The impact of internal and external monitoring measures on firm's dividend payout: Evidence from selected Malaysian public listed companies

Abstract

This paper examines the impact on dividend payouts of internal and external monitoring measures instituted by companies to improve their corporate governance structures. The study involves 120 selected Malaysian listed companies over a four-year period from 1996 to 1999. This period encompassed the 1997/98 Asian financial crisis which affected most countries in the Southeast Asian region including Malaysia. Due to the combination of cross-sectional and time-series data, panel data regression techniques were used to analyse performance of the firms using both fixed effects and random effects models. Using dividend payout as the dependent variable, it was established that the size of firm, gearing ratio (borrowing) and the proportion of non-executive directors on a company board significantly influenced the dividend payout of firms. The impact of size on dividend payout of firms followed a quadratic fashion with payout increasing with the size of the firm up to the optimal size of around 11,321 million ringgit, in terms of turnover. Beyond that, firm's dividend payout declined with increasing size. The study also found that company borrowing had a negative effect on dividend payout. Finally, increasing the proportion of non-executive directors in a firm could lead to a decrease in dividend payout.