The Influence of Ownership Structure on the Firm Dividend Policy Based on Lintner Model

This study investigates the relationship between types of ownership structure and dividend payments of Malaysian listed companies. A cross-sectional analysis of 150
sample firms listed on the main board of Bursa Malaysia for the years 2007 is utilized. The study examines the explanatory power of three alternative models of dividend
policy, the full adjustment model, the partial adjustment model and the Waud model modified which are moderated by the possible effects of five types of ownership structure, namely ownership concentration, ownership dispersion, institutional ownership, managerial ownership and foreign ownership. Ownership concentration is measured by two proxies, the Herfindahl Index and a newly form index measured by the summation of the percentage of shares controlled by two major shareholders.Ownership dispersion is measured by ratio of the number of shareholders to total
outstanding shares, institutional ownership is measured by a percentage of equity owned by institutional investors, while, managerial ownership is measured by adding the total percentage of shares directly held by non-independent executive directors in the company, and foreign ownership is measured by the sum of all shares in the hands of foreign shareholders in the list of thirty largest shareholders, either held through nominee companies or other corporate foreign share holdings. Both ownership
concentration variables are found to be positively and statistically significant in influencing dividends in every type of dividend model. The finding is consistent with
agency theory since high dividend payments can be used for mitigating agency conflict as dividends can be substituted for shareholder monitoring. Hence, large shareholders have strong incentives to require higher dividend payments in order to reduce monitoring costs. Nevertheless, this study shows that dividend decisions of Malaysian companies are not influenced by the structure of ownership.