Board Characteristics and Dividend Payout of Malaysian Companies

Abstract

The issue revolving corporate governance has always been an essential and critical element for both private and public sectors particularly in Malaysia. Malaysia’s Prime Minister has even stressed for more concentration on the issues of governance for the purpose of overseeing the effective running of the public and private sector through a check and balance system. Moreover, the Prime Minister argued the need of the firms in the country to benchmark to an effective system that emphasizes on positive issues such as ethics, openness, accountability, transparency, and integrity in the public and private sector. After 1998, Malaysian government decided to adopt corporate reform that could enhance the quality of good corporate management practice. This reform is clearly stated in the code and rules of corporate governance. This included the introduction of the new Malaysian code and rules for corporate governance. The debate of corporate governance in Malaysia are often limited to agencies involved directly in law enforcement such as the Ministry of Finance, Bursa Malaysia Securities, security Commission (SC) and Registrar of Company. Therefore, this crucial issue has to be addressed accordingly in order to enhance firms’ dividend payout. Good corporate governance is believed to be a critical factor in the improvement of firm value in both developing and developed financial markets. However, this belief overlooked the fact that the relationship between corporate governance and the value of a firm varies in these markets owing to the character of the corporate governance structures on dissimilar social, economic and regulatory conditions. This reality calls for the need to examine and comprehend the differences affecting the firm value for the purpose of academic, financial and management practices and public regulation of markets and corporations. The core aim of the present study is the examination of the relationship between board characteristics and dividend payout of Malaysian firms listed on Bursa Malaysia with focus on the construction sector. For the purpose of the study, data was collected from a sample of 50 companies for the financial year of 2010 with elimination of other 56 firms that they did not pay dividend. Among corporate governance’s various variables, seven were chosen to be included in the study. They were board size, board composition, CEO duality, family linked companies, board of director ethnicity, gender of board of director, and managerial ownership. Other financial measurements (investment opportunity set, firm leverage, firm size, and firm performance) were also tested against dividend payout. Regression analysis was utilized for the examination of the relationship between board characteristics and firm dividend payout. The result indicates that the relationships between investment opportunity set, firm size, firm performance, and managerial ownership and dividend payout are positive, but not significant. Firm leverage, board size, board composition, family linked, ethnicity of board of director, and gender of board of director are negatively insignificantly correlated to dividend payout. CEO duality and dividend payout is also negatively correlated but the relationship is significant. Finally, this study is using the firm leverage, firm size, firm performance, and CEO duality role as control variables against dividend payout.

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