Dividend Payout in Consumer Product Industry, Malaysia
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Published: Tue, 27 Feb 2018
2.0 PROBLEM STATEMENT
There is a large volume of work in the area of dividend payout policy across many developed countries (Gugler, 2003; Kallapur, 2004; Ferris et al., 2006; Denis and Osobov, 2008; Eije and Megginson, 2008; Engsted and Pedersen, 2010).
However, less work has been done in developing countries and researchers have started to study the dividend policy, as well as the behaviour of the company within the countries (Pandey, 2003).
In addition, studies that examine the dividend payout policy focus more on the general category (Kallapur, 2004; Denis and Osobov, 2008; Eije and Megginson, 2008). Limited work has been done in category based on industrial grouping (Ferris et al., 2006).
As such, my study seeks to address the gap in literature review and thereby stresses on the dividend payout, in term of ratio and pattern of companies within the consumer products industry in Malaysia.
2.1 RESEARCH QUESTION
What is the trend of dividend payout in companies within consumer products industry in Malaysia?
2.2 RESEARCH OBJECTIVES
- To identify the dividend payout ratio of the consumer products industry in Malaysia and its changes across years.
- To determine the percentage of companies paying dividend in the consumer products industry in Malaysia.
- To determine the dividend payout pattern of companies within the consumer products industry in Malaysia.
- To identify if there is a difference of dividend payout ratio within the consumer products industry in Malaysia.
3.0 LITERATURE REVIEW (GAPS FILLED)
There is vast literature in the area of dividend payout policy across countries including US (Gugler, 2003; Denis and Osobov, 2008; Eije and Megginson, 2008) and non-US such as EU countries (Eije and Megginson, 2008; Denis and Osobov, 2008; Engsted and Pedersen, 2010), Japan (Ferris et al., 2006; Denis and Osobov, 2008) and Taiwan (Kallapur, 2004). The finding shows that payout policy undergoes changes and fluctuates across year, especially in the recent year of 1992 to 2004 (Renneboog and Trojanowski, 2010).
According to Kallapur (2004), many studies agree that dividend payout ratio is a signal indicating the firm’s future growth. Firms pay attention to the consistency of dividend payout as studies show that investors put premium on the firms with stable payout policy and firms are reluctant to cut dividend (Gugler, 2003). Besides, a study by Ferris et al. (2006) shows that firm with negative earning (negative growth) in UK is less likely to pay dividend. This is consistent with the finding that dividend payout ratio is related to the firm’s growth.
Study by Gugler (2003) reports that large firms with good investment opportunity in US are less likely to pay high dividend to the investors. However, their payout is relatively more stable and they are rarely cut down on the dividend (Allen and Michaely, 1995). Besides, study by Eije and Megginson (2008) shows that younger companies in EU are less likely to pay dividend and the payout is less than those older companies.
According to Eije and Megginson (2008), dividend payout ratio has increased over years. They also report that the payout ratio in US has increased from year 1970 to year 2001, and the total dividend paid is increasing among firms in EU countries.
From previous studies, Ferris et al. (2006) and Eije and Megginson (2008), find that the number of firms paying dividend in US is decreasing despite the increasing of dividend payout ratio across years. Eije and Megginson (2008) also report the same finding in EU firms and suggest that the dividend payout policies are quite similar between the two. According to Denis and Osobov (2008), the decreasing trend is driven by the failure of new listed firms to initiate payout when they are expected to do so.
However, there is a contrast finding from the studies done in Taiwan and Japan. Study from Kallapur (2004) shows that dividend paying firms in Taiwan has actually increased since year 2000, while Ferris et al. (2006) reports that the percentage of firms paying dividend in Japan remains highly stable. Ferris et al. (2006) also suggests that the decreasing trend does not seem to affect Japanese firms. This is an interesting area that worth for study, especially in developing country such as Malaysia.
Horngren et al. (2008) notes that dividend payout ratio different across industries and it is commonly used to compare companies in the same industry. However, there is limited work done specifically within an industry (Ferris et al., 2006).
According to International Business Center (2010), consumer products industry plays a major role in the world economy as it acts as a driver for other industries. Besides, it reports that consumer products industry contributes to the two-thirds of the world trade volume and accounts for significant portion of the gross domestic product (GDP) in many countries.
As such, my study would stress on the dividend payout, in term of the ratio and pattern, of consumer products industry in Malaysia.
The methodology that will be applied has been chosen in order to obtain data and compare the dividend payout, in terms of ratio and pattern, within consumer products industry in Malaysia.
4.1 DATA COLLECTION
For the purpose of this study, data will be collected using the secondary source. Annual report of respective company will be obtained from the link given in the Bursa Malaysia website.
4.2 SAMPLING FRAME
The sampling frame for this study would be the public listed companies in Malaysia. The list can be obtained from Bursa Malaysia or The Star website.
4.3 SAMPLING STRATEGY
For the purpose of this study, non probability purposive sampling is selected. As the study only focus on one industry, and 5 years data is assumed to show a general trend of the dividend payout, thus the sample chosen need to meet the following criteria,
Companies that fall under the consumer products industry.
Companies with at least 5 years of annual report available on the company website.
By searching through the companies’ website, only 89 out of 142 companies in consumer products industry fulfill the mentioned above criteria (as in Appendix 2).
4.4 DATA ANALYSIS
In this study, hybrid method (both quantitative and qualitative) will be used to analyze the data. Generally, it can be divided into 3 parts as following,
For dividend payout ratio, percentage of firms paying dividend and the percentage of company using certain payout pattern, SPSS (descriptive statistic) will be used.
To determine if there is a difference of dividend payout ratio among companies within the industry, SPSS (One-Sample T-Test) can be carried out as the sample size is more than 30. Yearly dividend payout ratio obtained from a) will be used as the test value in SPSS.
To determine the trend of dividend payout, in term of ratio and pattern across years, qualitative method will be used as it involves more on the interpretation of data.
4.5 ROLE OF THEORY
In this study, the role of theory would be theory generation. It involves the new finding of dividend payout ratio, as well as the payout pattern among companies within the consumer products industry in Malaysia.
5.0 CONTRIBUTION EXPECTED
It is intended that the finding of this study will give a clearer picture of the dividend payout in consumer products industry as it is the major contributor to the country’s economic.
Besides, it can be used by potential investors that desire a certain cash flow (dividend) instead of incurring transaction cost from periodically selling shares of stock.
Last but not least, it seeks to provide a better understanding for Chief Financial Officer (CFO) towards the dividend payout ratio and its pattern within the consumer products industry in Malaysia.
6.0 SUGGESTIONS FOR FUTURE STUDIES
Due to time constraint and limited information that is available on the website, only 5 years of annual report is obtained for this study. Thus, it is suggested that a longer time series of data, for example 10 years should be taken in future to provide a better understanding of the dividend payout in Malaysia.
Besides, future researchers can study on other industries and ultimately compare the dividend payout ratio and its pattern across all industries in Malaysia.
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