Impact of Dividend Policy on Companies’ Performance

3395 Words Oct 17th, 2011 14 Pages
IMPACT OF DIVIDEND POLICY ON COMPANIES’ PERFORMANCE: EVIDENCE FROM PUBLIC LISTED COMPANIES IN MALAYSIA

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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
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In Malaysia, there is no standard policy or procedure governing dividend payments. But the companies required complying with Companies Act, 1965 under 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.” As such, companies are free to decide when and how much to pay out in dividends for a specific financial business year. In other words, 2

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.

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DATA AND RESEARCH METHODOLOGY

3.1 Data Collection Procedure This study uses data of public listed companies of Bursa Malaysia (Malaysian Stock Exchange) an online database of worldwide stock information. Financial Statements, which are obtained from Bursa Malaysia's website, have also been used as supplementary source. 15 proportional stratified samples are randomly selected from companies listed on the Main Board, Second Board and MESDAQ of Bursa Malaysia. The 15 companies studied in this research come from consumer sector, properties sector and plantation sector whereas consist of 5 firms from each sector. Data on the dividend policies and companies’ performance of the sample companies are hand-collected from the financial statements for years
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