Family Ownership and Dividend Payout in Malaysia

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International Journal of Managerial Finance

Family ownership and dividend payout in Malaysia
Samuel Jebaraj Benjamin, Shaista Wasiuzzaman, Helen Mokhtarinia, Niloufar Rezaie Nejad,
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"Family ownership and dividend payout in Malaysia", International Journal of Managerial Finance, Vol.
12 Issue: 3, pp.314-334, https://doi.org/10.1108/IJMF-08-2014-0114
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IJMF
12,3
Family ownership and dividend
payout in Malaysia
Samuel Jebaraj Benjamin
314 Bank Rakyat School of Business and Entrepreneurship,
University Tun Abdul Razak, Kuala Lumpur, Malaysia
Received 2 August 2014 Shaista Wasiuzzaman
Revised 5 December 2014 Faculty of Management, Multimedia University, Cyberjaya, Malaysia
15 February 2015
Accepted 15 April 2015 Helen Mokhtarinia
TriAset Sdn. Bhd., Petaling Jaya, Malaysia, and
Niloufar Rezaie Nejad
Aryana Industrial and Research Group, Tehran, Iran
Abstract
Purpose The purpose of this paper is to investigate the effects of family ownership on dividend
payout from the perspective of agency costs in Malaysia.
Design/methodology/approach Annual financial, board and family ownership data of 160 firms
listed on the Bursa Malaysia are collected for the period 2005-2010. Analyses are carried out using
descriptive statistics, 2 tests, Tobit regression and three-stage least square regression analysis.
Findings The empirical results suggest that family share ownership at the dispersed level from
between 0 to 5 percent is negatively associated with dividend payout and positively associated from
the 5 to 33 percent level with dividend payout. Consistent with the extant literature, the observed
relationship between family share ownership and dividend payout is stronger in firms with smaller
total assets (size), low debt and low-growth opportunities. Further examination of investment decisions
lends support to arguments which attribute higher agency costs as a result of family ownerships.
Research limitations/implications The observed results at the different family ownership levels
are attributed to the possible expropriation in family-owned firms and accordingly, to the proportional
pressure by minority and other shareholders for dividend payout.
Practical implications For policy makers, findings from this study could serve to justify
initiatives to further strengthen the institutional and regulatory architectures that would enhance the
power of minority and other shareholders of public listed firms in Malaysia.
Originality/value This study contributes to the growing literature on dividend policy and family
firms. Particularly, it provides further understanding of the effect of family ownership on dividend policy.
Keywords Malaysia, Dividends, Agency problem, Family ownership
Paper type Research paper
1. Introduction
Family firms have received increasing attention in the economics and finance
literature because prior studies showed that families directly control most publicly
traded firms around the world (Bennedsen et al., 2007, 2011; Faccio and Lang, 2002;
La Porta et al., 1999). Does family ownership of shares in public firms influence
dividend payouts in an observable pattern? Are minority and other shareholders able
to compel firms with family ownership to pay higher dividends due to expropriation
International Journal of Managerial
concerns? Agency theory-based explanations are mixed in terms of the moral hazard
Finance problems that arise as a result of family ownership of firms. The rate at which these
Vol. 12 No. 3, 2016
pp. 314-334
Emerald Group Publishing Limited
1743-9132
The authors would like to thank the Editor-in-Chief, David Michayluk, and the anonymous
DOI 10.1108/IJMF-08-2014-0114 referees for their insightful comments.
firms pay dividends provides some perspective on expropriation by insider or Family

controlling shareholders and the ability of minority shareholders to force for higher ownership and
dividends when faced with expropriation risk.
Dividend payout is essentially a return to all shareholders in proportion to their
dividend
ownership of shares. Dividend payout reduces cash resources available to firms, which payout
may be otherwise expropriated (La Porta et al., 2000). It is a monitoring mechanism that
plays a fundamental role in restricting insider expropriation because it removes corporate 315
wealth from insider control (Faccio et al., 2001). Family ownership has been documented as
having contrasting effects on agency costs. While some studies (see, e.g. Pindado et al.,
2012; Yoshikawa and Rasheed, 2010) imply family ownership or control as an effective
governance or monitoring mechanism that helps reduce agency costs by providing more
effective management and supervision of managers (Type 1 agency problems), others
argue that the possibility of abuse of control and expropriation of wealth by controlling
family members is detrimental to minority shareholders (Type 2 agency problems) and as
a result, lead to more serious agency problems (Faccio et al., 2001; Faccio and Lang, 2002).
Villalonga and Amit (2006) suggest that since controlling families have stronger motives
for both monitoring and expropriation, Type 2 agency problems may outweigh Type 1
agency problems in these firms. A limited number of prior studies have examined how
family ownership influenced dividend payout from the agency theory perspective (Chen
et al., 2005; Setia-Atmaja, 2009, 2010; Setia-Atmaja et al., 2009). The available empirical
evidence on the implications of dividend payout arising from dispersed or concentrated
family ownership is also mixed and inconclusive. Family-controlled firms from developed
countries in Europe and USA are reported to pay higher dividends than Asian firms
(Faccio et al., 2001), implying higher benefits of private control and higher expropriation
by Asian firms. Chen et al.s (2005) study in Hong Kong shows that the nature of the
association between dividend payout and family ownership depends on the level of
dispersion of ownership. How et al. (2008) on the other hand, report that the link between
potential expropriation and dividend payout is stronger for family firms in Hong Kong.
There is little evidence on this subject in other South East Asian countries,
especially Malaysia, which has been reported to be the second largest dividend payout
country in Asia (Yap, 2012). According to Rosgen, chief Asian strategist at Citigroup
Inc. (cited in Yap, 2012), [] on a fundamental basis, dividends work well in Asia and
specifically Malaysia because it aligns the interest of minority shareholders with
majority shareholders such as family owners. Malaysian public firms have also been
largely characterized as family owned (Claessens et al., 2000). Based on the division of
ownership and power in nine East Asian countries, 67 percent of firms in Malaysia are
managed by families and one fourth of the corporate sector in Malaysia is owned by ten
of the largest families (Claessens et al., 2000). Malaysian family firms are also uniquely
placed in an environment largely influenced by governmental and institutional setting
bent on rent-seeking. Apart from apartheid-era South Africa, Malaysia is the only other
country in the world that implements affirmative action policies for the majority
(Adam, 1997) where large family firms foster close ties with the government to obtain
favors as part of their business survival techniques (Gomez and Jomo, 1997).
In contrast to developed markets that subscribe to common law like the USA and
UK, Malaysia is a country with the common law characteristics of a strong system of
legal shareholder protection but high private benefits of control (Claessens et al., 2000;
Faccio et al., 2001). Since most prior studies have jointly examined a group of countries
where the legal regulations, enforcement and the extent of expropriation problems of
each country are not exactly the same, the focus of this study solely on Malaysia allows
IJMF keeping the legal regime and country-specific factors constant, thus enabling
12,3 investigation of the effects of family control on dividend payout more precisely.
Malaysia thus presents an ideal environment to investigate the interplay between
family ownership and dividend payout owing to some distinct characteristics: a
common law country with strong legal protection of shareholders but high private
benefits of control; generally large dividend payouts by public firms; and a high level of
316 family ownership of public firms.
This study analyzes a sample of publicly listed Malaysian firms from 2005 to 2010 to
answer the following four questions. First, does family ownership influence dividend
payout? Second, does the effect of family ownership in relation to dividend payout differ
between large and small firms? Third, how does the effect of family ownership on dividend
payout compare between firms with high- or low-growth opportunities and with high or
low debt? Finally, if the effect of family ownership on dividends payout is insignificant,
would families push for higher investment when experiencing high-growth opportunities?
This study contributes to the current empirical literature on corporate finance,
corporate governance and family firms in several ways. As studies examining the
severity of agency costs in family-owned firms continue to gain momentum, it extends
this line of inquiry by showing the significance of family ownership in influencing
dividend policy. This study addresses family ownership and the influence on dividend
payout in publicly traded Malaysian firms. Dividend payout is found to have a
significant negative relationship with family ownership from the 0 to 5 percent level
(implying lower Type 2 agency problems) but positively significant with family
ownership from the 5 to 33 percent level (implying higher Type 2 agency problems).
These findings are generally in line with the framework of La Porta et al. (2000) which
asserts that minority and other shareholders are able to exert pressure when the risk of
expropriation is higher as a result of family control. Specifically, this study corroborates
the Chen et al. (2005) approach of examining family ownership using cut-offs determined
by the economic and legal frameworks of a country, where for the first time, significant
observable trends with dividend payout are shown. The results obtained in this study
also support the arguments by Shleifer and Vishny (1997) who suggest that at
intermediate levels of ownership, controlling shareholders and/or management have
adequate control and are affluent enough to possibly exploit the firm to generate private
benefits that are not available to outside shareholders. However at very high level of
ownership or highly concentrated family ownership levels, there is no significant result
which can be construed to confirm Bennedsen and Wolfenzons (2000) finding that at
high levels of ownership expropriation costs are reduced.
Further examination of family ownership and dividend payout by firms with
different growth opportunities complements prior studies such as Jensen (1986) on the
need for higher dividend payout by firms with low-growth opportunities. The findings
here are also consistent with La Porta et al. (2000) who assert that investors are able to
extract dividends from firms which experience poor growth opportunities in common
law countries. The examination of firms debt levels also complements prior studies on
the role of debt as a monitoring and substitute mechanism of dividends in mitigating
agency cost concerns. A further contribution of this study is the documentation of the
stronger effect of family ownership on dividend payout among smaller firms, thus
complementing the findings of Chen et al. (2005), Faccio and Lang (2002) and How et al.
(2008). The insignificant association between all three family ownership cut-offs levels
with capital expenditure in firms which experience high-growth opportunity shows, for
the first time, a new dimension of expropriation concerns in these firms. Finally, the
study fills the gap in the literature on the little known dividend choices of family firms Family
from Malaysia (an emerging market), as most prior studies have been based on data ownership and
from the USA or Europe.
The rest of the study is structured as follows: Section 2 discusses the development of
dividend
hypotheses based on dividend theories and prior research. Section 3 lays out the payout
research design, particularly the sampling procedure and research methodology.
The results of the study are presented and discussed in Section 4 while Section 5 317
provides the summary and concludes the study.
2. Prior studies and hypotheses development

2.1 Family ownership of shares
Type 1 agency cost or problems arise due to the separation of control between
shareholders and management while Type 2 agency problems arise between controlling
or dominant shareholders and minority or public shareholders. In the context of agency
problems, dividend distribution reduces the amount of free cash flow that is available at
managers discretion ( Jensen, 1986), thus mitigating Type 1 agency problems. On the
other hand, dividends can also reduce Type 2 agency problems (La Porta et al., 2000)
because dividend payout is a form of pro-rata payment that is based on cash flow or
ownership rights, hence reducing the amount of cash available at the discretion of
controlling shareholders. Dividend payout, while partly downplayed as a mechanism that
resolves Type 1 agency problems in the context of family ownership, remains a plausible
tool to resolve Type 2 agency problems (Setia-Atmaja et al., 2009).
Family owners have various motives to expropriate a firms wealth (Villalonga and
Amit, 2006) and thus could increase agency costs to other shareholders. Outside
shareholders power to control large shareholders from opportunism and expropriation of
firms resources is weaker in family firms (Anderson and Reeb, 2004). Morck and Yeung
(2003) explain that in high ownership-concentrated markets where most firms are family
controlled, the Type 2 agency problem is more prevalent than the Type 1 agency problem
(Andres, 2011)[1]. Unlike developed markets like the USA which is characterized by highly
dispersed ownership, less developed countries like Malaysia are characterized by high
equity ownership in public firms by controlling families who can benefit themselves at the
expense of minority shareholders (La Porta et al., 1999). In this regard, dividend is a
mechanism that distributes wealth on a pro-rata basis to all shareholders and as a result
reduces or mitigates the possibility of expropriation by family shareholders.
The disparity between ownership rights or cash flow rights with control rights
(typical of Type 2 agency problem) is substantial in family firms[2]. However in a market
like Malaysia which has a strong legal shareholder protection system, minority
shareholders could anticipate this possible expropriation and accordingly push for
higher payouts. According to the expropriation argument, families would prefer a lower
dividend payout to potentially expropriate resources of the firm[3]. On the other hand,
owners of family firms are said to be shareholders with long-term investment horizons
and for whom the firm is an asset that is to be passed down through generations
(Anderson et al., 2003). Some controlling shareholders have since been reported to have
developed a reputation for treating minority shareholders fairly (Gomes, 2000).
The association between family ownership with dividend payout in the context of
agency costs could exhibit different patterns at different levels of cut-offs of family
shareholding. The extent to which families interests are aligned with those of minority
shareholders could be non-monotonic (Andres, 2011). Chen et al.s (2005) study in Hong
Kong provides evidence on the nature of such relationships where a negative
IJMF relationship is experienced between dividend payout and family ownership from
12,3 0 percent up to a fraction of 10 percent while dividend and family ownership from the
10 to 35 percent range and 35 to 100 percent range showed positive relationships (albeit
insignificant statistically). Inferring from the results of Chen et al. (2005), it can be
assumed that minority shareholders could possibly be less concerned with expropriation
by families when the latters shareholding is fairly dispersed, and therefore a negative
318 relationship between dispersed family ownership and dividend is expected.
When ownership by controlling families is more concentrated, minority and other
shareholders could be more concerned with expropriation and thus require higher
dividend payout, and hence a positive association between the two could be expected.
In a strong shareholder protection environment, minority shareholders could thus use
their legal power to compel higher dividend payouts at fairly concentrated family
ownership levels but probably do not see the need to do so when ownership is dispersed.
When family ownership is highly concentrated, family influence could get so strong to
the extent that it could possibly overwhelm the power of minority and other shareholders
to force higher dividends payout. However, Jensen and Meckling (1976) and Bennedsen
and Wolfenzon (2000) argue that at high ownership levels, expropriation costs are
reduced. At highly concentrated ownership levels, expropriation motives by controlling
shareholders could be lower compared to their alignment-of-interest motives with other
shareholders. The high level of ownership might produce self-constrained and prudent
behaviors among controlling families due to their realization of the fact that they have to
bear the consequences of expropriation and agency costs in proportion to their
shareholding (Wiwattanakantang, 2001). Hence a positive association between highly
concentrated family ownership and dividend payout is foreseen. Based on the above
arguments, the following hypotheses are proposed:
H1a. Family ownership at dispersed levels is negatively associated with dividend
payout.
H1b. Family ownership at fairly concentrated levels is positively associated with
dividend payout.
H1c. Family ownership at highly concentrated levels is positively associated with
dividend payout.
3. Research methodology and sampling procedure

3.1 Model specification and measurement of variables
Equation (1) is modeled to test H1a, H1b and H1c, i.e. to study the effect of family
ownership on dividend payout:
DPRt a0 a1 DPRt1 a2 ROEt a3 DEBTt1 a4\ GRWOTH OPPt1
a5 PAST GROWTHt1 a6 SIZEt a7 BD_SIZEt
a8 IND_BDt a9 PFO_LESS5t a10 PFO_5TO33t
a11 PFO_MORE33t a12 INDUSTRY_DUMMY
a13 YEAR_DUMMY et (1)
The dependent variable, dividend payout ratio (DPR) is measured as the total amount
of annual common dividends paid out, scaled by the net income after tax. Share
repurchases or share buy-backs are not examined in this study due to their low
occurrence in developing markets, in line with the approach of La Porta et al. (2000). Family
For firm-years with negative DPR, the value 0 (zero) is assigned. Truncating dividend ownership and
at zero thus justifies the use of Tobit regression analysis. Firm-specific control variables
included in the model are profitability (ROE; net income after tax as a percentage of
dividend
shareholders fund), DEBT (long-term debt as a percentage of total assets), future payout
investment/growth opportunities (GROWTH OPP; total value of market capitalization
plus total book value of liabilities minus book value of common equity divided by total 319
assets), current and past growth (PAST GROWTH; annual growth in sales) and firm
size (SIZE; natural log of sales) as these variables have been found in prior studies to be
statistically significant in influencing dividend payout. DEBT, GROWTH OPP and
PAST GROWTH have been documented to be endogenous with dividend payout
( Jensen et al., 1992; Zhang, 2008)[4]. Hence, in an effort to mitigate these endogeneity
concerns, the lagged one-year values of these variables are used in this study (Hill et al.,
2010). However the limitation of these estimations in that it is not possible to fully
eliminate the issue of endogenity is acknowledged. Consistent with Setia-Atmaja et al.
(2009), controls for board governance characteristics include board size (BD_SIZE;
natural log of the total number of directors on the board) and board independence
(BD_IND; fraction of independent non-executive directors on the board of directors).
Chen et al. (2005) define family ownership using three variables based on cut-off
ownership levels identified by reference to the economic and legal framework of the
Hong Kong market and due to its non-linear relationship with dividend payout. The use
of cut-off ownership levels allows the examination of the agency conflict between
family owners and minority shareholders via dividend payout in greater depth, as
opposed to the use of a single overall measure of a continuous variable representing
family ownership. Family share ownership (PFO) is measured as the fraction of total
company shares held by the family. Family ownership is divided using three cut-off
levels. First, a 5 percent cut-off is used as this is the minimum ownership level that
requires shareholders to disclose their shareholdings and interest in investee
companies in Malaysia[5]. Next, a 33 percent cut-off is used as it triggers a mandatory
public offer when shareholders hold a minimum of 33 percent of shares of a company in
Malaysia. Accordingly, the variable PFO_LESS5 represents dispersed family
ownership at between 0 and 5 percent, PFO_5TO33 represents fairly concentrated
family ownership at between 5 and 33 percent, while PFO_MORE33 represents highly
concentrated family ownership at greater than 33 percent. Assuming actual family
ownership fraction to be m:
PFO_LESS5 m if m o 0:05; 0:05 if m X 0:05
PFO_5TO33 0 if m o0:05; m0:05 if 0:05 pm o 0:33; 0:28 if m X 0:33
PFO_MORE33 0 if m o 0:33; m0:33 if m X 0:33

The measurements of all the variables are also presented in Table I.
3.2 Sampling
The top 300 publicly traded firms in Bursa Malaysia in terms of market capitalization
are considered as the main population of this study because family ownership of firms
in Malaysia is primarily concentrated among the largest firms. Approximately
65 percent of top Malaysian firms are controlled by a single individual or family
IJMF Variables Definition Prior studies

12,3
Dependent variable
Dividend payout Total annual common dividend divided by net income Adjaoud and
ratio (DPR) after tax Ben-Amar (2010)
Control variables
320 Profitability (ROE) Net income after tax as a percentage of shareholders Aivazian et al. (2003),
fund and Zhang (2008)
DEBT Long-term debt as a percentage of total assets Setia-Atmaja (2010)
GROWTH OPP Total value of market capitalization plus total book Villalonga and Amit
value of liabilities minus book value of common (2006)
equity divided by total assets
PAST GROWTH (revenue of year trevenue of year t1)/revenue of year t
Chen et al. (2005)
Firm size (SIZE) Natural log of sales Aivazian et al. (2003),
and Zhang (2008)
CAPEX Capital expenditure as a percentage of total assets Setia-Atmaja (2010)
Board size Natural log of the total number of directors on the board Setia-Atmaja et al.
(BD_SIZE) (2009)
Board independence Proportion of independent non-executive directors on Setia-Atmaja et al.
(IND_BD) the board of directors (2009)
Experimental variables
Percentage of family PFO_LESS5 m if (m o0.05), 0.05 (if m 0.05) Chen et al. (2005)
Table I. ownership (PFO) PFO_5TO33 0 (if mo0.05), m 0.05
Measurement (if 0.05 mo0.33), 0.28 (if m 0.33) PFO_MORE33 0
of variables (if mo0.33), m 0.33 (if m 0.33)
(Tam and Tan, 2007). By excluding firms from the financial and regulated sectors,
firms with missing data, and considering only firms with a full set of data for the period
2005-2010, the sample finally consists of 160 firms, with a total of 960 firm-year
observations. However, due to the use of lagged one-year values of certain variables in the
model, the final number of observations is 800. Out of these 160 firms, 99 are family firms
while 61 are non-family firms. A summary of the selection process is provided in Table II.
The data for the dependent variable (DPR) and control variables (ROE, LEV,
GROWTH OPP, PAST GROWTH, SIZE) are obtained from the ISI Emerging Markets
database. The control variables are chosen as they have been documented in prior
studies such as by Denis and Osobov (2008) and Fama and French (2001) to be
significant factors in influencing the dividend decision. Due to the large minimum
and maximum values, all the variables except for SIZE are winsorized at the 1 and
99 percent level. The data for board governance characteristics; i.e. board size
(BD_SIZE), board independence (IND_BD) and family ownership (PFOs); are hand
collected from the annual reports of the firms, which are downloaded from the Bursa
Malaysia website. All the regressions include year dummies and industry dummies
representing the eight industry grouping (excluding financial group) of the Malaysian
Stock Exchange to control for the effect of industries.
The annual reports provide an analysis of shareholdings, consisting of
shareholdings of family members, directors and the 30 largest shareholders. The list
of 30 largest shareholders allows for the identification of shareholders from the same
family, hence the percentage of shareholding by a family is obtained. Individuals with
the same surname or individuals whose names appear as the predominant owner of
private firms indicated on the list of the 30 largest shareholders report and individuals
who appear on the list of directors are identifiable as belonging to the same family. Family
In Malaysia, Muslim names will embrace their fathers name after the word Bin which ownership and
mean the son of or Binti which can be translated into the daughter of while
Chinese Malaysians of the same family usually have the same surname like Tan,
dividend
Wong, Lim and, etc. Based on this information, it is possible to identify and sum up the payout
percentage of shares owned by a family.
Firms listed on the Bursa Malaysia are also required to disclose the profile of all 321
their directors, including the disclosure of their shareholdings and any relationships
these directors may have with each other or with any major shareholder(s) of the firm.
If a director or a major shareholder has any relationship with another director or major
shareholder, the total percentage of ordinary shares controlled by the director and
his/her family members can be measured. Family ownership of shares and consequently
family firms are determined as those exhibiting the following characteristics: ownership
of shares by an individual or related individuals or by another entity in which an
individual or related individuals has an interest; exercisable through various means
including share ownership and board membership; and continuity of control by an
individual of group of related individuals[6],[7].
Table III shows the breakdown of family ownership among sample firms by each year
and cut-off ownership levels. In terms of family ownership concentration, the sample
consists of almost equal numbers of firms with dispersed ownership (less than 5 percent)
and highly concentrated ownership (more than 33 percent), whereas there are around 25-30
firms with family ownership of between 5 and 33 percent for all the years examined.
4. Empirical results
4.1 Univariate analysis
Table IV provides the descriptive statistics of all the variables included in the study.
The mean, median and standard deviation are presented for the overall sample, family
firms and non-family firms in Panel A. Panel B shows the means of the dependent
variables and independent variables, partitioned along the three family share
ownership cut-offs. The mean difference is analyzed using the Kruskal-Wallis 2-test.
Original sample size (excluding financial institutions) 265

Less: observations with missing information including the sample firm having no or negative
book value of total assets and sales revenue 105 Table II.
Final sample size 160 Sample description
Family firms 99 of Malaysian firms
Non-family firms 61 (2005-2010)
2005 2006 2007 2008 2009 2010
Number of family firms 100 99 99 99 97 97

(% of total sample) (62.5) (61.875) (61.875) (61.875) (61.25) (61.25)
Ownership concentration (number of firms)
Family ownership (0, 5%) 65 65 64 63 66 66 Table III.
Family ownership (5, 33%) 25 24 27 28 26 29 Family ownership
Family ownership (33, 100%) 70 71 69 69 68 65 of shares
12,3
322
IJMF
Table IV.
Descriptive statistics
Panel A
All firms Non-family firms (a) Family firms (b) Difference in means
Variable Mean Median SD Mean Median SD Mean Median SD (a)(b)
DPR 0.33 0.25 0.41 0.31 0.18 0.40 0.34 0.27 0.41 0.03*
DEBT 0.09 0.06 0.11 0.10 0.06 0.11 0.09 0.06 0.10 0.01
ROE 6.14 7.36 23.64 4.02 6.93 27.24 7.46 7.67 21.00 3.44**
GROWTH OPP 1.03 0.86 0.70 1.14 0.91 0.80 0.96 0.83 0.62 0.18***
SIZE 12.30 12.17 1.42 12.46 12.27 1.63 12.20 12.11 1.27 0.26***
PAST GROWTH 0.00 0.06 0.33 0.04 0.06 0.41 0.02 0.06 0.27 0.06***
BD_SIZE 1.98 1.95 0.24 1.95 1.95 0.25 2.00 2.08 0.24 0.05***
IND_BD 0.43 0.40 0.11 0.45 0.43 0.11 0.41 0.40 0.10 0.04***
n 800 309 491
Panel B
Variable Ownership 5% 5 oownership 33% Ownership W 33% Kruskal-Wallis ( 2)
DPR 0.314 0.253 0.371 12.660***
DEBT 0.103 0.073 0.098 0.990
ROE 5.371 5.971 6.936 2.618
GROWTH OPP 1.189 0.930 0.923 36.349***
SIZE 12.476 12.077 12.221 7.890**
PAST GROWTH 0.037 0.023 0.042 9.438***
BD_SIZE 1.953 2.023 2.000 9.749***
IND_BD 0.447 0.428 0.408 24.117***
n 324 134 342
Notes: DPR is the dividend payout ratio, calculated as the total annual common dividend divided by net income after tax. ROE is net income after tax as a
percentage of shareholders fund. DEBT is long-term debt as a percentage of total assets. GROWTH OPP is total value of market capitalization plus total book
value of liabilities minus book value of common equity divided by total assets. PAST GROWTH is revenue of year trevenue of year t1 and scaled by the
revenue of year t. SIZE is the natural log of sales. CAPEX is capital expenditure and measured as a percentage of total assets. BD_SIZE is the natural log of the
total number of directors on the board. IND_BD is the proportion of independent non-executive directors on the board of directors. ***,**,*Significant at 1, 5
and 10 percent level, respectively
On average, 33 percent of income of sample firms is paid out as dividend, with family Family
firms having a slightly higher DPR compared to non-family firms (0.34 vs 0.31). ownership and
This observation is in line with the expectation that expropriation concerns would be
generally higher in family firms although the difference in the mean is not found to
dividend
be significant. However, unlike Setia-Atmaja et al. (2009) who found significantly payout
higher debt levels in family firms, DEBT in this study is slightly lower for family firms
compared to non-family firms although the means are not significantly different. 323
Significant differences are obtained for ROE, GROWTH OPP, SIZE, PAST GROWTH,
BD_SIZE and IND_BD. Family firms appear to have significantly higher levels of
profitability (ROE) on average almost double compared to non-family firms and yet
they only payout slightly higher dividend compared to non-family firms[8]. From the
perspective of firm growth, the results show that family firms in general have
significantly lower GROWTH OPP (market-to-book ratio) with mean value of less than 1,
indicating non-growth firms (Korajczyk and Levy, 2003) but non-family firms
mean of GROWTH OPP is greater than 1. However, family firms show significantly
higher PAST GROWTH (past and current growth) compared to non-family firms
which show negative PAST GROWTH and this is consistent with the findings of
Villalonga and Amit (2006).
In Table IV, family firms have boards which are less independent than non-family
firms this trend is consistent with the argument that family firms assemble weaker
boards to facilitate their extraction of private benefits of control (Setia-Atmaja et al.,
2009). The average and median number of directors on the boards of both family and
non-family firms is approximately 7 (i.e. e1.95 and e2.00, respectively). On average,
42 percent of the board members are made up of independent non-executive directors.
Although not shown in Table IV for brevity purposes, the average percentage of family
ownership is 43 percent, indicating relatively high ownership concentration.
In Panel B all the variables are grouped by the three family ownership cut-off levels
and the means are significantly different from each other, except DEBT and ROE,
justifying the need to examine the three ownership cut-offs separately. DPR is lower for
PFO_5TO33 compared to the other two cut-off levels, indicating the possibility of higher
expropriation at this level. The non-linear trend of DPR (for PFO_LESS5 at 0.314, for
PFO_5TO33 at 0.253 and for PFO_MORE33 at 0.371) does not seem to fall in line with an
alternate assumption that controlling family shareholders could be viewing dividends as a
way to extract the resources of the company, in which case DPR would be expected to
increase proportionally along the three ownership level cut-offs. The observed trend
suggests DPR is possibly reflective of the proportional pressure applied by minority and
other shareholders for dividends when the risk of expropriation is higher. DEBT, ROE
seem to grow higher proportionally from PFO_LESS5 to PFO_MORE33 whereas
GROWTH OPP declines proportionately from the lowest cut-off to the highest cut-off.
For PAST GROWTH, PFO_LESS5 and PFO_5TO33 experience negative growth while
the mean for PFO_MORE33 is positive. The means of SIZE, BD_SIZE and IND_BD are
similar yet significantly different at each level of ownership cut off.
4.2 Multivariate analysis

Equation 1 is analyzed using the Tobit regression technique since dividend payout is a
non-negative variable. The overall estimations examining the hypotheses of this study
are presented in Table V.
The overall regression in Table V shows the coefficients of family ownership at the
0-5 percent level is negative and highly significant at the 1 percent level in influencing
IJMF DPR
12,3 Size
Dependent variable Overall Small firms Large firms
Constant 1.54*** 3.25*** 0.114

0.357 1.12 0.461
DPRt1 0.446*** 0.654*** 0.257***
324 0.076 0.136 0.099
ROE 0.005*** 0.007*** 0.004***
0.001 0.002 0.002
DEBTt1 0.898*** 1.29*** 0.693***
0.261 0.515 0.222
GROWTH OPPt1 0.003* 0.032 0.043
0.038 0.067 0.041
PAST GROWTHt1 0.221*** 0.295 0.024
0.058 0.122 0.104
SIZE 0.067*** 0.187*** 0.027
0.018 0.080 0.027
BD_SIZE 0.405*** 0.46*** 0.38***
0.111 0.221 0.122
IND_BD 0.195 0.113 0.076
0.218 0.426 0.241
PFO_LESS5 5.14*** 10.4*** 5.88**
2.57 5.03 2.88
PFO_5TO33 1.2*** 2.61*** 0.783*
0.526 1.07 0.495
PFO_MORE33 0.169 0.069 0.311
0.262 0.548 0.25
Industry dummy | | |
Year dummy | | |
Pseudo R 0.271 0.299 0.213
n 800 400 400
Notes: DPR is the dividend payout ratio, calculated as the total annual common dividend divided by
net income after tax. ROE is net income after tax as a percentage of shareholders fund. DEBT is
long-term debt as a percentage of total assets. GROWTH OPP is total value of market capitalization
plus total book value of liabilities minus book value of common equity divided by total assets. PAST
GROWTH is revenue of year trevenue of year t1 and scaled by the revenue of year t. SIZE is the
natural log of sales. CAPEX is capital expenditure and measured as a percentage of total assets.
BD_SIZE is the natural log of the total number of directors on the board. IND_BD is the proportion of
independent non-executive directors on the board of directors. PFO_LESS5 is equal to m if the actual
family percentage (m) if m less than 0.05 or equal to 0.05, if it is greater than or equal to 0.05.
PFO_5TO33 is equal to 0 if m is less than 0.05, m 0.05 if m is between 0.05 and 0.33, and 0.28 if m is
Table V. greater than or equal to 0.33. PFO_MORE33 is equal to 0 is m is less than 0.33 and m 0.33 if m is
The effects of family greater than or equal to 0.33. Table V represents a series of Tobit regressions. Standard errors are
ownership on reported under the coefficient estimates and robust to clustering by firm. ***,**,*Significant at 1, 5 and
dividend payout 10 percent level, respectively
dividend payout, supporting H1a that at this dispersed level of ownership, minority
and other shareholders are most likely less concerned with expropriation concerns and
hence do not exercise their power to insist for a higher dividend payout. The coefficient
for family ownership between the 5 and 33 percent level is positive and
highly significant at the 1 percent level, thus supporting H1b that minority
and other shareholders anticipate possible expropriation and hence pressure for higher
dividend payout. The coefficient for family ownership from 33 to 100 percent level is Family
positive but insignificant and is possibly attributable to: the inability of minority and ownership and
other shareholders to exert their pressure for higher dividends due to their low
presence; and the mixed expropriation and alignment-of-interest motives of family
dividend
shareholders. The insignificant results of PFO_MORE33 neither strengthen the payout
expropriation arguments not does it support the alignment-of-interest motives of
family shareholders. The results above are however different from the Hong Kong 325
study by Chen et al. (2005) who use a similar measurement approach but did not find
any significant results for their overall sample, although the signs of the coefficients are
consistent with the results presented above[9].
Prior study by Faccio and Lang (2002) in Europe suggests that the relationship
between family ownership and dividend payout is more pronounced in smaller firms.
Similarly evidence on East Asian countries suggests a parallel trend. Two studies in
Hong Kong (Chen et al., 2005; How et al., 2008) corroborate the idea that family
ownership in general results in higher dividend payout in smaller firms. Chen et al.
(2005) argue that investors demand higher dividend payouts from the companies with
potentially the highest risk of expropriation of minority shareholders, i.e. smaller firms.
Following these lines of argument which assume the relationship between association
of family ownership and dividend payout is firm-size sensitive, H1a-H1c are
re-examined in this section by partitioning the panel into two equal sub-samples based
on total assets, consistent with How et al. (2008). The family ownership-dividend effect
is anticipated to be significantly stronger among small firms compared to large firms.
The results by size show a negative relationship between dividend payout and
PFO_LESS5, a positive relationship between dividend payout and PFO_5TO33 (both
coefficients are statistically significant) and positive relationship between dividend
payout and PFO_MORE33 (not significant) for both small and large firm groups.
However as predicted, the significance for the small firms are higher than those of the
large firms. Thus H1a and H1b are accepted for both small and large firm groups, but
with a higher degree of significance attributed to small firms. The results are consistent
with How et al. (2008) and Chen et al. (2005) in Hong Kong and comparable with Faccio
and Lang (2002) and show that minority and other shareholders demand higher
dividend payout among smaller firms.
4.3 Effects of family ownership on dividends in relation to DEBT and GROWTH

OPPORTUNITY
Debt is arguably a substitute mechanism for dividend in reducing agency costs of free
cash flow ( Jensen, 1986) as it reduces the amount of discretionary resources (cash)
available to management or controlling shareholders (Crutchley and Hansen, 1989),
which might otherwise be available for expropriation by family owners. Dividend
payout also increases the frequency at which managers have to raise external
financing, which is subject to banks and investors scrutiny (Easterbrook, 1984).
The monitoring role of debt reduces the need for minority and other shareholders to
pressure for higher dividends in firms with higher levels of debt. Setia-Atmaja (2010)
reports that family firms in Australia appear to have higher level of debts than their
non-family counterpart firms. Panel A of Table IV shows Malaysian family firms have
slightly lower debt level compared to non-family firms, although the tests of difference
in means are insignificant[10]. Panel B of Table IV indicates a slightly lower DEBT for
family ownership at the 5-33 percent level. In this section, the effects of family
ownership at different cut-offs and its effects on dividend payout among high and low
IJMF debt groups are re-examined. The panel is partitioned into two sub-samples based on
12,3 the median of DEBT. Overall the effect of family ownership on dividend payout is
generally expected to be stronger in low DEBT firms, which could experience
higher risk of expropriation due to the lack of debt monitoring and availability of
higher free cash flows.
The coefficients in Table VI show that the effects of family ownership on dividend
326 payout are highly significant at the 5 percent level for both PFO_LESS5 (negative) and
PFO_5TO33 (positive) for low DEBT groups only. For high DEBT group, these
variables are insignificant and the findings generally fall in line with the extant
literature. Family ownership above the 33 percent cut-off level shows positive and
insignificant results for both low DEBT and high DEBT groups. Thus H1a and H1b
are accepted for groups with low DEBT but not for those with high DEBT. When
DEBT is high, it acts as a monitoring mechanism and thus rendering dividend payout
insignificant for any ownership level in our analysis. Overall the results are consistent
with the notion that minority and other shareholders anticipate higher likelihood of
expropriation when DEBT is low, as evidenced from the rejection of H1a and H1b for
these firms.
Conventional wisdom asserts that firms with high-growth opportunity pay low or
no dividends (Fama and French, 2001). Stated differently, firms with high-growth
opportunities most likely possess lower free cash flow and hence pay lower dividends
( Jensen, 1986) especially in common law countries (La Porta et al., 2000). On the other
hand, firms with low-growth opportunities may suffer from higher agency costs and
hence are more likely to be expected to pay higher dividends than their high-growth
counterparts. In common law countries, the expectation is that investors should be able
to extract dividends from firms when investment or growth opportunities are poor
(La Porta et al., 2000). H1a and H1c are re-examined where firms are split into
high-growth opportunity and low-growth opportunity groups. Firms with high
market-to-book ratios are often considered to have higher future growth opportunities
(Frank and Goyal, 2003) and hence firms with high-growth opportunities are defined as
those with GROWTH OPP W 1 and low-growth opportunities is defined as GROWTH
OPP o 1. In particular, the effects of family ownership at different ownership cut-off
levels on dividend payout among high- and low-growth opportunities groups are
re-examined and the effects are expected to be stronger in low-growth firms.
It is worth noting that the results for both GROWTH OPP and PAST GROWTH,
which show a positive association with dividend payout in the regressions in Tables V
and VI, are consistent with prior literature. Aivazian et al. (2003) in a study of nine
countries including USA and Malaysia show that dividend payout and growth
opportunities (proxied by mark-to-book ratio) are positively associated but do not
explain the implications of their findings and merely state that their results were
contrary to expectations and possibly related to the cash cows that resulted from
high market values[11]. It can be argued that the reason, if any, for the observed
positive relationship between both the growth variables with dividend payout is
attributable to the overall higher risk of expropriation faced by minority and other
shareholders in firms with family ownership. To support this conjecture, the
regressions in Tables V and VI are repeated for non-family firms only (i.e. firms with
zero family ownership) and the coefficients (not reported here) for both GROWTH OPP
and PAST GROWTH with dividend payout are negative. These different results of
growth on dividends in family and non-family firms is possibly indicative of the
expectations by minority and other shareholders to be paid higher dividends in firms
DEBT Growth opportunity

Family
High-growth Low-growth High-growth ownership and
High debt Low debt opportunity opportunity opportunity3SLS dividend
Dependent variable DPR (1) DPR (2) DPR (3) DPR (4) DPR (5) CAPEX (6)
payout
Variables
Constant 1.498*** 1.666*** 0.485 2.1*** 0.272
0.362 0.626 0.358 0.566 0.211 327
DPRt1 0.413*** 0.435*** 0.511*** 0.413*** 0.402***
0.071 0.136 0.125 0.098 0.053
CAPEX 2.129***
0.976
ROE 0.006*** 0.004* 0.003*** 0.012*** 0.001* 0.006
0.001 0.002 0.001 0.004 0.007 0.002
DEBTt1 0.513*** 2.389 0.714*** 0.886*** 0.452***
0.24 1.189 0.244 0.345 0.194
GROWTH OPPt1 0.030 0.067 0.034* 0.119 0.063*** 0.004
0.037 0.058 0.031 0.185 0.025 0.007
PAST GROWTHt1 0.145*** 0.329*** 0.158*** 0.242*** 0.150** 0.032
0.051 0.107 0.053 0.080 0.070 0.018
SIZEt 0.067*** 0.068** 0.034 0.082 0.035** 0.010***
0.016 0.038 0.022 0.031 0.019 0.004
BD_SIZEt 0.306*** 0.573*** 0.108 0.637*** 0.031
0.101 0.225 0.097 0.178 0.081
IND_BDt 0.198 0.681 0.242 0.265 0.176
0.187 0.420 0.285 0.31 0.197
PFO_LESS5t 2.774 9.223** 1.41 7.61*** 0.624 0.672
2.164 4.647 3.01 3.36 2.622 0.770
PFO_5TO33t 0.744 1.885** 0.487 1.58*** 0.281 0.010
0.457 0.927 0.649 0.656 0.488 0.148
PFO_MORE33t 0.239 0.128 0.034 0.327 0.170 0.087
0.233 0.540 0.365 0.35 0.249 0.070
Industry dummy | | | | | |
Year dummy | | | | | |
Pseudo R/R 0.436 0.205 0.380 0.247 0.184 0.050
n 441 359 263 537 263 263
Notes: DPR is the dividend payout ratio, calculated as the total annual common dividend divided by net
income after tax. ROE is net income after tax as a percentage of shareholders fund. DEBT is long-term debt
as a percentage of total assets. GROWTH OPP is total value of market capitalization plus total book value
of liabilities minus book value of common equity divided by total assets. PAST GROWTH is revenue of
year trevenue of year t1 and scaled by the revenue of year t. SIZE is the natural log of sales. CAPEX is
capital expenditure and measured as a percentage of total assets. BD_SIZE is the natural log of the total
number of directors on the board. IND_BD is the proportion of independent non-executive directors on the
board of directors. PFO_LESS5 is equal to m if the actual family percentage (m) if m less than 0.05 or equal
to 0.05, if it is greater than or equal to 0.05. PFO_5TO33 is equal to 0 if m is less than 0.05, m 0.05 if m is
between 0.05 and 0.33, and 0.28 if m is greater than or equal to 0.33. PFO_MORE33 is equal to 0 is m is less
than 0.33 and m 0.33 if m is greater than or equal to 0.33. Regressions 1-4 of Table VI represent a series of
Tobit regressions. Standard errors are reported under the coefficient estimates and robust to clustering by
firm. Regressions 5 and 6 are estimated using the 3SLS methodology and the standard errors are reported
under the coefficient estimates. Both the dividend equation and CAPEX equation of the 3SLS are reported
in regressions 5 and 6, respectively. The instruments for the dividend equation are DPRt1, ROE, DEBTt1, Table VI.
GROWTH OPPt1, PAST GROWTHt1, SIZEt, BD_SIZEt, IND_BDt, PFO_LESS5t, PFO_5TO33t, Family ownership on
PFO_MORE33t, industry dummies and year dummies. The instruments for the CAPEX equation are ROE, dividend payout by
GROWTH OPPt1, PAST GROWTHt1, SIZEt, PFO_LESS5t, PFO_5TO33t, PFO_MORE33t, industry partitioned by debt
dummies and year dummies. Both the rank and the sufficient order conditions are satisfied. and growth
***,**,*Significant at 1, 5 and 10 percent level, respectively opportunity
IJMF with family ownership, where these expectations possibly overwhelm the investment
12,3 needs that arise as a result of growth opportunities.
Holding other factors constant, conventional wisdom predicts lower dividend
payout in firms with high-growth opportunities. Similarly, it is expected that the
strength of the association between family ownership and dividend payout alongside
expropriation arguments to be stronger in firms with low-growth opportunities.
328 The coefficients in Table VI for low-growth opportunities group show that the effects of
family ownership with dividend payout is negative and significant at the 1 percent
level for PFO_LESS5 and positive and significant at the 1 percent level for
PFO_5TO33. For the high-growth opportunities group, these variables are insignificant
and the findings in general fall in line with the extant literature. The results of
PFO_MORE33 are positive but insignificant for firms with low-growth opportunities
and high-growth opportunities. Thus H1a and H1b are accepted for firms with
low-growth opportunities but not for those with high-growth opportunities. Overall the
results are consistent with the notion that minority and other shareholders anticipate
higher likelihood of expropriation when growth opportunities are low.
Finally, the relation between investment decisions and family ownership is
examined. The analysis is extended specifically to firms experiencing high-growth
opportunities. The results for firms with high-growth opportunities (discussed above)
showed insignificant coefficients between family ownership at all three cut-off levels
and dividend payout. These findings are logical on the assumption that these firms
would require cash resources for investment purposes. In firms with high-growth
opportunities, a significant and positive association is expected between family
ownership and investment given: the apparent need to invest in fixed assets to cater for
the growth of the business; and the insignificant association between family ownership
and dividend payout reported above. Additionally, firms higher investment in the
advent of high-growth opportunities might also alleviate concerns of expropriation in
firms with family ownership.
Since prior literature views dividends and capital expenditure as jointly determined
(Gugler, 2003), the three-stage least squares (3SLS) regression is employed. The system
consists of both dividends and capital expenditure (CAPEX) models. CAPEX is
measured as capital expenditure divided by total assets, following Setia-Atmaja (2010).
Following Jensen et al. (1992), Gugler (2003) and Setia-Atmaja et al. (2009), dividend
payout (DPR) is modeled as a function of DPRt1, ROEt, DEBTt1, GROWTH OPPt1,
PAST GROWTHt1, SIZEt, BD_SIZEt, IND_BDt, PFO_LESS5t, PFO_5TO33t,
PFO_MORE33t, industry dummies and year dummies. The CAPEX model is a
function of ROEt, GROWTH OPPt1, PAST GROWTHt1, SIZEt, PFO_LESS5t,
PFO_5TO33t and PFO_MORE33t since current investment is determined by these
variables only (Denis and Sibilkov, 2009). Specifically, the family ownership variables
are included in the CAPEX model to capture their effects on firms investment. Despite
best efforts, this research cannot claim to have fully resolved the issue of endogeneity.
While studies on family ownership and investment are rare, one such study by Chen
and Hsu (2009) examines family firms R&D decisions. Their reported negative results
between family ownership and R&D investment can be construed as to fall in line with
agency cost explanations of expropriation motive. However in reporting a negative
association between family ownership and R&D, Chen and Hsu (2009) discount the
prevalence of agency costs explanations and attributed their results to the fact that
family firms may discourage risky long-term R&D investment, although they made no
attempt to distinguish between risk and non-risky R&D investments. Family firms are
known to be more risk averse due to their poorly diversified portfolios (Anderson and Family
Reeb, 2003), more likely to misallocate resources of the firm ( Jaffe, 2005), exhibit myopic ownership and
behavior like self-benefiting perks and privileges (Schulze et al., 2001) and as a result,
draw away resources from profitable projects (Demsetz, 1983). While Chen and Hsu
dividend
(2009) provide a number of reasons why some R&D investments might not be payout
attractive to family owners, such concerns are less likely to be true for physical capital
investment, i.e. capital expenditure. The examination of the effect of family ownership 329
on capital expenditure thus provides a more straightforward view compared to R&D in
assessing the investment decisions of family ownership. This study is the first to
examine firms investment decision as a result of family ownership at different
ownership cut off points.
Regressions 5 and 6 of Table VI above are produced using the 3SLS method.
The results of the dividend model in regression 5 is consistent with regression 3 and
shows that in firms with high-growth opportunities, family ownership at all three
cut-offs levels are insignificantly associated with dividend payout. In the CAPEX
model, shown in regression 6 of Table VI, the associations of both PFO_LESS5 and
PFO_5TO33 are negative and insignificant with CAPEX while PFO_MORE33 is
positive and insignificant with CAPEX. These results suggest family ownership does
not positively affect CAPEX in firms with high-growth opportunities. The implication
of these results, when taken together with all other results presented in Tables V and VI,
leads to the inference that when firms are faced with low-growth opportunities, Type 2
agency cost is generally lower, whereby minority and other shareholders rightfully
exert pressure for higher dividend payout. On the other hand, Type 2 agency cost is
generally higher in firms which experience high-growth opportunities, where minority
and other shareholders generally seem to reduce their pressure for dividend payout due
to the anticipated usage of cash resources for investment purposes. The results above
show that family ownership in firms with high-growth opportunities does not
positively affect capital expenditure and further strengthens the credibility of the
expropriation arguments within firms with family ownership. However Type 2
agency problems may not be as widespread as they seem because in countries such as
Malaysia which has high protection of investor rights, family ownership is
concentrated in firms with low-growth opportunities (Franks et al., 2012). This is
true in the sample (as shown in Panel A of Table IV) where family firms generally
experience lower growth opportunities than non-family firms and in Panel B of
Table IV which shows a gradual and proportionate decline in growth opportunities as
family ownership increases from PFO_LESS5 to PFO_MORE33.
4.4 Additional robustness checks

A number of additional analyses are performed for robustness purposes. First, to
examine whether the obtained results are sensitive the use of the lagged one-year
values of selected variables, all the regressions are repeated by replacing these lagged
variables with their current year values. While not presented, the results are consistent
with the earlier analysis. Second, in order to test the sensitivity of the results to other
commonly used measures of dividends, all the regressions are re-examined using two
other popular measures; i.e.: dividends divided by total assets and dividends divided by
sales, and the results are not different from the earlier analysis. Third, to examine
whether the results are sensitive to other commonly used regression analysis, the
estimates are retested using the robust OLS regression clustered-at-firm and the results
remain consistent with the earlier Tobit analysis. Next, the sensitivity of the obtained
IJMF results to another alternate proxy of firm growth is considered. Specifically all the
12,3 estimates in Table VI are re-examined, by partitioning the panel into equal sub-samples
based on PAST GROWTH. The results remain unchanged in comparison with those
reported above. In view of the inclusion of CAPEX into the dividend estimate in the
3SLS regression 5 in Table VI, all the Tobit regressions presented in this study are
re-examined after including CAPEX into dividend regressions and the results remain
330 consistent. Finally, the possibility that the obtained results could be influenced by the
reforms to the Malaysian Corporate Governance Code (MCCG) is taken into account.
The MCCG was first issued in year 2000 and underwent two revisions in years 2007
and 2013. In order to examine if the results are receptive to these reforms, all the
regressions are re-examined by partitioning the panel into two groups (2005-2007 and
2008-2010) to observe if any differences exists in the results obtained. The results
remain unchanged from the earlier analysis.
5. Conclusion
This study evaluates the association between family share ownership and dividend
payout in Malaysia. Overall the results provide evidence with statistical significance,
suggesting that at low or dispersed levels of family ownership, minority and other
shareholders are possibly less likely to be concerned with expropriation, exert less
pressure and results in lower dividend payout. In other words, the results indicate that at
the 0-5 percent family ownership level, Type 2 agency problems may not be severe, based
on the negative association with dividend payout. However at higher levels of family
ownership, minority and other shareholders possibly anticipate possible expropriation
by the former, exert more pressure and as a result experience higher dividend payout.
Further examination of the hypotheses by partitioning firms according to size, debt and
growth opportunities reveal that the observed results are stronger for smaller firms and
significant for firms with low debt or low-growth opportunities, in line with the
expectations of prior studies. A final test of the effect of family ownership on investment
decisions of firms which experience high-growth opportunities reveals no significant
results. Despite the existence of an alternative explanation in the extant literature that
identifies dividends payout as a means by which firms resources are expropriated, the
results produced in this study, when taken together provides weak indication of this
motive. One policy implication that can be drawn from this study is the need to further
strengthen the institutional and regulatory architectures that would enhance the power
of minority and other shareholders of public listed firms in Malaysia. The findings of this
study have relevance for other East Asian markets, which are largely characterized by
the prevalence of family-controlled public listed firms.
This study is not without its limitations. It focusses on relatively large, publicly
traded firms in Bursa Malaysia. The results may not extend to smaller firms and thus
the possibility that some families may have less desire to expropriate other
shareholders wealth could not be entirely disqualified. While the current study does
not find any support to back the idea that dividend payout is a means by which
controlling families extract the resources of firms in Malaysia, it could not be rejected
completely either due to limitations in scope of data collected. Dividend is employed as
the indirect measure of expropriation in this study. While related party transactions,
directors remuneration and cash flow-to-control rights ratio represent other possible
measure of expropriation, it is beyond the scope of this study. Finally, the study only
covers six years of Malaysian data therefore the results obtained may not be
generalizable across different time periods and locations.
Notes Family
1. The higher severity of Type 2 and the lower severity of Type 1 agency problems in firms with ownership and
family ownership are further compounded by the fact that Malaysia tops the list of East Asian
firms that enhances control through participation in management (Claessens et al., 1999). In an
dividend
unreported descriptive test, it is also observed that more than 70 percent of family firms are payout
represented by three or more family members on the board (the mean of board size of sample
firms is 7.15).
331
2. The reported average ratio of cash flow rights over controls rights for family-controlled
firms is 0.853 for Malaysia (the fourth highest in East Asia) and inferred to be more inclined
toward expropriation (Claessens et.al., 2000).
3. Families could expropriate firms wealth via many other forms such as related party
transactions, excessive remuneration and perks and investment in low return investments
(Wiwattanakantang, 2001). The high private benefits of control of controlling families thus
further fuel the expropriation motive.
4. Consistent with Li and Zhao (2008) this study use both the market-to-book ratio (GROWTH
OPP) and sales growth (PAST GORWTH) where the market-to-book ratio measures future
growth opportunities while sales growth measures current and past growth (Liu, 2002).
5. Share ownership 5 percent and above is defined as substantial shareholding by the
Malaysian Stock Exchange (Bursa Malaysia) and Securities Commission of Malaysia.
6. Out of the 99 family firms shown in Table II, 98 firms have shareholders from a single
family while only one firm has shareholders from two families.
7. Consistent with Chen et al. (2005) and Setia-Atmaja et al. (2009), the criteria of continuity of
family control has driven the motivation of this study to derive a balanced panel dataset.
8. In contrast, the Setia-Atmaja et al. (2009) study in Australia (also a common law country
characterized by high private benefits of control) reported an insignificant but opposite
result, where non-family firms showed higher profitability than family firms.
9. In an unreported tests for multicollinearity, no variance inflation factor (VIF) score above 5
is observed and therefore multicollinearity is not a concern for the obtained results.
10. The findings for Malaysian family firms are thus different from Australia, where family firms
from the latter are reported to have higher debts. Since debt mitigates agency costs, the lower
debt among Malaysian family firms could possibly result in higher expropriation risk.
11. Liu (2002) reported a similar positive association between and growth opportunities (using
market-to-book ratio) and dividend payout in a study involving 23 countries, including
Malaysia and USA.
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About the authors

Samuel Jebaraj Benjamin is an Assistant Professor at the Bank Rakyat School of Business and
Entrepreneurship, Tun Abdul Razak, Kuala Lumpur, Malaysia.
Shaista Wasiuzzaman is a Senior Lecturer at the Faculty of Management, Multimedia
University. Shaista Wasiuzzaman is the corresponding author and can be contacted at:
shaista@mmu.edu.my
Helen Mokhtarinia is a Treasury Application Consultant at the TriAset Sdn. Bhd.
Niloufar Rezaie Nejad is a Free-Lance Researcher working on corporate finance topics such as
dividend policy and capital structure.
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firms pay dividends provides some perspective on expropriation by insider or Family

2. Prior studies and hypotheses development

3. Research methodology and sampling procedure

PFO_5TO33 0 if m o0:05; m0:05 if 0:05 pm o 0:33; 0:28 if m X 0:33

PFO_MORE33 0 if m o 0:33; m0:33 if m X 0:33

IJMF Variables Definition Prior studies

Original sample size (excluding financial institutions) 265

2005 2006 2007 2008 2009 2010

Number of family firms 100 99 99 99 97 97

4.2 Multivariate analysis

Constant 1.54* 3.25* 0.114

4.3 Effects of family ownership on dividends in relation to DEBT and GROWTH

DEBT Growth opportunity

4.4 Additional robustness checks

About the authors

1. Motylska-KuzmaAnna, Anna Motylska-Kuzma. 2017. The financial decisions of family businesses.

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