Title: Dividend policy choice: do earnings or investment opportunities matter?

Authors: Huson Joher Ali Ahmed, Junaid M. Shaikh

Addresses: School of Business, Curtin University of Technology, School of Business, Sarawak Offshore Campus, Malaysia. ' School of Business, Curtin University of Technology, School of Business, Sarawak Offshore Campus, Malaysia

Abstract: The aim of this paper is to analyse the influence of a company|s level of earnings and growth opportunities in determining the dividend policy choice of Malaysian-listed firms. The analysis is based on a sample of 136 firms listed on the Bursa Malaysia Index over a period of six years, from 1990 to 1996. The evidence suggests that the payers are more profitable than non-payers. Likewise, investment opportunity, which is measured by (∂A_t /A_t-1) and (V_t /A_t), differed for both payers and non-payers. The regression estimates from Logit model suggest that the average coefficient for EATA is a significant determinant for firm|s dividend policy choice in Malaysia. This is consistent with the supposition that profitable firms are more likely to pay dividends than less profitable firms. Although investment opportunities, the firm|s size and leverage were not found to be statistically significant, they provided some explanation for the dividend policy choice.

Keywords: dividends; earnings; growth opportunities; logit model; equity market value; investment opportunities; dividend policy choices; Malaysia

DOI: 10.1504/AAJFA.2008.021072

Afro-Asian Journal of Finance and Accounting, 2008 Vol.1 No.2, pp.151 - 161

Published online: 01 Nov 2008 *

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