poled data shows that EPS and CFPS are siicantfg

determinats of dividen enpamty polices. The strength of the relationship as

2
determinedabjusy tedR remainssiilarm stro
ly ng.

Table 6: Determinants of Dividend per Share, EPS and CFPS

Pooled 2003 2004 2005

EPS .394** .727** .543** .372**
CF .196** .016 .146 .256**
2
AdujsteRd .295 .542 .425 .325
F-value 122.40** 112.70** 71.10** 49.14**
Firm-eary 580 190 190 200
Notes:**0.05levlofsie ifcgnae

IsROEabetterindcatorofprioftabiltythan EPS?Theregressionre sultinTable7oesd

notindcateanydifrencithestrengthoftherelationshipalthougtheresultconirf ms

that CFPS and ROE are signifcat determinats of dv

i iden epamnty s. The poeld

16
 2
adjusted R remains at 0.3. There is no indcation to sugest that ROE is a better

ted re naimtthnaEPS.

Table 7: Determinants of Dividend Per Share CFPS and ROE

Pooled 2003 2004 2005

CFPS .265** .368** .374** .409**
ROE .392** .584** .393** .288**
2
AdujsteRd .279 .620 .410 .322
F-value 111.59** 155.39** 67.09** 48.60**
Firm-eary 580 190 190 200
Notes:**0.05levlofsie ifcgnae

CONCLUSION

First, the restul s rf mo the dscrtpi v

i e adn st atistical tests reveal that dividen s dein

an important variable for firms. In this stu,

dy 200 companies with the higest market

capitaliztion were chosen as a sample. With large size poancmis it is hoped that this

study woul be al to capture more dividen arpy s. From the dscriptive asnly is it

was oundf that irf ms paid out about 40 percent of their earnigs in dividen. And on

average,aboutaqurteroftheri operatcaingshflowasusedtopaouty dv
i i den s.

Second, EPS, ROE and CFPS are signifcat deterinmats of dividen pmayts. This

study actualy separates the efct of earnigs and cash lowf on dividen menpayt.

Third, EPS and ROE, whether used together or separta ely are usef ul ind cators of

profitabilty. This suports the actf that com panies icwh are prioftabl e and liqu w be

rom toeylki cedalridevedisn .

17
In conlusion, through a siplem sde criptive dan statistical sanly is, this study iconrf sm

the actf that pritof abilty and liqudty are tw o important deterinatm s of dividen. The

sanly is can be scon ride ed as exploratory and i the ufture, the scope should be widr

and more variables shuldo be incde.

lu The asnly is should include ansly is across

industries, and should asl o inculde more variables such as corporate governace and

other pcomany characteristics. The saplem size sholdu lsa o be incrase ed and oculd

includeaomps listedon the ainmbord of BursaMaslay ia. With thoseaditions,

the results and sly is wil be richer and hefulopy wi lphe unravel the smy tery of the

divide puz n l .

18
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