CHAPTER reward the existing shareholders while at the

CHAPTER 1: INTRODUCTION

1.0  Introduction

The research aimed at
investigating the determinants of dividend payout of telecommunication
companies that were listed on Malaysian stock exchange for a period of 8 years
from 2009 to 2016. This study analyses a range of determinants of dividend
policy which include firm size, liquidity, profitability and leverage of the
companies.  This chapter will discuss the
background of study, problem statement, research objectives and questions,
hypothesis, significant of study and outline of the research.

 

1.1 Research Background

The dividend payout
policy is one of the most controversial subjects in financial management due to
its sensitive nature to the firm and its stakeholders. Managers are confronted
with dilemma in determining the most appropriate dividend policy as the level
of equity retained in the company is affected by the amount of earnings paid
out to shareholders (Al-Malkawi, 2008).

Even though an
extensive amount of research and theoretical model regarding dividends has been
conducted to find the missing pieces in the dividend puzzle for more than a
half century, there is no consensus answer to the question: what are the factors
that influence a companies’ decision regarding its dividend policy? (Baker,
2009)

According to Black
(1976), the reason could be that investors want a return on their investment
and he suggested that firms pay dividend to reward the existing shareholders
while at the same time attracting other investors to buy new issues of common
stock at a higher price, because they value the dividends. Furthermore, he also
argued that firms that do not pay dividends might choose not to do so because
they rather reinvest their excess cash in attractive investment opportunities.
Through the investment opportunities the value of the firm’s shares, and thus
the investor’s wealth, may increase by a larger magnitude than what might have
been the case if the firm used the excess cash to pay dividends instead.

1.2 Problem Statement

According to news
reported by Cecilia (2017), telecommunication companies are operating under
very strict licensing rule but are known for giving good dividends to their
shareholders, for instance, dividend payout ratio for top players in this
sector normally exceeding 100%. However, in recent years, the sustainability of
high dividend payouts of most of the companies have come into question probably
due to the reason of their need to adapt to the evolving industry landscape. Although
they have all kept their commitment of a payout ratio of at least 70% to 100%
of earnings, cut in dividend per share happens across the board in year 2016.
Some fund managers said that Malaysian telecom sector in general are appearing
less appealing now due to the unpredictable cost structure and very dynamic
market environment. Thus, there are need to investigate determinants effect
upon telecommunication companies’ dividend payout in Malaysia.

 

1.3 Research Objectives

1.3.1    General
Objective

This study is to
examine the determinants of dividend policy of telecommunication public listed
companies in Malaysia for the period 2009 to 2016.

 

1.3.2    Specific
Objectives

       
i.           
To examine the
relationship between firm size and dividend payout.

      ii.           
To examine the
relationship between liquidity and dividend payout.

    iii.           
To examine the
relationship between profitability and dividend payout.

   
iv.           
To examine the
relationship between leverage and dividend payout.

 

1.4 Research Questions

       
i.           
Is there any
significant relationship between firm size and dividend payout?

      ii.           
Is there any
significant relationship between liquidity and dividend payout?

    iii.           
Is there any
significant relationship between profitability and dividend payout?

   
iv.           
Is there any
significant relationship between leverage and dividend payout?

 

1.5 Hypothesis of the study

       
i.           
There is
positive relationship between firm size and dividend payout. (no relation)

      ii.           
There is
positive relationship between liquidity and dividend payout. (negative)

    iii.           
Firm’s
profitability is positively related to dividend payout. (negative)

   
iv.           
Firm’s leverage
is negatively related to dividend payout. (positive)

 

1.6 Significant of the Study

The significance of
this research is to identify the important determinants which affect the
dividend payout decisions of telecommunication companies in Malaysia.  It is also the first paper attempting to shed
light on the issue of dividend payout policy in the context of Malaysia telecom
industry, as no previous research has been undertaken in this context. Thus,
the result of this research will provide information to aid the future
researchers and even investors in making their decision.

 

1.7 Outline

The remaining
structures of this study are indicated as follow. The following chapters are
going to discuss the literature on dividend policy. Chapter 3 explains the
methodology employed, while Chapter 4 discusses the results. Finally, Chapter 5
concludes the paper.

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