Determinants of dividend payout ratio of family-owned public listed companies in Malaysia

This study is to examine the significant determinants of dividend payout ratio comprising five factors namely profitability, leverage, asset growth, company size and free cash flow. The study was conducted on 30 family-owned companies listed on the Bursa Malaysia during the period between 2011 and 2015. The data used in the study were secondary data collected from the financial statements in the annual reports for each financial year. Each of the variable is denoted by a few proxies: return on equity for profitability, debt-to-equity ratio for leverage, the change of total assets for assets growth, natural log of total assets for company size, operation cost less capital expenditure for free cash flow, and the dividend per share to earnings per share ratio for dividend payout ratio. The data were analysed using several statistical analyses including descriptive analysis, Pearson’s correlation coefficient and multiple regressions. Based on the descriptive results, family-owned companies were found as
paying the highest dividend in the financial year 2013, whereas the lowest dividend was paid in 2011. Results from the correlation analysis reveal significant relationship between profitability, leverage, asset growth, firm size and free cash flow with dividend payout ratio. In addition, the regression analysis reveals that only two factors were significant determinants for dividend payout ratio, namely asset growth and free cash flow. The significant effect of asset growth to dividend payout ratio in this study confirms the existence of high transaction cost in the family-owned companies. Furthermore, the influence of free cash flow to dividend payout ratio implies agency cost problem among the family-owned companies. The result suggests the family-owned companies to adopt more proper governance to reduce the transaction cost and agency problem within their organisations.