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DETERMINANTS OF DIVIDEND

PAYOUT:
AN EMPIRICAL STUDY OF CONSUMER
SECTOR COMPANIES IN BURSA
MALAYSIA (2012- 2016)

BACHELOR OF BUSINESS ADMINISTRATION WITH HONOURS


(FINANCE)
FACULTY OF BUSINESS MANAGEMENT

PANEL:
PRESENTER:
JENNER BLU ANAK ENKAI SIR AMBI ANAK KUN
MDM ERIMALIDA BINTI YAZI
CHAPTER 1
INTRODUCTION
INTRODUCTION & BACKGROUND OF STUDY

▰ Dividend is known as a bonus or payout that firms pay to the shareholders in reflect of firm’s
profit.
▰ Dividend payout is known as dividend payout ratio (DPR) define as the amount of dividend or
bonus paid to shareholders depends on total net income of a firm. Some amount that not being
paid out to shareholders will be hold as growth as it’s called retained earnings.
▰ Consumer goods sector is a group of categories of stocks and firms that related to goods
consumed by individuals. This sector includes firms that produce foods, packaged products,
clothing, automobiles and electronics, and also beverages.
▰ In 2017, there are 129 companies listed under Bursa Malaysia under consumer sector.
▰ The dividend is expected to improve the welfare of shareholders (Ritha and Koestiyanto, 2013).

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 Dividend policy is the entire managerial policy to determine how much net income will be paid out as
dividends and how much net profit can be maintained for company. This led to a number of
conflicting theories.
 Brealy et.al, (2008), indicate dividend policy controversy is one of the ten major unsolved problems of
corporate finance in which deserves more study with the purpose of intensification understanding of
dividend policy.

 (Alzomaia and Al Khadiri, 2013) states the dividend changes is a signal to investors about the
company's future based on Signaling theory.

 Gordon and Lintner (1962) stated that investors are more confident about the receipt and distribution
of dividends rather than capital appreciation based on Bird in the hand theory.

 Dividend irrelevance theory stated by Miller and Modigliani (1961) that the dividend decision doesn’t
affect the value of the company and don’t affect the stock price of a company, in other words the
actual dividend policy is irrelevant for the question.
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PROBLEM STATEMENT

 Investors as shareholders expect a big gain or a minimum dividend relatively stable every year.
As according to (Ritha and Koestiyanto, 2013) the dividend is expected to improve the welfare
of shareholders.
 Hatta (2002), indicated that dividend policy is an essential part and part of the key since the
dividend able to gives extraordinary attraction for investors.
 However in Malaysia, there are no standard policy or procedure governing dividend payout. As
such, companies are free to decide when and how much to pay out in dividends for a specific
financial business year as long as they comply with Companies Act, 1965 that stated that no
dividend shall be payable to the shareholders of any company except out of profit or pursuant
to Section 60.
 This can lead to the influence to both decision making of company, shareholders welfare.
Thus, this research assists companies to understand more on the factors that affecting their
future prospects and business performance based on dividend issues.

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PUT TABLE INFO FOR THE GRAPGH NEXT SLIDE!!!

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Apollo Food Holdings BHD : Relationship between Dividend Yield and Net Margin
DIVIDEND YIELD NET MARGIN
25.00%

20.00%

15.00%

10.00%

5.00%

0.00%
17 16 15 14 13 12 11 10 9 8 7 6 5 4 3 2 1 0

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MAIN OBJECTIVES

To study the influence of selected factors including


profitability, growth opportunities, risk, liquidity,
leverage, audit type and taxation on dividend payout
decision of consumer sector listed in Bursa Malaysia.

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OBJECTIVES & HYPOTHESES
RESEARCH OBJECTIVE HYPOTHESIS ANALYSIS
To investigate whether there is H0 There is significant relationship DESCRIPTIVE
relationship between profitability and between profitability and DPR. T-TEST
DPR. H1 There is no significant relationship CORRELATION
between profitability and DPR. REGRESSION

To investigate whether there is H0 There is significant relationship DESCRIPTIVE


relationship between growth between growth opportunities and T-TEST
opportunities and DPR. DPR. CORRELATION
H1 There is no significant relationship REGRESSION
between growth opportunities and
DPR.
To investigate whether there is H0 There is significant relationship DESCRIPTIVE
relationship between risk and DPR. between risk and DPR. T-TEST
H1 There is no significant relationship CORRELATION
between risk and DPR. REGRESSION

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RESEARCH OBJECTIVE HYPOTHESIS ANALYSIS
To investigate whether there is H0 There is significant relationship DESCRIPTIVE
relationship between leverage and between leverage and DPR. T-TEST
DPR. H1 There is no significant relationship CORRELATION
between leverage and DPR. REGRESSION

To investigate whether there is H0 There is significant relationship DESCRIPTIVE


relationship between liquidity and between liquidity and DPR. T-TEST
DPR. H1 There is no significant relationship CORRELATION
between liquidity and DPR. REGRESSION

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RESEARCH OBJECTIVE HYPOTHESIS ANALYSIS
To investigate whether there is H0 There is significant relationship DESCRIPTIVE
relationship between taxation and between taxation and DPR. T-TEST
DPR. H1 There is no significant relationship CORRELATION
between taxation and DPR. REGRESSION

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CHAPTER 2
LITERATURE REVIEW
AUTHORS COUNTRY PERIOD FINDINGS
Fama & USA 1926 - 1999 Firm size, profitability, and investment opportunity are main key fundamental
French (2001) (NYSE) that impact dividend payment decision.
Amidu and Ghana 1998 – 2003 Positive and significant effect on the profitability of the dividend payout
Abor (2006) ratio.
Anil & Kapoor India 2000 - 2006 - Dividend payout ratio (DPR) is certainly linked to profitability.
(2008) - Cost-effectiveness has remained lengthy period develop a foremost
display to displays the firm's size to pay bonuses.

Al-Kuwari Gulf Co- 1999 – 2003 - Profitability of the company has a positive and significant relationship
(2009) operation to the DPR.
Council - Leverage ratio has a negative and significant effect to the DPR.
(GCC)

Abdullah, Malaysia 1999 - 2004 Size and growth are found to have significant positive impact on dividend
Ismail and payout whereas leverage inversely affects dividend payout.
Sadique
(2005)

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AUTHORS COUNTRY PERIOD FINDINGS
Li & Twite China 2003 - 2007 - Higher revenue, greater cash in hand, lesser leverage, solider
(2009) governance, shareholders’ protection and subsequent equity offerings
tend to disburse more cash bonus dividend.
- High level of reserved incomes and greater investment in fixed assets are
more liable to pay dividends.
Ahmed & Pakistan 2001 - 2006 - High incomes and profitability pay more dividends as the companies able
Javid to afford greater free cash flows.
(2009) - Ownership and liquidity positively related to DPR while leverage, slack,
market capitalization and firm size have negative relationship on DPR.

Gupta & India  2001 - 2007 - Liquidity and leverage strongest predictors of bonus policy in Indian
Banga firms. Leverage has negative relationship however liquidity is positively
(2010) relationship with dividend payout decisions.
Appannan Malaysia 2004 – 2008 - DER was positively correlated to the current DPS and influenced the
&Sim company's decision when setting the dividend policy.
(2011)
Appannan & Malaysia 2004 - 2008 NPAT and bonus disbursement judgement has strong positive relationship
Lee (2011) with dividends.

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AUTHORS COUNTRY PERIOD FINDINGS
Mehta (2012) UAE 2005 - 2009 Profitability and size as the main influences in significantly altering
dividend payout decision.
Hauser (2013) USA 2006 - 2009 Probability of dividend cut upsurges significantly during financial crises
due to sales growth rate, capital ratio and profitability of the
companies.
Alzomaia and ARAB SAUDI 2004 – 2010 - Profitability and the previous dividend rate has a significant effect.
Al-Khadiri Growth is found a negative effect but not significant.
(2013)
Musiega Kenya 2007 - 2011 Profitability, growth opportunities, firm size and business risk are the key
(2013) (NSE) elements of dividend policy while current earning and liquidity are not.
Zaman (2013) Bangladesh 2006 - 2012 Profitability is the stronger determinant compared to growth and size of
(DSE) the firm. Growth opportunity and firm size also significantly relationship
with dividend payout.

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CHAPTER 3
RESEARCH METHODOLOGY
SAMPLE AND DATA

▰ Sample – 56 companies using purposive sampling method based on several criterias:


1. Companies that consistently pay dividends during the study period. (2012 – 2016)
2. The company has completed data required. (2012 – 2016)
3. Companies are still listed in the Bursa Malaysia during the study period. (2012 – 2016)
▰ 5 years (2012 – 2016) data in annual basis.
▰ Data collection : Secondary data that obtained from Thomsonone DataStream and
Annual Financial Statement from official website of Bursa Malaysia.

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DEPENDENT VARIABLE

1. DPR = Cash Dividend / Net Income

INDEPENDENT VARIABLES

2. PROFITABILITY – by using ROE = Net Income / Total Equity

1. GROWTH – by using = MVOE / BVOE (i.e. PPS / NAVPS)

2. RISK – by using = Price of Share/ EPS

3. LEVERAGE – by using = Total Debt / Total Shareholder’s Equity

4. LIQUIDITY – by using Current Ratio = Current Assets / Current Liabilities

5. TAXATION – by using Cooperate Tax / Earning Before Tax


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THEORITICAL FRAMEWORK

INDEPENDENT VARIABLES DEPENDENT VARIABLES

PROFITABLITY

GROWTH

RISK

LEVERAGE DPR
Adapted from Ahmad, F. A. (2017).
LIQUIDITY Determinants of Dividend Payout: An
Empirical Study of Pharmaceutical
Companies of Pakistan Stock Exchange (PSX).
TAXATION Journal of Financial Studies & Research.

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Concept Map of Methodology

Divident Payout Ratio


DP = β0 + β1prof + β2GO +
β3Risk + β4Leverage +
Descriptive Analysis Data β5Liquidity + β6FS + β8Taxation
+E
 Mean
 Normality Test
 Median
 Outliers
 Max and Min
 Missing Value
 Standard Deviation

Specification test
 Jarque-Bera (JB) Test
Pairwise correlation for Normality

Regression analysis  Autocorrelation Test

 Multicollinearity Test

Ordinary Least square (OLS)  Heteroskedasticity


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REGRESSION MODEL

Multiple Linear Regression Model

DP = β0 + β1prof + β2GO + β3Risk + β4Leverage + β5Liquidity + β8Taxation + E

WHERE;
β1prof: represents profitability of firm
β2GO: represents growth opportunities of firm
β3Risk: represents risk of future cash flows to shareholders
β4Liverage: represents leverage of the firm
β5Liquidity: shows the liquidity of the firm
β8Taxation: represents taxation of the firm

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CHAPTER 4
FINDING
DESCRIPTIVE STATISTICS

Variables DPR GROWTH LEVERAGE LIQUIDITY PROFITABILITY RISK TAXATION


Mean 0.4898 2.8056 22.3689 3.3790 0.1763 13.6624 0.2356
Median 0.4050 1.1786 13.7614 2.6348 0.1180 12.0449 0.2447
Maximum 2.3756 36.5086 124.1499 23.2557 1.7473 52.2626 0.4828
Minimum -0.2376 0.2689 0.0000 0.6532 -0.1164 -21.1452 -0.4666
Std. Dev. 0.3219 5.5706 26.6047 2.9131 0.2444 7.8816 0.0953

Jarque-Bera 553.9199 4335.7770 158.6521 2231.9190 6737.5390 232.2022 3178.3230


Probability 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
CORRELATION ANALYSIS

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UNIT ROOT TEST

The result shows that p-value (ADF test) of


return on assets, leverage, liquidity,
solvency margin and retention ratio have p-
value (ADF test) less than 5% significant
level. Therefore, reject the null hypothesis
and variables have stationary. Meanwhile,
the p-value (ADF test) of money supply
0.2444 more than 5% significant level. So
that, failed to reject the null hypothesis and
variable has non stationary.

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NORMALITY TEST

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Series: Residuals
7 Sample 2029 2257
Observations 62
6
Mean 4.38e-17
5 Median -0.002855
Maximum 0.042922
4 Minimum -0.037598
Std. Dev. 0.021041
3
Skewness 0.243456
Kurtosis 2.135544
2

1 Jarque-Bera 2.542951
Probability 0.280418
0
-0.04 -0.03 -0.02 -0.01 0.00 0.01 0.02 0.03 0.04

Based on this test, the p-value (Jarque-Bera) is 0.512994 more than 5% significant level.
Thus, the null hypothesis is failed to reject and the error term is normally distributed.
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POOLED OLS REGRESSION

Dependent Variable: DPR


Method: Panel Least Squares
Variables Coefficients Probability
Constant (DPR) -0.0704 0.0059
GROWTH -0.1215 0.0010***
LEV 0.0184 0.0795*
LIQ 0.1245 0.0001***
PROF -0.4733 0.0316**
RISK 0.0396 0.1631
TAX 0.0962 0.5667
R-squared 0.6165
Adjusted R-squared 0.5668
F-statistic 12.4025
P-value (F-statistic) 0.0000***
Heteroskedasticity & Autocorrelation

Since it is more than 5 percent significance level, we fail to reject null hypothesis. This sample indicates
that the error term is homokedasticity. It means that the error term has a constant variance.

In this test, the p-value (chi-square (2)) is 0.00 percent which less than 5 percent level of significant. Thus,
it reject null hypothesis meaning that residuals (u) are serially correlated which is desirable.

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Multicollinearity

In this test, the VIF is 2.8164 percent which at range between 2 to 10 of rule of thumb.
Therefore, there is no multicollinearity occurred on this study.

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SUMMARY OF RESULT
Findings Previous study
GDP have negative significant relationship with CPI • S. Alavinasab (2014),
• Attah-Obeng, P., Enu, P., Osei-Gyimah, F., & Opoku, K, C. D. (2013),
• Tafti, F. C. (2012)

MS have positive significant relationship with CPI • R. Islam, A. Bashawir, A. Ghani et al. (2017)
• Venkadasalam, S. (2015)
• Lim, Y. C. & Sek, S. K. (2015)
• Roshan, S. A. (2014)
• Tafti, F. C. (2012)
• Adu, G., & Marbuah, G. (2011)
• Muhd Zulkhibri (2007)
IR have negative significant relationship with CPI • Krugman, P. R. (2000)
• Hamad A. Altowajri. (2011)
• Mitru, C., & Simionescu, M. (2014)
IMP have positive significant relationship with CPI • Tafti, F. C. (2012)
• A. A. Khan, S. K. H. B. (2007)
• Karimi, F. & Tavakoli (1999)
GCE have negative significant relationship with CPI • S. Mohsen Mehrara, Mohsen Behzadi Soufiani (2016)
• Tan, M. C. H. (2002)
• Karimi, F. & Tavakoli (1999)

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CHAPTER 5
CONCLUSION AND
RECOMMENDATIONS
CONCLUSION

In developing countries like Malaysia, inflation is an unavoidable phenomenon.


Hence, it depends on the countries itself on how to control their economic during
inflation occurs.
Therefore, the objectives of this study is to investigate relationship between
selected independent variable towards consumer price index in Malaysia. The result
shows that money supply and import of goods and services have positive
relationship towards consumer price index whereas, gross domestic product, interest
rate and government expenditure are negatively.
Overall, the result shows that there is a significant relationship between
independent variables and dependent variable. So that, researcher hope that the
result can contribute to the body of knowledge on examine factor that effect
consumer price index inflation in Malaysia.

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RECOMMENDATIONS

Use
Add new
different Data
or other
data cleansing
variables
structure

Government should focus on macroeconomic management


as inflation becomes an important issue.

Several policy implemented by country can be considered to


overcome inflation. 14
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