3.28.2012

Dividend Policy: Malaysian Public Listed Companies 2006 to 2009

1. Introduction

The study of corporate dividend behaviour has been a key research area in finance. Yet we do not have an acceptable explanation for the observed dividend behaviour of companies and the ''dividend puzzle'' still remains unsolved (Black, 1976). It is a long-standing position of well-known finance researchers that dividends are irrelevant, and they have no influence on the share price, given that the capital markets are perfect (Miller & Modigliani, 1961). Some researchers have held a contrary position that considers that since capital markets are not perfect, dividends do matter. Several empirical surveys indicate that both managers and investors favour payment of dividends. Lintner (1956) found that US companies in the sixties distributed a large part of their earnings as dividends, and they also maintained stability of dividends. Firms are always searching for an optimal dividend policy, one that strikes a balance between current dividends and future growth and maximiz es the firm's stock prices. These findings have been vindicated in different countries and at different time periods.

The focus of this research is to study how companies trading in the KLSE, an emerging market in Southeast Asia, decide their dividend payments and to examine empirically whether they follow stable dividend policies, as is generally the case in developed markets. This study provides evidence that the KLSE firms follow less stable dividend policies and their dividend payments are closely related to changes in earnings but they do not immediately omit dividends when earnings decrease.

In Malaysia, there is no standard policy or procedure governing dividend payments. 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. Section 365 of the Act states that "No dividend shall be payable to the shareholders of any company except out of profits or pursuant to Section 60." In other words, the Act requires that dividends of a company can only be distributed from the profits of the company except pursuant to Section 60 of the Act.

Since there is a dearth in the academic literature that describes the current dividend policy for Malaysian companies, this paper is set to fill the gap by examining the dividend policy for public listed companies in Malaysia. Thus, the objectives of this study are:

1. To identify the dividend-paying company and non dividend-paying company listed on the main board.

2. To observe the trend of dividend distribution of Malaysian public listed companies by looking at the dividend yield and dividend payout ratio.

3. To distinguish the characteristics of dividend-paying companies and non dividend-paying companies by analysing their financial and performance factors.

4. To analyse the relationship of financial and performance factors with dividend distribution.

5. To test the validity of smoothing hypothesis of dividend determinant for Malaysian public listed companies by analysing the relationship of dividend and earning over times which suggests that dividend decision is influenced by past and current earnings.

The rest of the paper is organised as follows: The next section reviews some important previous studies conducted abroad and in Malaysia. The third section describes the data and methodology. In the fourth section, the results are presented and the last section contains the main conclusions of the study.

2. Literature Review

Lintner (1956) for the first time uncovered that firms maintain a target dividend payout ratio and adjust their dividend policy to this target. The long-term sustainable investment and growth objectives determine the firms' target payout ratios. Further, Lintner found that firms pursue a stable dividend policy and gradually increase dividends given the target payout ratio. This implies that firms set speed to move towards the full achievement of payout. These findings suggest that firms establish their dividends in accordance with the level of current earnings as well as dividends of the previous year. Lintner also pointed out that managers believe that investors prefer firms with stable dividend policies.

A number of survey and empirical studies have been conducted in USA and other countries using Lintner's framework. In USA, Fama and Babiak (1968) and Brittain (1966) use a modified and extended Lintner model to confirm his findings. A survey of the NYSE companies by Baker, Farrelly, and Edelman (1985) supports the Lintner findings, and they conclude that the major determinants of dividend payments are future earnings and past dividends. The subsequent survey study of Pruitt and Gitman (1991) also confirms these results.

Lintner's model has been generally found applicable in a number of developed markets. It has been tested by Chateau (1979) in Canada, Shevin (1982) in Australia, McDonald, Jacquilland and Nussenbaum (1975) in France, Leithner and Zimmermann (1993) in West Germany, UK, France and Switzerland and Lasfer (1996) in UK. Dewenter and Warther (1998) compare dividend policies of firms in USA and Japan for the period from 1982 to 1993. Their results show that USA firms tend to choose stable dividend policies whereas Japanese firms prefer to omit dividends and follow relatively unstable dividend policies.

Researchers have recently started looking at the dividend policy and behaviour of companies in regulated and emerging markets. Glen, Karmokolias, Miller and Shah (1995) find substantial differences in dividend policies of companies in developed and emerging markets. They show that dividend payments are much lower in emerging markets and companies follow less stable dividend policies, although they do have target payout ratios. A study by Pandey and Bhat (1994) in India supports the Lintner findings and reveals that Indian managers confirm that companies maintain an uninterrupted record of dividend payments and also try to avoid abrupt changes in their dividend policies. Ariff and Johnson (1994) confirm Lintner's model for firms in Singapore. In Turkey, Adaoglu (2000) finds that earnings are the main determinant of dividend payments. Until 1994, companies in Turkey were required to distribute 50% of the distributable profits as cash dividends. His results show that because of regulation of compulsory distribution of profits, the ISE (Istanbul Stock Exchange) companies followed stable dividend policies until 1994, but once the companies were given the flexibility of choosing their own dividend policy, they followed unstable dividend policies. Gul (1999) provides evidence on dividend policy in Japan, and studies by Gul (1999) and Zhao (2000) relate dividend policy to ownership structure in China.

How firms determine their dividend policy has been a puzzle to financial economists for many years. Miller and Modigliani's (1961) irrelevance theorems form the foundation for modern corporation finance theory. In their seminal paper, Miller and Modigliani showed that under certain assumptions (perfect capital market, rational behavior, and perfect certainty), dividends are irrelevant. All that matters is the firm's investment opportunities. They show that under certain assumptions, the payment of a cash dividend should have no impact on a firm's share price.

According to Lease et. al (2000), some of Miller and Modigliani simplifying assumptions, especially those involving perfect markets, require modifications. Important market imperfections, which include asymmetric information, agency costs, taxes, transaction costs, flotation expenses, and behavioral factors, also exist and are necessary to be taken into considerations.

Studies of dividend behaviour of companies in Malaysia support Lintner's model. In a survey study, Isa (1992) finds that firms in Malaysia follow stable dividend policies and a number of internal and external factors govern these policies. Kester and Isa (1996) also confirm these results. Other studies confirming the applicability of the Lintner model in Malaysia include Annuar and Shamsher (1993) and Gupta and Lok (1995). Consistent with the tax imputation hypothesis, Isa (1993), in a study of Malaysian companies for the period from 1981 to 1992, finds a positive relationship between P/E ratio and payout ratio. The relation between dividend yield and P/E ratio is negative, which contradicts the tax imputation hypothesis. Isa finds a positive relation between dividend yield and payout. In addition Minority Shareholder Watchdog Group and University of Technology MARA (MSWG, 2006). They examine top 100 companies as per market capitalization on 31 December 2005. The survey ex amines the companies' behaviour on dividend distribution over a three-year period of 2002-2004. The market value of the top 100 public-listed companies ranged from RM983 million to RM41,972 million as at 31 December 2005. The survey found that most of the companies paid dividends in the three-year period. By examining the characteristic of the dividend payers and non-dividend payers, the survey proposed that profitability and liquidity are two essential ingredients for a healthy, dividend-paying public listed company. Companies with these two healthy components send out signals that they are able to sustain their dividend payment in the future.

Researchers have tried to explain the importance of dividends by looking for "imperfections" that can undermine the irrelevance position. Among these, the most important ideas are smoothing hypothesis and signaling hypothesis, which are at odds over the predictive power inherent within dividends. The role of dividends in conveying useful information about the future performance of the firms is a contentious issue in dividend policy research.

In this article I will be testing smoothing hypothesis, which suggests that the dividend decision is influenced by past and current earnings, and this hypothesis was initiated by Lintner (1956). He finds that managers believe that stable dividends lessen negative investor reactions. The reluctance to change the dividend was evident in a study carried out by DeAngelo and DeAngelo (2000). They find that for 80 New York Stock Exchange (NYSE) firms in financial crisis, managers are more willing to cut the level of dividend than to omit the dividend altogether. They also reported that the longer the company has been paying dividends the stronger is the reluctance of the managers to reduce dividends. DeAngelo et al. (1996) have also documented managerial aversion to cut and omit dividends for US companies.

3. Data and Research Methodology

This study uses data of listed companies in Bursa Malaysia sourced from Bursa Malaysia website, individual companies website, Dynaquest, Bloomberg and online worldwide stock information. Annual reports, which are obtained from Bursa Malaysia's website, have also been used as supplementary source (for instance, to get information on the main shareholder). 100 proportional stratified samples are randomly selected based on the market capitalization from companies listed on the Main Board.

For a firm to be included in the sample, several criteria had to be met. First, the firm had to be listed on the Bursa Malaysia for the period under consideration (2006- 2009). Real Estate Investment Trust (REIT), closed-end fund and exchange traded fund have also been excluded from the sample. This is a current practice in empirical literatures, since it is generally assumed that the different regulatory environment of these companies would influence dividend policy (Short et al. 2002, Baker et al., 2006).

Currently there are 844 companies listed on Main Board. 116 companies are listed in the ACE Market. Total number of listed companies is 960. The main industries listed on the Bursa Malaysia are consumer products, industrial products, construction, infrastructure project, trading/services, finance, properties, plantation, technology, hotel and mining. After excluding the companies which are publicly reprimanded by Bursa Malaysia, closed-end fund, exchange traded fund, and REITS companies 100 samples selected from the Bursa Malaysia are allocated based on their market capitalization.

The 100 companies studied in this research come from industrial products (28 firms), trading and services industry (23 firms), consumer products industry (13 firms), properties industry (12 firms), finance (5 firms), plantation (5 firms), construction industry (8 firms), technology industry (3 firms), and 1 from each of hotel, mining and infrastructure industries.

3.2 Selection of Measures

The characteristics that influence Malaysian public listed companies' dividend policy are discussed first. To distinguish between companies that pay dividend and companies that do not pay dividend, dividend-paying companies are defined as companies that have at least one dividend payment over the 4-year period of study 2006 2009. On the other hand, non dividend-paying companies are defined as companies which had not make any dividend payment during the period of study.

The trend of dividend distribution of Malaysian public listed companies is observed through their dividend yield and dividend payout ratio. Dividend yield of a company's stock is the company's annual dividend payments divided by its market capital. As for dividend payout ratio, it provides an idea of how well earnings support the dividend payment and it is calculated as the ratio of dividend per share to earnings per share. The analysis of dividend yield and dividend payout ratio uses yearly observation and is carried out over the 4-year period of 2006-2009.

Subsequently, the relationship between the variables that are considered in the cross-sectional comparisons and the dividend yield and dividend payout ratio are examined using the simple analysis of correlation. Both dividend yield and dividend payout ratio are used as dividend variables.

To examine the factors that causes the variations in dividend policy across firms, several groups of variables are used. The comparisons are based both on averages for the 2006-2009 periods (to investigate their general influence on a firm's dividend policy) and on data for the single year 2009 (to ensure the consistency of the average 4-year data with the most recent single year data). The variables that are considered in the cross-sectional comparisons are:

Market to book ratios, as a proxy for growth opportunities Return on assets and return on equity, as measures of firm profitability Total revenue, as proxy for firm size The firms' beta, as proxy for firm risk Equity to debt ratio, as measure of leverage in book terms Ownership structure of these companies.

All these variables are selected in accordance with previous studies carried out by Chen et al. (2005), Collins and Kothrai (1989), Chung and Charoenwong (1991), Stacescu (2006) Grullon et.al. (2002), La Porta et al. (2000), Ghosh (2006), Gugler (2003) and Fama and French (2001).

After distinguishing the characteristics of dividend-paying companies and non dividend-paying companies, we will examine how strong are the relationship of the financial variables with dividend policy. Coefficient of correlation of the various financial variables against the dividend yield and dividend payout ratio will be calculated to determine the relationship as mentioned.

We now turn to test the validity of smoothing hypothesis of dividend determinant for Malaysian public listed companies by analysing the relationship of dividend and earning over times which suggests that dividend decision is influenced by past and current earnings. To test for smoothing hypothesis, the relationship between dividends and earning over time will be examined. We will look at the changes in dividend per share over changes in earning per share of Malaysian public listed companies over a period of 10 years from 1999-2009. Earnings per share and dividend per share are used to analyse the relationship between earnings and dividend policy. Both have been widely used in previous studies.

The result of the calculation will be used to correlate the relationship of dividend per share with the current and past earnings per share. Linear relationship of the two variables, or more specifically, how well they are related to each other, is investigated using their coefficient of correlations.

4. Research Results

This section presents the findings of the paper. Each sub-section is structured to reflect each of five objectives of the study.

4.1 Dividend Payers and Non-Dividend Payers

Dividend payer is defined as company that had at as least one dividend payment in one of the 4 years under study (2006-2009). This definition of dividend payer has been used throughout the analysis. Table 4-1 below shows the number of dividend payers and non-dividend payers in the sample, as per industry. 79% of the 100 samples are dividend payers over 2006-2009. Most industries show that there are more dividend payers over non-dividend payers.

It is common perception that there is an industry norm for dividend policy. Firms just follow the fashion or their dividend policy is governed by some special characteristic in a particular industry. The relationship of dividend payout patterns according to industry have been studied by Chin-Bun Tse (2005) based on UK listed companies featured in the FTSE as well as byI. M. Pandey 2003) in the Malaysian case . Chin-Bun Tse (2005) found no strong evidence that payout patterns are affected by industry. Both of them argue that dividend policy is very much decided at individual firm level.

Table 4-1: Analysis of Dividend Payers and Non-Dividend Payers from Main Board

And it's Industries

Board

Industry

Dividend payer

non-Dividend payer

Consumer product

12

1

Industrial Products

24

4

construction

5

3

IPC

1

0

Trading services

15

8

Main Board:

Finance

4

1

Properties

9

3

Plantation

4

1

Hotel

1

0

Mining

1

0

Technology

3

0

TOTAL:

79

21

4.2 Dividend Yield and Dividend Payout Ratio

Figure 4.1 below presents the average dividend yield and dividend payout ratio over the 2006-2009 period for all the sample companies. The mean for the dividend yield over the 4 years is 3.31%, and the mean for the dividend payout ratio over the 4 years is 0.40. Dividend payout ratio has a decreasing trend over the 2006-2009. In recent years, perhaps due to the financial crisis and general economic slowdown, payout ratios of all sectors have declined. The results show that a large number of Malaysian firms increase payment of dividends when their earnings increase. They are reluctant to skip dividends when earnings fall. But Malaysian firms tend to omit dividends when they suffer losses. A formal analysis employing the multinomial logit technique reveals that the dividend actions of the 28 corporate dividend policy and behavior Malaysian firms are very sensitive to earnings changes. There is a high probability of dividend increase when earnings increase. Similarly, the cha nces are high that dividends will be reduced if earnings fall. There is a very high probability of dividend omission when the Malaysian firms face negative earnings. (I. M. Pandey 2003)

On the other hand, the dividend yield shows constant trend for 2006-2007, increasing trend for 2007-2008 and decreasing trend for 2008-2009. The dividend yield shows a relatively volatile trend as its variation is influenced by both changes in dividends and movements in share prices.

Figure 4-1: Dividend Yield and Dividend Payout Ratio From 2006 2009

4.3 Comparison of Financial and Performance Variables for Dividend-Paying and

Non-Dividend-paying Companies

The financial and performance variables of growth opportunities, firm size, firm risk, leverage, and firm profitability are compared between dividend-paying companies and non dividend-paying companies. The analysis shows that there are several features that distinguish dividend-paying companies and non dividend-paying companies. The comparisons are based on the averages (mean) of the variables for 2006-2009. Table 4.2 summarises the variables that distinguish dividend-paying companies and non dividend-paying companies.

Table 4-2: Comparison between Dividend-Paying and Non Dividend-Paying

Companies

Variables

Dividend paying Companies Mean for (2006-2009)

Non- Dividend Paying Companies (Mean for 2006-2009)

Market to book ratio

(growth opportunities)

0.016

0.017

Annual Revenue

(Normalized with total assets)

(Firm Size)

0.47

0.38

Beta

(Firm Risk)

0.63

0.77

ROA

(Firm Profitability)

2.67

1.01

ROE

(Firm Profitability)

2.80

1.51

Debt over Equity Ratio

(Leverage)

0.59

0.76

The variable used to measure the growth opportunities is market to book ratio. Over the years 2006 2009, the study shows that non-paying companies have a higher market to book ratio of 0.017 as compared 0.016 for dividend-paying companies. Higher market to book ratio indicates that company has higher growth opportunities than their counterparts. With regard to this, it is concluded that dividend-paying companies which have lower market to book ratio would have lower growth opportunities. This phenomenon can be explained, as a company has much room to grow and expand, it tends to use its resources to fuel it, rather than limiting this opportunity by paying dividend to its stockholders. This is consistent with the studies done by Stacescu (2006) and Smith (1992). Non dividend-paying companies have lower annual revenue (normalised by total assets) as compared to dividend-paying companies, although the difference is not significant (0.47 for dividend-paying companies, 0.38 fo r non dividend-paying companies). We argue that annual revenue does not differ significantly between dividend payer and non-dividend payer companies of Malaysia. Companies that do not pay dividend during 2006-2009 also carry higher betas, therefore they have higher risks. The values for dividend-paying companies and non dividend-paying companies are 0.63 and 0.77, respectively. The finding of growth opportunities, size of the companies and the firm risk are supported by the maturity hypothesis suggested by Grullon et al. (2002). This hypothesis suggests that riskier, smaller and younger firms tend to retain earnings and pay lower dividend as compared to matured, established and stable firms. The variables used to measure companies' profitability are Return of Asset (ROA) and Return on Equity (ROE). The study shows that dividend-paying companies have a higher ROA and ROE, amounted to 2.67 and 2.80, respectively, as compared to 1.01 and 1.51, respectively, for non dividend-pay ing companies over 2006-2009. It is also observed that dividend-paying companies have greater profitability than those do not pay dividend during 2006-2009. This finding is consistent with Fama and French (2001), Grullon et al (2002), DeAngelo and DeAngelo (2000). The debt over equity of dividend-paying companies is significantly lower than the non dividend-paying companies for 2006-2009. The mean for debt over equity for dividend-paying companies over the 4 years is 0.59 as compared to 0.76 for non dividend-paying companies. The finding is supported by Stacescu (2006), who noted that highly leveraged firms find additional debt very expensive and tried to increase their retained earnings. Thus high leverage firms tend to pay lower dividends as compared to low leverage firms.

In summary, dividend-paying companies of Malaysian public listed companies for 2006-2009 have lower market to book ratio, lower beta factor and lower debt to equity ratio as compared to non dividend-paying companies; and dividend-paying companies have higher return on asset and return and equity, and higher annual revenue as compared to non dividend-paying companies. The findings show that dividend-paying companies have lower growth opportunities, facing lower firm risk and have lower firm leverage as compared to non dividend-paying companies; and dividend-paying companies achieve higher profitability and bigger firm size as compared to non dividend-paying companies.

4.4 Relationship Between Dividend Distribution and Financial and Performance

Variables

This part focuses on the relationship between dividend yield and dividend payout ratio with the financial and performance variables as mentioned in above section for four years over 2006-2009 for dividend-paying companies.

Table 4-3: Coefficient of Correlation for Dividend Payout Ratio and Financial and

Performance Variables

Financial and

Performance Variables

Coefficient of

Correlation (average

2006-2009)

Coefficient of

Correlation (2009)

Market to Book Ratio

0.203229

0.167183

Return of Assets

0.098939

0.069584

Return of Equity

0.034612

0.047191

Total Revenue

0.068367

0.017607

Debt over Equity

-0.166805

-0.209516

Beta

-0.106292

-0.205854

Table 4.3 shows that market to book ratio, return of assets, return of equity and total revenue have positive coefficient of correlation with dividend payout ratio over 2006- 2009. Return of assets and return of equity show a linear relationship with dividend payout ratio over the four years with 0.098939 and 0.034612 respectively. In addition, total revenue and market to book ratio also show linear relationship with dividend payout ratio over the four years with 0.0836 and 0.0040, respectively. Debt over equity and beta show negative linear relationship with dividend payout ratio over 2006-2009 with -0.166805 and -0.106292.

The analysis of single year data on 2009 shows same positive and negative results as the average data of 2006-2009. This will be further explained after we look into the relationship between dividend yield and financial variables.

Table 4-4: Coefficient of Correlation for Dividend Yield and Financial Variables

Financial and

Performance Variables

Coefficient of

Correlation (average

2006-2009)

Coefficient of

Correlation (2009)

Market to Book Ratio

0.209179

0.254384

Return of Assets

0.011705

-0.034264

Return of Equity

0.119105

0.009381

Total Revenue

0.142454

0.090383

Debt over Equity

-0.119921

-0.249632

Beta

-0.081468

-0.231817

Table 4.4 above summarises the coefficient of correlation for dividend yield and financial variable. This result is similar to the result of dividend payout ratio. Market to book ratio, return of assets, return of equity, total revenue have positive coefficient of correlation with dividend yield ratio over 2006-2009, debt over equity and beta have negative linear relationship with dividend yield.

The analysis of single year data on 2009 shows different result as compared to the average data of 2006-2009. Other financial variables except beta, debt over equity and ROA have positive linear relationship with dividend yield for year 2009. The reason why ROA has a negative relationship is that a large number of Malaysian firms increase payment of dividends when their earnings increase. However they are reluctant to skip dividends when earnings fall. This is consistent with I. M. Pandey's findings.

The results show that both dividend payout ratio and dividend yield is positively correlated to growth opportunities, profitability and firm size. This is consistent with the consensus that as a company is making a lot of profit, it distributes the profit to its shareholders as dividend. On the other hand, a company's leverage and risk tend to put a dampening effect on its dividend policy. A risky or debt-burdened company generally omits dividend. Baker (2006) has similar finding in his research on Norwegian companies.

4.5 Smoothing hypothesis: Relationship of Dividends and Earnings over time

Table 4-5: Coefficient of Correlation for Changes of DPS and Changes of Past and Current EPS

% Changes of EPS

Coefficient of Correlation

(average 10 years)

Past Year EPS

0.532317

Current Year EPS

0.85193

The smoothing hypothesis suggests that the dividend decision is influenced by past and current earnings, and this hypothesis was initiated by Lintner (1956). As we can see from my findings also that DPS is positively correlated with past and current EPS. Litner finds that managers believe that stable dividends lessen negative investor reactions. The reluctance to change the dividend was evident in a study carried out by DeAngelo and DeAngelo (2000). They find that for 80 New York Stock Exchange (NYSE) firms in financial crisis, managers are more willing to cut the level of dividend than to omit the dividend altogether. They also reported that the longer the company has been paying dividends the stronger is the reluctance of the managers to reduce dividends. DeAngelo et al. (1996) have also documented managerial aversion to cut and omit dividends for US companies.

There is evidence that Malaysian companies consider past dividends as an important benchmark for deciding the current dividend payment. Further, the high adjustment factors together with low payout ratios indicate that the KLSE firms frequently change their dividend payments with changes in earnings, and dividend smoothing is of a lower order. This indicates that managers of those companies try to maintain investors' confidence and use dividend as a tool for this purpose, hinting a correlation to the theory of dividend rigidity.

6. Conclusion and Recommendations

This paper examines the dividend policy for public listed companies in Malaysia by identifying the financial and performance factors that influence the dividend policy of Malaysian listed companies. It also studies the different characteristics of dividend paying companies and non dividend-paying companies. Besides that, it also tests whether the dividend policy of Malaysian public listed companies contain information as suggested by smoothing hypothesis.

I have found that there are more dividend-paying companies than non dividend-paying companies in Malaysian public listed companies over 2006-2009. This is true for all of the industries during that period. In years 2006 2009, dividend distribution of Malaysian public listed companies is shown to be volatile. The trend becomes downward after 2008 till 2009. And as the dividend payout ratio indicates a downward sloping trend. This can be explained that in recent years, perhaps due to the financial crisis and general economic slowdown, payout ratios of all sectors have declined. Our results show that a large number of Malaysian firms increase payment of dividends when their earnings increase. They are reluctant to skip dividends when earnings fall. But Malaysian firms tend to omit dividends when they suffer losses. There is a high probability of dividend increase when earnings increase. Similarly, the chances are high that dividends will be reduced if earnings fall. There is a very high probability of dividend omission when the Malaysian firms face negative earnings.

This paper concludes there are different characteristics between dividend-payer and non-payer for Malaysian public listed companies. The former are companies that have relative lower growth opportunities, lower firm risk and lower firm leverage as compared to non dividend-paying companies. They tend to achieve higher profitability and are bigger, in terms of revenue, as compared to non dividend-paying companies.

With regards to the testing the smoothing hypothesis there is evidence that Malaysian companies consider past dividends as an important benchmark for deciding the current dividend payment. Further, the high adjustment factors together with low payout ratios indicate that the KLSE firms frequently change their dividend payments with changes in earnings, and dividend smoothing is of a lower order. This indicates that managers of those companies try to maintain investors' confidence and use dividend as a tool for this purpose, hinting a correlation to the theory of dividend rigidity. The smoothing hypothesis suggests that the dividend decision is influenced by past and current earnings, and this hypothesis was initiated by Lintner (1956). He finds that managers believe that stable dividends lessen negative investor reactions. The dividend policy for Malaysian public listed companies is rigid and sticky as managers are reluctant to cut or avoid omit dividend even when the perf ormance of the companies are deteriorating.

As for limitations of this study, this study observes the dividend-paying companies and non dividend-paying companies according to boards and industries. However, it is not studied further whether there is any relationship between industry and dividend policy. It is commonly perceived that there is an industry norm for dividend policy, and the company's dividend policy might be greatly influenced by such macro factor. It is recommended that the relationship of dividend policy and industries' macro factors to be analysed in future study. I.M. Pandey (2001) could be used as a reference paper to test the relationship between industry and dividend policy.

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