Dividend behaviour: Different market segmentations

Nor Anis  Shafai; Norhuda Abdul  Rahim; Norhisam  Bulot; Annuar Md  Nassir; Fakarudin  Kamarudin

doi:10.23762/FSO_VOL9_NO1_6

Published : 2021-03-31

Vol. 9 No. 1 (2021)

Dividend behaviour: Different market segmentations

Nor Anis Shafai

https://orcid.org/0000-0002-8798-3729

Norhuda Abdul Rahim

https://orcid.org/0000-0001-6066-3701

Norhisam Bulot

https://orcid.org/0000-0003-2416-8783

Annuar Md Nassir

https://orcid.org/0000-0002-6718-6677

Fakarudin Kamarudin

https://orcid.org/0000-0001-8180-1173

DOI: https://doi.org/10.23762/FSO_VOL9_NO1_6

Abstract

This research explores the dynamics of dividend behaviour of Lintner’s model in three distinct regimes with three different market segmentations, namely Singapore, Malaysia, and Saudi Arabia. In particular, Singapore, Malaysia, and Saudi Arabia each have some interesting features that make this study suitable for policy recommendations to other Asian countries and countries in other parts of the world, especially in the same market segmentation. Therefore, it will be intriguing to see if these three countries adopt stable cash dividend policies, whether they smooth out dividends, and to determine the speed of adjustment of dividends towards a long-run target payout ratio. The study used the top 100 listed firms in each country using the Generalised Method of Moments (GMM) for the period of 2007 to 2016. The results clearly demonstrate that Saudi Arabian firms have the smoothest and most stable dividend payout, followed by Malaysia which has a moderate speed of adjustment suggesting fairly stable dividends arising from a positive change in earnings, while Singapore has a significantly high speed of adjustment indicating no smoothing. Based on these findings, Saudi Arabian firms practise smoothing and have stable dividends. Although a great deal of research has been done using a partial adjustment model, no evidence has been provided on the three different markets. Most of the research focused on developed markets rather than emerging ones. This could therefore contribute to the different legal and statutory systems that exist in these countries. The difference hinders the overall view of the results obtained from the three markets.

Keywords:

Lintner’s model, speed of adjustment, target payout ratio, partial adjustment model, Generalised Method of Moments (GMM)

Details

References

Statistics

Authors

Download files

PDF

Citation rules

Shafai, N. A. ., Rahim, N. A. ., Bulot, N. ., Nassir, A. M. ., & Kamarudin, F. . (2021). Dividend behaviour: Different market segmentations. Forum Scientiae Oeconomia, 9(1), 91–103. https://doi.org/10.23762/FSO_VOL9_NO1_6

Altmetric indicators

Cited by / Share

Licence

This work is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

References

Adaoglu, C. (2000), Instability in the dividend policy of the Istanbul Stock Exchange (ISE) Corporations: Evidence from an emerging market, Emerging Markets Review, 1(3), 252-270. https://doi.org/10.1016/S1566-0141(00)00011-X

Ahmed, H., Javid, A.Y (2009), Dynamics and determinants of dividend policy in Pakistan (evidence from Karachi Stock Exchange non-financial listed firms), International Research Journal of Finance and Economics, 25, 148-171.

Al-Ajmi, J., Hussain, H.A. (2011), Corporate Dividends Decisions: Evidence from Saudi Arabia, The Journal of Risk Finance, 12(1), 41-56. https://doi.org/10.1108/15265941111100067

Al-Malkawi, H.A.N., Bhatti, M.I., Magableh, S.I. (2014), On the dividend smoothing, signaling and the global financial crisis, Economic Modelling, 42, 159-165. https://doi.org/10.1016/j.econmod.2014.06.007

Al-Najjar, B., Kilincarslan, E. (2016), The effect of ownership structure on dividend policy: Evidence from Turkey, Corporate Governance (Bingley), 16(1), 135-161. https://doi.org/10.1108/CG-09-2015-0129

Altyar, A.R., Habeeb, F.J., Sedeeq, M.M. (2020), The impact of knowledge and human resource management on the economic growth of Arab countries: A panel GMM and robust standard error approach, Polish Journal of Management Studies, 21(1), 48-60. DOI:10.17512/pjms.2020.21.1.04

Ameer, R. (2008), Product market competition regulation and dividend payout policy of Malaysia banks, Journal of Financial Regulation and Compliance, 16(4), 318-334. DOI: 10.1108/13581980810918396

Andres, C., Betzer, A., Goergen, M., Renneboog, L. (2009), Dividend policy of German firms: A panel data analysis of partial adjustment models, Journal of Empirical Finance, 16(2), 175-187. https://doi.org/10.1016/j.jempfin.2008.08.002

Arellano, M., Bond, S. (1991), Some tests of specification for panel data: Monte Carlo evidence and an application to employment equations, The Review of Economic Studies, 58(2), 277-297. https:// doi.org/10.2307/2297968

Ariff, M., Johnson, L.W. (1990), The issue of dividend policy, in: M. Ariff and L.W. Johnson (Eds.), Securities markets and stock pricing: Evidence from a developing capital market in Asia (pp. 301-307), Singapore: Longman.

Athari, S.A., Adaoglu, C., Bektas, E. (2016), Investor protection and dividend policy: The case of Islamic and conventional banks, Emerging Markets Review, 27, 100-117. https://doi.org/10.1016/ j.ememar.2016.04.001

Ayman, H.E., Wasim, A.K., Radhi, A.-H.M. (2008), Partial-adjustment-models of dividend policy, Corporate Ownership & Control, 5(4), 356-372.

Bahng, J.S., Lee, H. (2011), Adjustment behaviours of dividend payouts in G7 countries: A different look, Australian Journal of Business and Management Research, 1(9), 53-72.

Baker, H.K., Farrelly, G.E., Edelman, R.B. (1985), A survey of management views on dividend policy, Financial Management, 14(3), 78-84. https://doi.org/10.2307/3665062

Baker, H.K., Powell, G.E. (2000), Determinants of corporate dividend policy: A survey of NYSE firms, Financial Practice and education, 10, 29-40.

Batool, Z., Javid, A.Y. (2014), Dividend policy and role of corporate governance in manufacturing sector of Pakistan, PIDE Working Papers, 1(109), 1-34.

Bremberger, F., Cambini, C., Gugler, K.P., Rondi, L. (2013), Dividend policy in regulated firms, SSRN Electronic Journal, 1-53. DOI: 10.2139/ssrn.2277595

Bremberger, F., Cambini, C., Gugler, K., Rondi, L. (2016), Dividend policy in regulated network industries: Evidence from the EU, Economic Inquiry, 54(1), 408–432. https://doi.org/10.1111/ecin.12238

Bulla, D. (2017), Stability and role of dividends payout among public firms at Nairobi securities exchange Nairobi Securities Exchange, Journal of Economic and Finance, 8(4), 10-15. https://doi.org/10.9790/5933-0804041015

Brittain, J. (1966), Corporate dividend policy, Washington, DC: The Brooking Institution.

Chemmanur, T.J., He, J., Hu, G., Liu, H. (2010), Is dividend smoothing universal?: New insights from a comparative study of dividend policies in Hong Kong and the US, Journal of Corporate Finance, 16(4), 413-430. https://doi.org/10.1016/j.jcorpfin.2010.03.001

Darling, P. (1957), The influence of expectations and liquidity on dividend policy, Journal of Political Economy, 65, 209-224.

Fazzari, S., Hubbard, G.R., Peterson, B.C. (1987), Financing constraints and corporate investment, Brooking Papers on Economic Activity, 1, 141-195.

Gĺrdängen, M. (2014), Dividend smoothing in Sweden, master thesis (unpublished), Lund University, Sweden.

Goergen, M., Correia da Silva, L., Renneboog, L. (2004), Dividend policy of German firms, CentER Discussion Paper, 122, 1-34.

Hadi, A.A., Zafar, S., Iqbal, T., Zafar, Z., Hussain, I.H. (2018), Analyzing sectorial level determinants of inward foreign direct investment (FDI) in ASEAN, Polish Journal of Management Studies, 17(2), 7-17. DOI:10.17512/pjms.2018.17.2.01

Jabbouri, I. (2016), Determinants of corporate dividend policy in emerging markets: Evidence from MENA stock markets, Research in International Business and Finance, 37, 283-298.

Jeong, J. (2013), Determinants of dividend smoothing in emerging market: The case of Korea. Emerging Markets Review, 17, 76-88. https://doi.org/10.1016/j.ememar.2013.08.007

Kamat, M.S. (2009), Determinants and the stability of dividends in India: Application of dynamic partial adjustment equation using extended instrumental variable approach.

Lasfer, M.A. (1996), Taxes and dividends: The UK evidence, Journal of Banking & Finance, 20(3), 455-472. https://doi.org/10.1016/0378-4266(95)00012-7

Lehmann, A., Mody, A. (2004), International dividend repatriations, IMF Working Paper no. WP/04/5, 1-25.

Lintner, J. (1956), Distribution of incomes of corporations among dividends, Retained earnings, and Taxes, Taxes, 46(2), 97-113.

Miller, M.H., Modigliani, F. (1961), Dividend policy, growth, and the valuation of shares, The Journal of Business, 34(4), 411-433.

Mollah, S. (2011), Do emerging market firms follow different dividend policies? Empirical investigation on the pre‐and post‐reform dividend policy and behaviour of Dhaka Stock Exchange listed firms, Studies in Economics and Finance, 28, 118-135. DOI: 10.2139/ssrn.1462099

Omar, N., Rizuan, S. (2014), Financial deceitful trick through dividend smoothing, Procedia – Social and Behavioral Sciences, 145, 300-307. https://doi.org/10.1016/j.sbspro.2014.06.038

Pandey, I. (2003), Corporate dividend policy and behaviour: the Malaysian evidence, Asian Academy of Management Journal, 8(1), 17-32.

Persson, R. (2013), Dividend policy behavior: An analysis of firms listed at Stockholm Stock Exchange, EKONOMIKUM– Centre for Economic Sciences, 1-11.

Pruitt, S.W., Gitman, L.J. (1991), The interactions between the investment, financing, and dividend decisions of major US firms, Financial Review, 26(3), 409-430. https://doi.org/10.1111/j.1540-6288.1991.tb00388.x

Shafai, N.A., Nassir, A.M., Kamarudin, F., Rahim, N.A., Ahmad, N.H. (2019), Dynamic panel model of dividend policies: Malaysian perspective, Contemporary Economics, 13(3), 239-253.

Sibanda, M. (2014), Do firms smooth their dividends over time? Evidence from the Johannesburg Stock Exchange, Journal of Economics, 5(3), 333-339. https://doi.org/10.1080/09765239.2014.11885009

Thareeq, A.C., Handoyo, R.D. (2020), Determinants of foreign direct investment in 31 Asian Countries for the 2002-2017 period, Contemporary Economics, 14(4), 563-578.

Tran, Q.T., Thu, T., Nguyen, H. (2014), Dividend policy behavior in emerging stock markets: Evidence from Vietnamese stock market, International Journal of Financial Research, 5(4), 85-89. https://doi.org/10.5430/ijfr.v5n4p85

Turen, S., Salman, S.Y.H. (2012), What really determines the dividend policy in financial institutions: A case of Bahrain, Middle Eastern Finance and Economics, 18, 56-66.