ISSN: 2232-0172

Vol 7 Issue 1, June 2018

pp. 63-81

A Contemporary Business Journal

The influences of company’s size and past year’s

dividend information to the public listed companies in
Malaysia
Mau G May
Taylor’s Faculty of Business and Law, Taylor’s University

Nathrah Yacob
Taylor’s Faculty of Business and Law, Taylor’s University

© The Author(s) 2016. This article is published with open access by Taylor’s Press.

Abstract: The dividend policy is determined by the management of a company to decide

on the composition of earnings that will be paid to the shareholders as dividends or kept as
retained earnings. Some companies pay dividend and some do not. This may influence the
investors in making their investment decisions on listed companies. Hence, understanding
the factors that may influence the decision on dividend payout is crucial to
investors. Although there are many studies conducted to understand the factors that
influence dividend payout, there is still no consistent explanation as to date. With limited
studies done in the context of Malaysia and no unanimous conclusion whatsoever, this paper
aims to understand and shed more light onto the determinants of dividend payout in
Malaysia by focusing on the Oil and Gas and Consumer Products industry, being the two
largest contributing sectors in the country’s gross national product. Secondary data were
collected from Malaysia’s stocks exchange for a period of six years (2010-2015). This study
applies the multiple regression analysis to examine the relationships between the
independent variables, which are profitability, leverage, company size, and past year’s
dividend payout, and the dividend payout ratio. The results show that only company size
and past year’s dividend payout significantly influence the dividend payout in Malaysia for
the Oil and Gas and Consumer Products industry. This study contributes significantly to
the empirical which is still scarcely researched in emerging countries. This provides
managers and shareholders with better insight into the determinants of dividend policy,
hence, allowing them to make better dividend and investment decision in meeting potential
investors’ expectations.

Keywords: Dividend policy, Malaysia’s listed companies, emerging economy, dividend

payout ratio. JEL classification: G35

Correspondence: Nathrah Yacob, Taylor’s University, Malaysia. Email: athrah.yacobmohdyacob@taylors.edu.my

Taylor’s Business Review, Vol. 7 Issue 1, June 2018 63

 Mau G May & Nathrah Yacob

1. INTRODUCTION

Ever since the research of Lintner (1956) and Miller and Modigliani (1961), dividend
policy has always been a heated topic in financial literature throughout the years,
and researchers are still on their quest to find the explanation to why and how
dividend payment decisions are made by corporate managements. After Black (1976)
pointed out the “dividend puzzle” in his research, various researches attempted to
clarify this phenomena but none have come to a clear and unanimous justification.
This controversy started in the early years when Lintner (1956) had a research done
on American companies in the 1950s and concluded that dividend payouts are
influenced by the company’s current profitability and previous year’s dividend
payout. While contrasting Lintner’s results, Miller and Modigliani (1961)
hypothesised a theory stating that in a perfect market, where there are no taxes and
bankruptcy costs, dividend decisions are actually irrelevant and do not have any
effect on the value of the firm nor shareholder’s wealth. Generally, companies have
two options to raise funds for their investments or projects which can be
categorized into internal and external sources. Internal sources would refer to
retained earnings or accumulated profits, while external sources are new loans and
borrowings or issuance of new shares to the public (Salehi, Mahdi, Mahdi Moradi,
2010). Issuing new shares is a common method used by companies to expand its
business without the help of loans from external financial institutions. As investors
purchase the company’s shares, it increases the company’s available internal cash,
which in turn increases the company’s capital. This increase in cash flows allows the
company to be able to invest in more investments that would generate even more
future cash flows for the company.
In return, companies will pay back their investors with dividends, which is one
of the ways for a company to increase the wealth of its shareholders. Dividends are
the profit distributions made by the company to its shareholders, which can be in
the form of cash or shares (Ross, Westerfield, Jaffe and Roberts, 2002). Other than
satisfying its shareholders, paying dividends is also a way to retain and attract more
investors by indicating that the company is earning well, but it may also influence
the company’s ability to expand in the future as it is distributing part of its resources
to the shareholders instead of retaining it to invest in other profitable investments
(Baker and Powell, 2005). To assist financial managers in making this decision,
which would affect the company and its shareholders, companies would have
dividend policies that serves as a guideline for financial managers to maintain the
equilibrium in distributing cash between dividends and retained earnings. But how
does the company come up with the dividend policy? And what are the determinants
in this matter? On the investors’ side, they would first analyse the company’s
performance before investing in companies and the most common financial ratio
that investors use in analysing the company’s health and capability is the dividend

64 Taylor’s Business Review, Vol. 7 Issue 1, June 2018

 The influences of company’s size and past year’s dividend information to the public listed companies in
Malaysia

payout ratio, which measures the percentage of the company’s profit that is
distributed as dividends to its shareholders. In other words, it helps investors by
indicating how much dividend payments are made by the company based on its
earnings. As the dividend payout ratio is based on how much dividends the
company pays, it is crucial to understand what affects the company’s dividend
decision and how do these factors affect the ratio. This research aims to examine
whether profitability, leverage, company size and past year’s dividend payout
influence the dividend payout policy of public listed companies in Malaysia, which,
answers to what extent is the magnitude and direction of relationships between the
determinants and the dividend payout ratio. This paper consists of five sections and
will be organised as follows. Section 2 is the summarised in-depth literature review
which covers the theories of dividend and empirical reviews. Section 3 presents the
research methodology employed. Section 4 contains the results of the research and
its implications will be discussed. The conclusion of the study will be reported in
Section 5 along with the limitations of the research and recommendations for future
studies.

1.1. Research Gaps and Problem Statement

Ever since Fischer Black’s research in 1976, which pointed out the “dividend
puzzle”, many researchers and academicians has come up with various theories and
opinions to explain how various factors can influence the dividend payout ratio
(Amidu and Abor, 2006; Fama and French, 2001; Lintner, 1956; Miller and
Modigliani, 1961). Nevertheless, after two decades of continuous research, these
theories still could not fully explain the relationships between the determinants and
the dividend payout ratio. There are still conflicts in opinions and the relationships
between the affecting factors and the dividend payout policy still remains
ambiguous. In spite of the extensive research done on the factors affecting the
dividend payout ratio, most of the studies (Pereira, Teixeira and Tavares, 2015;
Pornumpai and Suntraruk, 2013; Tahir and Mushtaq, 2016) focused on other
countries such as Pakistan and Portugal. The factors affecting the dividend payout
ratio will differ among countries as each country have their own rules and
regulations, culture, and policies which would influence the effect of each of the
determinants on the ratio in various ways (Chay and Suh, 2008). This statement is
also supported by a study that was done to examine the country’s influence on
dividend policy (Michel and Shaked, 1986). To a large extent, most of the researches
are also focused on developed countries and less research has been directed towards
emerging economies such as Malaysia. As emerging and developed countries behave
differently from each other, the same factor may affect the dividend payout ratio
differently according to the development stage of the market (Aivazian, Booth, and
Cleary, 2003). Thus, more extensive research needs to be done in order to

Taylor’s Business Review, Vol. 7 Issue 1, June 2018 65

 Mau G May & Nathrah Yacob

understand how the dividend payout ratio behave in different countries of different
developmental phases, as companies would have different financial needs according
to the situation of the economy.
Moreover, Malaysia has recently switched its corporate tax system to the single
tier tax system (Inland Revenue Board of Malaysia, 2008), which would impact on
how dividends paid are taxed. Researchers have already found effects of the
transition and shown that company dividend payouts behaviour have changed due
to this implementation (Ismail et al., 2017). Hence, it would be interesting to see
how the selected variables’ influence on dividend payout would differ from other
studies in this context. Even though there have been several studies on the
determinants of dividend payout ratio in Malaysia, the findings on this topic are still
inconclusive as different results regarding the relationships between the
determinants and the dividend payout ratio have been found, the results of the
studies by various researchers (Issa, 2015; Mui and Mustapha, 2016) did not achieve
a consistent conclusion. This can be seen as Mui and Mustapha (2016) and Issa
(2015) both adopted the same independent variable, which is profitability, but
disclosed different results. Mui and Mustapha (2016) concluded that profitability
has an insignificant negative relationship with dividend payout, indicating that more
profitable firms pay lesser dividend and profitability has little influence on the
dividend decision. While Issa (2015) concluded the complete opposite, showing that
profitability has a significant positive relationship with dividend payout, implying
that more profitable firms pay more dividends and profitability has a significant
impact on the dividend payout ratio.
As the analysis of previous studies provided no uniform answer to the
determinants of dividend payout ratio, this paper aims to further understand what
influences the dividend payout ratio of public listed companies in Malaysia being an
emerging economy. Four determinants are selected to be analysed along with the
dividend payout ratio in order to understand their relationships and how the ratio
is being influenced. The four selected independent variables included in this paper
are profitability, leverage, company size, and the previous year’s dividend payout.
While the relationship between profitability, leverage, company size, and dividend
payout ratio has been researched before in Malaysia, the results of previous
researches are still contradictory and inconsistent. The relationship between past
year’s dividend payout and the dividend payout ratio was one of the findings of
Lintner (1956)’s in his early research, but as of now, this variable has rarely been in
Malaysia. Hence, in shedding light onto this topic, this study will examine the four
selected determinants and will focus on the two leading industries in Malaysia,
namely the Oil and Gas Industry and the Consumer Products Industry.

66 Taylor’s Business Review, Vol. 7 Issue 1, June 2018

 The influences of company’s size and past year’s dividend information to the public listed companies in
Malaysia

2. LITERATURE REVIEW

As indicated by Black (1976), “The harder we look at the dividend picture, the more
it seems like a puzzle, with pieces that just don’t fit together.” Throughout the years,
many researchers have conducted numerous studies on this dividend puzzle, and
through the process, theories surfaced to further explain this phenomenon, as well
as the factors that influence the dividend payout ratio. The Dividend Irrelevance
Theory is one of the most influential theories which was developed by Miller and
Modigliani (1961). It states that in a perfect world where taxes and bankruptcy costs
do not exist, a company’s dividend policy is irrelevant to investors and does not
affect the company’s market value nor its capital structure. In this theory, it also
assumes that share costs and transaction costs that incur in the issuances of shares
do not exist, shareholder’s wealth is not affected by dividends, and leverage does
not affect the company’s cost of capital. With these assumptions and as long as the
firm does not change its investment policy, dividends would become insignificant
to shareholders and they will be indifferent between gaining in terms of dividend
payments or capital gains. Modigliani and Miller (1961) explain that this is due to
the fact that in order to make dividend payments, the required capital would have
to be raised by the company through the issuance of new shares. When new shares
are issued, the share’s price will decrease with equivalent proportions to the payment
of dividends which will eventually cancel out each other. They also explained that
dividends will be insignificant to investors because they can make their own
“homemade” dividends. This may happen when dividend payments exceed the
investor’s expectation, the surplus cash flow will be reinvested into the company’s
share. When dividends are lesser than expected, investors will sell part of their shares
to create a comparable cash flow that was expected to be received from the share
(Ang and Ciccone, 2009). Hence, investors are uninterested about a company’s
dividend policy as they are equally well off regardless of the dividend payment.
Even though this theory has been supported by a few researchers (Black and
Scholes, 1974; Miller and Scholes, 1978), Modigliani and Miller’s theory would be
impractical in the real world as taxes and flotation costs when issuing new shares
are not avoidable for most companies. With the existence of flotation costs, the
choice between internal and external financing will have a certain degree of impact
on the cost of capital of the company, resulting in the assumption of leverage having
no impact being inappropriate. The existence of transaction costs also causes
shareholders to prefer dividends more as they are charged when shares are sold to
realise capital gains. Therefore, Modigliani and Miller’s theory may be theoretically
true, but it will not be applicable in the real world. To counter Modigliani and
Miller’s Dividend Irrelevance Theory, Gordon (1963) and Lintner (1964) developed
the Bird-in-the-Hand Theory, which mainly states that dividends has a certain

Taylor’s Business Review, Vol. 7 Issue 1, June 2018 67

 Mau G May & Nathrah Yacob

degree of impact on the company’s value or share price and emphasises on the point
that investors are believed to be risk-averse. Shares that pay current dividends are
more preferred by investors rather than shares that first retain their earnings and
make dividend payments in the future. This is because capital gains and dividends
that will be received in the future have a higher uncertainty level and current
dividends are more certain in comparison. Capital gains are less predictable than
current dividends as share price is not determined by the managers but by market
forces, thus it has a greater level of uncertainty (Keown, Martin, Petty, and Scott
(2003). Even though the share may provide higher returns in terms of capital gains
than current dividends, due to the high level of uncertainty, the investor is not
guaranteed to be able to accumulate the said return (Gordon, 1963). As the level of
risk and the length of time are positively correlated, investors are more willing to
invest in companies that pays current dividends which are less risky than dividends
that are paid after a longer duration of time. Therefore, investors are more willing
to invest more or pay a higher price for companies that pay current dividends. This
justifies the need to examine the contributing factors that have influenced the level
of dividend payout among public listed companies. Potentially to identify
companies that may pay higher dividend to shareholders.
Theoretically, one of the contributing factors that may influence the dividend
policy is the company’s profitability. Since the beginning of the dividend puzzle,
profitability has been suggested as one of the research determinants for many
studies on this topic. This is because dividends are a portion of the company’s profit,
so there is no doubt that a company’s profitability will affect its dividend payout.
Lintner (1956) is one of the earliest researchers to carry out a study on the
determinants of dividend payout. He conducted a research on 28 firms in United
States and concluded that managers make dividend decisions based on current
earnings and past dividend payments. Fama and French (2001) also discovered that
bigger firms that have more earnings tend to give out more dividends compared to
smaller firms that have lesser earnings. This positive relationship between
profitability and dividend payout is also supported by various researches throughout
the years, including Baker, Farrelly and Edelman (1985), Baker and Powell (1999)
and Amidu (2007). Locally, Pandey (2003) who conducted his study on Malaysia,
employed multinomial logit analysis in his study and found that companies’ dividend
payouts are sensitive to the changes in their earnings and dividend payout ratios also
vary between industries. Leverage is also one of the determinants that is widely
researched in this topic. Numerous studies have found that leverage has an inverse
relationship with dividend payout policy (Crutchley and Hansen, 1989; Dempsey,
Laber and Rozeff, 1993; Duha Al-Kuwari, 2009; Lily, Venkatesh and Sukserm, 2009;
Van Trang, 2016). A high level of leverage would position the company in a riskier
position in terms of cash flows. A company that has a high leverage level will
maintain its internal cash flows to meet its debt obligations when it is due instead
of distributing it as dividends to shareholders. Companies’ level of risk will increase

68 Taylor’s Business Review, Vol. 7 Issue 1, June 2018

 The influences of company’s size and past year’s dividend information to the public listed companies in
Malaysia

due to the increase in debt, which raises their cost of external financing and causes
them to be more reliant on retained earnings, resulting in the cut of dividends.
Dempsey et al. (1993) points out that companies which are highly levered tend to
have lower dividend payout ratios to compensate for the transaction costs that is
linked to external financing. Although this negative relationship seems logical,
Dhillion (1986) found contrasting evidence showing that there is a positive
relationship between the two variables. Yarram and Dollery (2015) also concluded
with a significant positive relationship between leverage and dividend payout in
Australian corporate firms. Whereas Marlina and Danica (2009), Abor and Bokpin
(2010) and Al-Twaijry (2007) discovered that leverage has an insignificant impact
on dividend payout. Kuo, Philip and Zhang (2013) also found that leverage is
insignificant in majority of the markets but when they used the same method to test
companies in developed countries, different results were found instead. Therefore,
the relationship between leverage and dividend payout may vary between a
developed and an emerging country such as Malaysia.
One of the first studies to use company size as an independent variable in
determining the factors that affect the dividend payout ratio was Lloyd, Jahera and
Page (1985). They suggested that larger firms pay higher dividends in order to
reduce agency costs and noted that they are less sensitive to financial difficulties,
thus able to pay more dividends. They proved that larger firms that are financially
matured have better access to capital markets, which can help by reducing their
reliance on internal funds and enabling them to propose higher dividends to
shareholders. Sinabutar and Anggoro (2015) conducted a research on Indonesia’s
Consumer Goods industry and also found a positive relationship between the two
variables. In addition, Manos (2003), Fama and French (2001) and Hedensted and
Raaballe (2008) also came to the same results which indicate that there is a positive
relationship between company size and dividend payout. However, there are also
other studies that indicate a negative relationship between company size and
dividend payout. Lestari (2018) conducted a research on Indonesia’s manufacturing
companies and found a significant negative relationship between the two variables.
Jin (2000) documented that a smaller company’s share prices have a larger reaction
to dividend announcements compared to larger firms. This concept is also
supported by Yoon and Starks (1995). Eddy and Seifert (1988) pointed out that
bigger companies have lower information asymmetry as they have more publicly
available information compared to smaller companies. As there is lower information
asymmetry between the management and the shareholders, shareholders have a
clearer view of what is going on in the company, resulting in the value of dividend
announcements’ information content to be lower. This suggests that as company
size increases, the signalling effect of dividend announcements will decrease, which
would discourage large companies from paying higher dividends. Even though
numerous previous studies have concluded that company size is an important factor

Taylor’s Business Review, Vol. 7 Issue 1, June 2018 69

 Mau G May & Nathrah Yacob

in determining the factors that affect the dividend payout ratio, the measurements
used to determine company size still varies among studies. Among the
measurements, there are three measurements that are more common, which are
natural logarithm of sales (Lloyd et al., 1985), logarithm of the number of employees
(Daunfeldt et.al, 2009), and market capitalization (Duha Al-Kuwari, 2009). However,
Lloyd et al. (1985) stated that there is no difference between using sales or market
value of equity as the measurement of company size as results should be roughly
the same. Thus, this paper will be using the natural logarithm of total sales to
measure company size.
Past dividends have been one of the earliest elements to be discovered as a
determinant of dividend payouts. This variable was first introduced by Lintner (1956)
in his survey on 28 companies in the United States. Lintner stated that companies
are hesitant to increase dividend payouts to a certain level as it may become difficult
for them to sustain that amount and companies prefer to maintain a dividend payout
that is stable in the long-term. This can be related to the Signalling Effect Theory as
a drop or increase in dividend payouts would be perceived as a signal of the
company’s performance to the investors. After Lintner’s discovery, many
researchers (Allen, 1992; Fitri, Hosen, and Muhari, 2016) over the years have found
this concept to be true in many other markets. Baker and Veit (2002) investigated
318 NASDAQ listed firms and confirms that past dividends do affect the managers
in making dividend decisions. Although, there are cases where researchers have
found that developing markets do not rely on past dividends to decide current
dividends. Adaoglu (2000) did a research on dividend policy in Istanbul Stock
Exchange (ISE) and concluded that a company's dividend policy does not rely on
past dividend patterns and follows an unstable dividend policy instead. Nidar and
Gunawan (2016) found a positive but insignificant relationship between past
dividends and dividend payout ratio in their study on Indonesian non-financial
companies.

3. DATA AND METHODOLOGY

Malaysia is known as South East Asia’s most dynamic owner of oil and gas reserves,
which means that this industry is very important and influential to Malaysia’s
economy, thus, it is crucial to understand how factors impact the dividend decisions
of this industry. The Consumer Product industry covers a variety of companies,
ranging from consumable products to clothing, hence, it is believed to provide a
good coverage of companies and different economic contexts as to how dividend
decisions are made. Therefore, the Oil and Gas industry and Consumer Products
industry are chosen for this paper. Sample data are collected from Thomson Reuter,
as well as annual reports that are published online by the sample companies and

70 Taylor’s Business Review, Vol. 7 Issue 1, June 2018

 The influences of company’s size and past year’s dividend information to the public listed companies in
Malaysia

Bursa Malaysia. A sample of companies are chosen through probability sampling by

randomly selecting a few companies from the Oil and Gas industry and the
Consumer Products industry, samples are chosen from a population that consists
of public listed companies that are registered in Bursa Malaysia from 2010 to 2015.
Companies that do not have sufficient data for the research period are excluded.
After removing the companies with incomplete data, out of the remaining samples,
40 companies were chosen randomly, leading to a sample that consists of 30
companies from the Consumer Products industry, while 10 companies are from the
Oil and Gas industry. To ensure the accuracy of the results, the collected data has
also gone through normality and multicollinearity tests before it is used for the
research.

3.1. Proxies of variables

Dividend payout ratio (DPR) is the total dividend paid in a year divided by the year’s
net income. This proxy is adopted by Gill, Biger and Tibrewala (2010) and Maldajian
and Khoury (2014). Profitability (PROF) is measured by dividing the net income
by the total assets (Ahmed and Hasan Murtaza, 2015; Amidu and Abor, 2006; Tahir
and Mushtaq, 2016). Whilst, leverage (LEV) is measured by dividing the net asset
to the total liability of the companies (Lloyd et.al, 1985; Al-Kuwari, 2009; Tahir and
Mushtaq, 2016; Malik, Sajid Gul, Rehman and Khan, 2013; Malik et.al, 2013).
Company size is measured by log transformed of total sales (Malik et.al., 2013), and
finally, the previous year’s dividend payout’s (Alzomaia and Al-Khadhiri, 2013; and
Maldajian and Khoury 2014). Based on studies and theories discussed in the
literature review, it is predicted that profitability, company size, and past year’s
dividend payout will have a positive relationship with dividend payout; while
leverage will have a negative relationship with the said dependent variable.
Therefore, the research hypotheses for each of the variables are as follows:
The research hypotheses for each of the variables are as follows:
H1: Profitability has a statistically significant relationship with the dividend payout
ratio in the Oil and Gas and Consumer Products industry.
H2: Leverage has a statistically significant relationship with the dividend payout ratio
in the Oil and Gas and Consumer Products industry.
H3: Company Size has a statistically significant relationship with the dividend
payout ratio in the Oil and Gas and Consumer Products industry.
H4: Past Year’s Dividend Payout has a statistically significant relationship with the
dividend payout ratio in the Oil and Gas and Consumer Products industry.

Taylor’s Business Review, Vol. 7 Issue 1, June 2018 71

 Mau G May & Nathrah Yacob

This research will involve a cross-sectional analysis consisting of 40 companies.

The two main analyses that would be conducted are Pearson’s correlation
coefficient analysis and multiple regression analysis (Alzomaia and Al-Khadhiri,
2013; Issa, 2015; Kuo et al., 2013; Mehta, 2012). For this study, 40 public listed
companies on Malaysia’s Stocks Exchange are analysed with 6 year’s annual average
data. The Pearson’s correlation is tested between the proxies. The advantage of
Pearson correlation is that it treats each variable equally and does not take into
account of the nature of the variables. However, Pearson’s correlation does not
show the direction of the relationships, which is the reason why the multiple
regression analysis has to be used for deeper insight. The acceptance or rejection of
the null hypotheses will be tested based on a significance level of 0.05, i.e. p < 0.05.
In order to ensure there are no normality and multicollinearity issues that would
affect the results of the regression model, the skewness and kurtosis of the data, are
assessed before it is employed to conduct the regression analysis. Multicollinearity
issues are checked by examining two collinearity diagnostic factors, the Variance
Inflation Factor (VIF) and the Tolerance value. VIF is used to assess how much
multicollinearity is present in the regression analysis, the acceptable range is between
1 and 10, anything outside of this range would indicate a multicollinearity issue and
data has to be revised. The recommended tolerance value is higher than 0.10, a value
lower than 0.10 would indicate high collinearity (Hair, Black, Babin, and Anderson,
2009).

4. RESULTS AND DISCUSSION

A descriptive statistic is shown in table 4.1. The table shows that the mean for DPR
is 0.53, which means that on average a firm pays around 53 percent of its earnings
as dividends over the 6 years. The minimum of 0.0853 shows that the least dividend
paid by companies is 8.53 percent of their earnings, while the most is 103.6 percent
represented by the maximum of 1.0360. DPR has a standard deviation of 0.28,
indicating that the amount of dividends paid by companies do not diverge too far
from the mean of 53percent.

Table 4.1 Descriptive statistics

N Minimum Maximum Mean Standard Skewness Kurtosis
Deviation
Statistic Statistic Statistic Statistic Statistic Statistic Statistic
DPR 40 0.0853 1.0360 0.5286 0.2814 0.319 -1.153
PROF 40 0.0205 0.2988 0.1051 0.0705 1.375 1.305
LEV 40 0.0539 3.0506 0.7134 0.6815 1.966 4.155

72 Taylor’s Business Review, Vol. 7 Issue 1, June 2018

 The influences of company’s size and past year’s dividend information to the public listed companies in
Malaysia

SIZE 40 17.7500 24.0100 20.1457 1.4310 0.823 0.409

PYDPR 40 0.0935 1.0904 0.5206 0.2795 0.493 -0.838

A univariate normality is established for all variables as the skewness of each

of the variables are between the range of 1.96 and 0.319, which is within the
acceptable range of -2 to 2, indicating that the data is normally distributed. The
kurtosis of the variables is between the range of 4.155 and -1.153, which is also
within the acceptable range of -7 to 7, showing that there is a low probability for
outliers. As for the independent variables, SIZE has the highest standard deviation
of 1.431, showing that the data is widely outspread from the mean of 20.145. While
PROF has the lowest standard deviation of 0.07, meaning that the data does not
stray far from the mean of 0.105. Next, analysis of the correlation between variables
is presented in Table 4.2.

Table 4.2 Pearson Correlation Coefficient between variables

DPR PROF LEV SIZE PYDPR
DPR 1.00*
PROF 0.463* 1.00*
LEV -0.146 -0.072 1.00*
SIZE 0.148 0.026 0.506* 1.00*
PYDPR 0.697* 0.442* -0.166 0.065 1.00*
*denotes level of significance at 5percent

Table 4.2 illustrates the results of the Pearson Correlation Coefficient where
there was a strong, positive correlation between DPR and PROF, which was
statistically significant (r = 0.463, n=40, p<0.005). While LEV has a statistically
insignificant weak, negative correlation with DPR (r = -0.146, n = 40, p > 0.05).
SIZE has a weak, positive correlation with DPR, but also statistically insignificant
(r = 0.148, n= 40, p > 0.05). Lastly, PYDPR was found to have a strong, positive
correlation with DPR, and was statistically significant (r = 0.967, n = 40, p < 0.005).
Therefore, it can be concluded that dividend payout ratio has a statistically
significant relationship with profitability and the companies’ past year’s dividend
payout ratio. Consequently, to examine in detail the direction and degree of the
relationships between the influencing factors and dividend payout ratio. The
following Table 4.3 explains the analysis and relationships between the dependent
variable, DPR, and the independent variables, PROF, LEV, SIZE, and PYDPR, by
using the multiple regression technique. The R squared value shows the multiple
correlation coefficient of the model, which is 93.9 percent, indicating that there is a
high degree of correlation between the dividend payout ratio and the independent
variables. R-square, also known as the coefficient of multiple determination, shows

Taylor’s Business Review, Vol. 7 Issue 1, June 2018 73

 Mau G May & Nathrah Yacob

how much of the variation in DPR can be explained statistically by PROF, LEV,
SIZE, and PYDPR, as well as representing the overall model fit. While the
remaining 6.1percent of the variation in DPR is affected or can be explained by
factors other than the ones included in this model.

Table 4.3 The relationship between PROF, LEV, SIZE, PYDPR and Dividend
payout ratio
Dependent StandardizedT test Collinearity
variable: Coefficients Statistics
DPR Beta Tolerance VIF
0.046 1.038 0.805 1.242
PROF
LEV -0.043 -0.919 0.705 1.419
SIZE 0.108* 2.329 0.722 1.386
PYDPR 0.933* 20.734 0.767 1.304
Adjusted R2
0.939
*denotes level of significance at 5percent

The regression results from table 4.3 show that only SIZE and PYDPR have
a statistically significant impact on DPR as their p-values are both less than 0.05.
On the contrary, PROF and LEV do not have a significant impact on DPR as their
p-values are 0.306 and 0.365 respectively, which are both higher than 0.05. This is
inconsistent with the results from the correlation as it was predicted that PROF and
PYDPR would have a significant relationship with DPR, instead of SIZE and
PYDPR. The results also match the expected relationships between the independent
and dependent variable shown in Section 3, which were predicted according to the
theories and past researches whereby PROF, SIZE, and PYDPR having a positive
relationship, while LEV possesses a negative relationship with DPR. The results
also indicate that there is no multicollinearity issues between the variables as the
VIF of the variables are all between 1 and 10 and the tolerance values are all higher
than 0.10. Therefore, the outcomes show that only H3 and H4 are supported, while
H1 and H2 are not supported. Company Size and Past Year’s Dividend Payout both
have statistically significant relationships with the dividend payout ratio in the Oil
and Gas and Consumer Products industry. The results show that company size has
a positive significant relationship with the dividend payout ratio, which is uniform
with the findings from previous studies, such as researches by Hedensted and
Raaballe (2008), Lloyd et al., (1985), Manos (2003), highlighted that company size
has a high positive impact on a company’s dividend decision in the Oil and Gas and
Consumer Products industry. This supports the Life Cycle theory as it proves that
larger and more mature firms pay more dividends as they have a more stable cash
flow, while younger and smaller firms pay fewer dividends as they need to retain

74 Taylor’s Business Review, Vol. 7 Issue 1, June 2018

 The influences of company’s size and past year’s dividend information to the public listed companies in
Malaysia

profits for growth investments and developments. The Agency Cost theory is also
recognized as true as larger companies reduce agency cost by paying more dividends
to decrease the opportunity for managers to use their larger cash flows for
unbeneficial deeds.
The regression results show that past year’s dividend payout has the largest
impact on dividend payout ratio. The positive significant relationship between the
two is consistent with the results of prior researches such as Appannan and Sim
(2011), Baker and Veit (2002), Lintner (1956). This supports the Signalling Theory
as it indicates that the firms in the Oil and Gas and Consumer Products industry
pay very close attention to their past year’s dividend payouts and take into account
the signal that the public is going to perceive when they issue dividends. Paying
dividends that are higher than the past year’s dividend may indicate that the
company is having a positive outlook for its future cash flows, which can encourage
investors to invest more in the company in expectation of getting higher returns in
the future. Thus, managers are very attentive to the history dividend payouts when
deciding on upcoming dividend payments. The results indicate that profitability has
a positive but insignificant relationship with the dividend payout ratio. This indicates
that companies that are bigger and more profitable pay more dividends, which
supports the results of previous studies such as Baker et al., (1985), Baker and
Powell (1999), but profitability does not have a significant impact on dividend
payout, showing that earnings of the firm does little to affect a manager’s dividend
decision in the Oil and Gas and Consumer Products industry. The positive
relationship also justifies the Agency Cost Theory and the Signalling Effect Theory
since one can assume that more profitable companies tend to pay more dividends
to reduce agency costs and to signal the investors about the positive future outlook
of the company.
It can be observed that leverage has a negative relationship with the dividend
payout ratio, consistent with researches such as Crutchley and Hansen (1989),
Dempsey et al., (1993), Duha Al-Kuwari (2009). But it also shows that leverage has
an insignificant impact on the dividend payout ratio for companies in the Oil and
Gas and Consumer Products industry, expressing that companies that have a high
leverage pays lesser dividends in order to meet its debt obligations, but the level of
leverage is not an important aspect when deciding on the amount of dividends. This
also indicates that leverage does have a similar effect as dividends in reducing agency
costs, as managers of highly levered companies will cut dividends to maintain cash
flows in order to diminish financial risks, reducing the chance of them using the
company’s cash flow for unprofitable investments that contradicts with
shareholder’s interest.

Taylor’s Business Review, Vol. 7 Issue 1, June 2018 75

 Mau G May & Nathrah Yacob

5. CONCLUSIONS AND RECOMMENDATIONS

The purpose of this paper was to investigate the determinants of the dividend
payout ratio of companies in the Oil and Gas and Consumer Products industry that
are listed on Bursa Malaysia. The independent variables, profitability, leverage,
company size, and past year’s dividend payout, were chosen to conduct this study,
along with 6 years’ data average (2010-2015) and a total sample of 40 companies
from both industries. The regression results show that only company size and past
year’s dividends have a statistically significant and positive impact on the dividend
payout ratio of companies from the Oil and Gas and Consumer Products industry
in Malaysia. This supports the Life Cycle Theory which states that larger and more
mature firms pay more dividends as they have a more stable cash flow. The results
also show support for the Signalling Effect Theory as it indicates that past year’s
dividend payment amount would also significantly influence managers’ dividend
decisions, they would take into account the effects of paying a higher or lower
dividend and the kind of signal that the public would perceive from the dividend
announcements, which would affect an investor’s investment decision on the
company. On the other hand, profitability and leverage both have an insignificant
relationship with the dividend payout ratio, expressing that managers are not
significantly influenced by these two aspects when making dividend decisions.
Therefore, only hypotheses three and four are supported, while hypothesis one and
two are not supported; only company size and past year’s dividend payout have
statistically significant relationships with the dividend payout ratio in the Oil and
Gas and Consumer Products industry in Malaysia.
This research is significant in assisting investors and companies in investment
and dividend decisions, as it is now known that company size and past year’s
dividend payouts should be focused on in this aspect. Investors that are looking to
invest in the Oil and Gas industry and Consumer Products industry should look for
companies that are more stable and mature to get the best dividend profits, while
smaller companies may be seen as investments for future profits when they become
bigger in size and higher dividend payouts. While for company managers, it indicates
that larger companies should pay out more dividends in order to reduce agency costs
as suggested by the Agency Cost theory, thus managers should consider the size of
their company when deciding on how much dividends to pay out and its sufficiency
in reducing agency costs. In addition to company size, past year’s dividend payouts
are also an important consideration for investors and company managers. To get
the most profits, investors should invest in companies that have a strong positive
history of dividend payouts as this can signal higher dividend payouts in the
future. Company managers should take into account what amount of dividend has
the company paid out over the years as these signals can affect how investors and

76 Taylor’s Business Review, Vol. 7 Issue 1, June 2018

 The influences of company’s size and past year’s dividend information to the public listed companies in
Malaysia

the public perceive the company’s future to be and may affect the company’s image
and share value.

5.1. Research Limitations and Recommendations

According to the existing literature on the dividend payout topic, there are still many
other variables that can affect the dividend payout ratio other than the ones used in
this study, such as investment opportunities, liquidity, and corporate tax. The R-
square also indicates that 5.4 percent of the variance in the dividend payout ratio is
influenced by other factors. It is also recommended to consider macroeconomic
factors such as inflation rates, interest rates, and money supply, which might also
have a certain degree of effect on company’s dividend payout as it affects the
industry or company’s operating environment. Hence, it is recommended that more
variables are to be used in future studies in order to further understand the
determinants of the dividend payout ratio in Malaysia. Other industries, such as the
plantation and properties industries, can also be added or used to conduct further
research. Different industries may have different factors affecting the dividend
payout ratio that might be different from the 2 chosen industries in this paper.
Adding more industries may also provide more clarified results and enabling one to
identify which factors have a stronger influence over dividend payout across
industries in Malaysia. As this paper only takes into account the dividends paid in
the form of cash, it is suggested that dividends in the form of shares should also be
accounted for in future studies, as some companies pay a mixture of cash and share
dividends instead of only cash dividends. Therefore, for one to truly understand the
determinants of the dividend payout ratio in Malaysia, there are still rooms for
improvements and future researches to be carried out in attempt to contribute more
insight into this topic. Better understanding about the factors that influence the
dividend payout ratio would surely assist corporate management in making dividend
decisions, as well as helping investors in understanding the company’s financial
health in order to make better investment decisions.

Reference
Abor, J., and Bokpin, G. A. (2010). Investment opportunities, corporate finance,
and dividend payout policy: Evidence from emerging markets. Studies in
Economics and Finance, 27(3), 180–194.
Adaoglu, C. (2000). Instability in the dividend policy of the Istanbul Stock Exchange
(ISE) corporations: evidence from an emerging market. Emerging Markets
Review, 1(3), 252–270.

Taylor’s Business Review, Vol. 7 Issue 1, June 2018 77

 Mau G May & Nathrah Yacob

Ahmed, S., and Hasan Murtaza. (2015). Critical Analysis of the Factors Affecting
the Dividend Payout: Evidence from Pakistan. International Journal of Economics,
Finance and Management Sciences, 3(3), 204–212.
Aivazian, V., Booth, L., and Cleary, S. (2003). Do Emerging Market Firms Follow
Different Dividend Policies From U.S. Firms? Journal of Financial Research, 26(3),
371–387.
Al-Twaijry, A. A. (2007). Dividend policy and payout ratio: evidence from the Kuala
Lumpur stock exchange. Journal of Risk Finance, 8(4), 349–363.
Allen, D. (1992). Target Payout Ratios and Dividend Policy: British Evidence.
Managerial Finance, 18(1), 9–21.
Alzomaia, T. S., and Al-Khadhiri, A. (2013). Determination of dividend policy: The
evidence from Saudi Arabia. International Journal of Business and Social Science, 4(1),
181–192.
Amidu, M. (2007). How does dividend policy affect performance of the firm on
Ghana Stock exchange? Investment Management and Financial Innovations, 4(2),
104–112.
Amidu, M., and Abor, J. (2006). Determinants of dividend payout ratios in Ghana.
The Journal of Risk Finance, 7(2), 136–145.
Ang, J. S., and Ciccone, S. J. (2009). Dividend Irrelevance Theory. In Dividends and
Dividend Policy. John Wiley and Sons, Inc., Hoboken, NJ, USA.
Appannan, S., and Sim, L. W. (2011). . A Study on Leading Determinants of
Dividend Policy in Malaysia Listed Companies for Food Industry under
Consumer Product Sector. In 2nd International Conference on Business and Economic
(pp. 946–976).
Baker, H. K., Farrelly, G. E., and Edelman, R. B. (1985). A Survey of Management
Views on Dividend Policy. Financial Management, 14(3), 78–84.
Baker, H. K., and Powell, G. (2005). Understanding Financial Management: A Practical
Guide. Wiley-Blackwell.
Baker, H. K., and Powell, G. H. (1999). Dividend policy issues in regulated and
unregulated firms: a managerial perspective. Managerial Finance, 25(6), 1–20.
Baker, H. K., and Veit, E. T. (2002). Revisiting Managerial Perspectives on Dividend
Policy. Journal of Economics and Finance, 26(3).
Black, F. (1976). The dividend puzzle. The Journal of Portfolio Management, 2(2), 5–8.
Black, F., and Scholes, M. (1974). The effects of dividend yield and dividend policy
on common stock prices and returns. Journal of Financial Economics, 1(1), 1–22.
Chay, J. B., and Suh, J. (2008). Payout policy and cash-flow uncertainty. Journal of
Financial Economics, 93(1), 88–107.
Crutchley, C. E., and Hansen, R. S. (1989). A Test of the Agency Theory of
Managerial Ownership, Corporate Leverage, and Corporate Dividends.
Financial Management, 18(4), 36–46.

78 Taylor’s Business Review, Vol. 7 Issue 1, June 2018

 The influences of company’s size and past year’s dividend information to the public listed companies in
Malaysia

Dempsey, S. J., Laber, G., and Rozeff, M. S. (1993). Dividend Policies in Practice:
Is There an Industry Effect? Quarterly Journal of Business and Economics, 32(4), 3–
13.
Dhillion, U. S. (1986). Corporate ownership, dividend policy and capital structure under
asymmetric information. Louisiana State University.
Duha Al-Kuwari. (2009). Determinants of the Dividend Policy of Companies Listed
on Emerging Stock Exchanges: The Case of the Gulf Cooperation Council
(GCC) Countries. Global Economy and Finance Journal, 2(2), 38–63.
Eddy, A., and Seifert, B. (1988). Firm size and dividend announcements. Journal of
Financial Research. Journal of Financial Research, 11(4), 295–302.
Fama, E. F., and French, K. R. (2001). Disappearing dividends: changing firm
characteristics or lower propensity to pay? Journal of Financial Economics, 60(1),
3–43.
Fitri, R. R., Hosen, M. N., and Muhari, S. (2016). Analysis of Factors that Impact
Dividend Payout Ratio on Listed Companies at Jakarta Islamic Index.
International Journal of Academic Research in Accounting, Finance and Management
Sciences, 6(2), 87–97.
Gill, A., Biger, N., and Tibrewala, R. (2010). Determinants of dividend payout ratios:
evidence from United States. The Open Business Journal, 3, 8–14.
Gordon, M. J. (1963). Optimal investment and financing policy. The Journal of Finance,
18(2), 264–272.
Hair, J. F., Black, W. C., Babin, B. J., and Anderson, R. E. (2009). Multivariate Data
Analysis (seventh). Prentice - Hall Inc.
Hedensted, J. S., and Raaballe, J. (2008). Dividend determinants in Denmark. School of
Economics and Management. University of Aarhus, Denmark.
Inland Revenue Board of Malaysia (2008). Single Tier Tax System. [online] Available
at: http://www.micpa.com.my/micpastudent/documents/Article1-
10112008.pdf [Accessed 30 Mar. 2018].
Ismail, I., Mohd, R., Ramli, R., Rahman, M. And Saat, N. (2017). Single Tier Tax
System: Analysis of Company Dividend Payouts. International Journal of
Economics and Management, 11(3), pp.969-990.
Issa, A. (2015). The Determinants of Dividend Policy: Evidence from Malaysian Firms.
Jin, Z. (2000). On the differential market reaction to dividend initiations. The
Quarterly Review of Economics and Finance, 40(2), 263–277.
Keown, A. J., Martin, J. D., Petty, J. W., and Scott, D. F. (2003). Foundations of finance:
The logic and practice of financial management (6th ed.). London: Prentice - Hall Inc.
Kuo, J.-M., Philip, D., and Zhang, Q. (2013). What drives the disappearing
dividends phenomenon? Journal of Banking and Finance, 37(9), 3499–3514.
Lestari, H. (2018). Determinants of corporate dividend policy in Indonesia. IOP
Conference Series: Earth and Environmental Science,106, p.012046.

Taylor’s Business Review, Vol. 7 Issue 1, June 2018 79

 Mau G May & Nathrah Yacob

Lily, J., Venkatesh, S. and Sukserm, T. (2009). Determinants of Dividend Payout in

Thailand. UBU Journal, 11.
Lintner, J. (1956). Distribution of incomes of corporations among dividends,
retained earnings, and taxes. The American Economic Review, 46(2), 97–113.
Lintner, J. (1964). Optimal dividends and corporate growth under uncertainty. The
Quarterly Journal of Economics, 78(1), 49–95.
Lloyd, W. P., Jahera, J. S., and Page, D. E. (1985). Agency costs and dividend payout
ratios. Quarterly Journal of Business and Economics, 19–29.
Maldajian, C., and Khoury, R. El. (2014). Determinants of the dividend policy: an
empirical study on the Lebanese listed banks. International Journal of Economics
and Finance, 6(4), 240.
Malik, F., Sajid Gul, M. T. K., Rehman, S. U., and Khan, M. (2013). Factors
influencing corporate dividend payout decisions of financial and non-financial
firms. Research Journal of Finance and Accounting, 4(1), 35–46.
Manos, R. (2003). Dividend policy and agency theory: Evidence from Indian firms.
South Asia Economic Journal, 4(2), 275–300.
Marlina, L., and Danica, C. (2009). Analysis on the Influence of Cash Position, Debt
to Equity Ratio and Return on Asset towards Dividend Payout Ratio. Journal
of Business Management, 2(1), 1–6.
Mehta, A. (2012). An empirical analysis of determinants of dividend policy-evidence
from the UAE companies. Global Review of Accounting and Finance, 3(1), 18–31.
Michel, A. J., and Shaked, I. (1986). Country and industry influence on dividend
policy: evidence from Japan and the USA. Journal of Business Finance and
Accounting, 13(3), 365–381.
Miller, M. H., and Modigliani, F. (1961). Dividend policy, growth, and the valuation
of shares. Journal of Business, 34(4), 411–433.
Miller, M. H., and Scholes, M. S. (1978). Dividends and taxes. Journal of Financial
Economics, 6(4), 333–364.
Mui, Y. T., and Mustapha, M. (2016). Determinants of Dividend Payout Ratio:
Evidence from Malaysian Public Listed Firms. Journal of Applied Environmental
and Biological Sciences, 6(1S), 48–54.
Nidar, S. R., and Gunawan, A. A. (2016). Dividend Policy In Indonesia State Owned
Enterprises. International Journal of Scientific and Technology Research, 5(6), 238–242.
Pandey, I. M. (2003). Corporate dividend policy and behaviour: the Malaysian
evidence. Asian Academy of Management Journal, 8(1), 17–32.
Pereira, L. A. G. A., Teixeira, E., and Tavares, F. O. (2015). Determinants of
Dividend Policy: evidence from Portugal. Review of Business Management, 17(54),
701–719.
Pornumpai, K., and Suntraruk, P. (2013). Factors influencing dividend payout in
Thailand: A tobit regression analysis. International Journal of Accounting and
Financial Reporting, 3(2), 255.
PwC (2016). The Malaysian Oil and Gas Industry.

80 Taylor’s Business Review, Vol. 7 Issue 1, June 2018

 The influences of company’s size and past year’s dividend information to the public listed companies in
Malaysia

Ross, S. A., Westerfield, R., Jaffe, J. F., and Roberts, G. S. (2002). Corporate finance
(7th.). New York: McGraw-Hill/Irwin.
Salehi, Mahdi, Mahdi Moradi, and S. H. (2010). Factors Affecting Dividend Policy:
Empirical Evidence of Iran. Business Excellence-Poslovna Izvrsnost, 5.
Sinabutar, A. and Anggoro, B. (2015). Dividend Payout Ratio in Indonesian
Consumer Goods Industry. Journal of Business and Management, 4(4),
pp.453-464.
Tahir, M., and Mushtaq, M. (2016). Determinants of Dividend Payout: Evidence
from listed Oil and Gas Companies of Pakistan. The Journal of Asian Finance,
Economics and Business, 3(4), 25–37.
Van Trang, D. (2016). Determinants of Dividend Payout Policy A Case of
Nonfinancial.
Yarram, S. R., and Dollery, B. (2015). Corporate governance and financial policies:
Influence of board characteristics on the dividend policy of Australian firms.
Managerial Finance, 41(3), 267–285.
Yoon, P. S., and Starks, L. T. (1995). Signaling, investment opportunities, and
dividend announcements. The Review of Financial Studies, 8(4), 995–1018.

Ms. Mau G May is a final year undergraduate student at Taylor’s

Faculty of Business and Law, Taylor’s University, Subang Jaya,
Selangor; She is majoring in Accounting and Finance and have
graduated with a first class degree.

Dr. Nathrah Yacob is a lecturer at Taylor’s Faculty of Business

and Law, Taylor’s University, Subang Jaya, Selangor

Taylor’s Business Review, Vol. 7 Issue 1, June 2018 81