The Impact of Profitability, Liquidity, Leverage and Firm Size on Cash Dividend Payments for Public Listed Companies In Malaysia and Thailand

Abstract

Dividend policy has been examined by researchers in finance and corporate finance to provide insights for corporate management in designing dividend payout policy. Dividend payout is deemed as a reward for the capital invested by share/wide rs and the marketfoUows the dividend announcement by the company each year. The decision made on dividend payout policy differs from .one company to another as there is not one set of determinants that explains the factors determining or influencing dividend payout policy. This study examines the impact of profitability, liquidity, leverage and firm size in determining the annual dividend payout ratio. The proxies used to measure the financial elements are return on equity, net cash flow, the debt-to-equity ratio and market capitalization. The data consists of JOO publicly listed companies on the stock exchanges of Malaysia and Thailand. The annual data on key financial indicators mentioned above are taken for the period of 11 yearsfrom'2004 to 2014. The data is analysed using fixed effect and random effect panel data regressions. The empirical findings show that profitability which is measured by return on equity has a significant negative impact on dividend payout ratio other variables are not statistically significant in influencing the dividend payout ratio. Funher analysis is made to observe the impact of profitability, liquidity, leverage and firm size towards dividend payout ratio for each respective country by using separate dataset of Malaysia and Thailand. It is found that not all of the variables influence the decisions made on dividend payout policy for Malaysian public listed companies. On the other hand, it is found that the dividend payout ratio for companies listed on the 111ailand stock exchange is influenced by profitability. 11ie findings show that firms with high profitability tend to pay lower cash dividends. The underlying reasons that can be derived from the results obtained are (i) that companies are focusing on achieving sustainable growth rates which can be obtained with a higher percentage of retained earnings; (ii) that companies _are retaining their earnings for higher dividend growth over time. Companies in Malaysia and Thailand are operating in an emerging market, thus higher retained earnings are being used/or strategic management plan like expansion, mergers and acquisition and diversification in order to strengthen market position in the region.