Impact of Dividend Policy on Companies’ Performance
IMPACT OF DIVIDEND POLICY ON COMPANIES’ PERFORMANCE: EVIDENCE FROM PUBLIC LISTED COMPANIES IN MALAYSIA
1.0
INTRODUCTION
Dividend policy is the regulations and guidelines that a company uses to decide to make dividend payments to shareholders. Dividends are payments made to stockholders from a firm's earnings, whether those earnings were generated in the current period or in previous periods. When a company makes a profit, they must decide on what to do with those profits. They could continue to retain the profits within the company, or they could pay out the profits to the owners of the firm in the form of dividends. Once the company decides on whether to pay dividends, they may establish a dividend structure, which may in turn impact on investors and perceptions of the company in the financial markets which bring impact on the firm’s value. Several dividend policy issues arose on how dividend policy affects the value of the business whereas there are five explanations for paying dividends developed by researchers, those includes Signaling Effect of Dividend, Clientele Effect, Bird-in-theHand Theory, Tax Preference, and Flotation Costs. The focus of this paper is to examining the dividend policy adopted by public listed companies in Malaysia and the impact of dividend policy on companies performance. This study provides evidence that the KLSE-listed 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. This paper is divided into five sections. Section two below, is a review of relevant literature. Section 3, details of data and methodology. The following section, Section 4, presents the results and analysis. The final section, Section 5 concludes and discusses some recommendations.
2.0
ORGANISATION OF THE LITERATURE REVIEW
How firms determine their dividend policy has been a puzzle to financial economists for many years. In their
1.0
INTRODUCTION
Dividend policy is the regulations and guidelines that a company uses to decide to make dividend payments to shareholders. Dividends are payments made to stockholders from a firm's earnings, whether those earnings were generated in the current period or in previous periods. When a company makes a profit, they must decide on what to do with those profits. They could continue to retain the profits within the company, or they could pay out the profits to the owners of the firm in the form of dividends. Once the company decides on whether to pay dividends, they may establish a dividend structure, which may in turn impact on investors and perceptions of the company in the financial markets which bring impact on the firm’s value. Several dividend policy issues arose on how dividend policy affects the value of the business whereas there are five explanations for paying dividends developed by researchers, those includes Signaling Effect of Dividend, Clientele Effect, Bird-in-theHand Theory, Tax Preference, and Flotation Costs. The focus of this paper is to examining the dividend policy adopted by public listed companies in Malaysia and the impact of dividend policy on companies performance. This study provides evidence that the KLSE-listed 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. This paper is divided into five sections. Section two below, is a review of relevant literature. Section 3, details of data and methodology. The following section, Section 4, presents the results and analysis. The final section, Section 5 concludes and discusses some recommendations.
2.0
ORGANISATION OF THE LITERATURE REVIEW
How firms determine their dividend policy has been a puzzle to financial economists for many years. In their
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