Determinants of Dividend Payment Empirical Finding

DETERMINANTS OF DIVIDEND PAYMENT EMPIRICAL FINDING
CHAPTER 4
EMPIRICAL FINDING
4.1 INTRODUCTION
The data that have been collected in this study has been analyzed
by using simple regression analysis through the SPSS program. SPSS
program is used to derive the estimated regression as stated earlier.
In this study, the mean of dividend payment which is measured as
dividend payout ratio (DPR) of ten companies from consumer, industrial
and properties sectors were regressed against independent variables of
the study. The independent variables are capital structure (debt to equity
ratio), liquidity (quick ratio), and net profit of the companies. The value of
each independent variable for the companies also computed as a mean.
The mean value is used because of the result of the study will represent
sector for the purpose of comparison.

4.2 RESULTS FOR CONSUMER SECTOR
4.2.1 ESTIMATED REGRESSION EQUATION
By using the SPSS program, the regression equation and the
result from the data are as follows;
DIV = 4.157 + 1.243 CS + 1.16 LQ - 1.6340 NP
Se = (0.223) (0.341) (0.058) (0.000)
t-stat = (18.613) (3.644) (2.013) (-20.330)
Where;
DIV = DIVIDEND PAYMENT
CS = CAPITAL STRUCTURE
NP = NET PROFIT
LQ = LIQUIDITY
4.2.2 INTERPRETATION OF RESULT
4.2.2.1 Value of Coefficient
INDEPENDENT COEFFICIENT INTERPRETATION

VARIABLES
CS 1.243
If debt to equity ratio increases by
(Debt to equity
ratio) 1%, dividend payment will increase
by RM 1.243.
LQ
If quick ratio increases by 1%,
(Quick ratio) 1.16
dividend payment will increase by
RM 1.16.
NP - 1.6340
If net profit increases by RM1,
dividend payment will decrease by
RM 1.634.
4.2.2.2 Priori Relationship
INDEPENDENT SIGN INTERPRETATION

VARIABLES
CS + Debt to equity ratio increases, dividend

(Debt to equity
ratio) payment increases.
LQ + Quick ratio increases, dividend payment

(Quick ratio)
increases.
NP __ Net profit increases, dividend payment

decreases.
4.2.2.2 Coefficient of Determination ( R2)
R2 = 0.999
This means 99.90% of the variation in dependant variable
(dividend payment) can be explained by the change in independent
variables (capital structure, liquidity and net profit). Only 0.10% can be
explained by other variables (not mentioned). Therefore, the equation has
high explanatory power because of high R2.

4.2.2.3 T-statistic
According to the t distribution table:
DEGREES OF FREEDOM (df)

= NO. OF OBSERVATION – NO. OF INDEPENDENT VAR - 1
df = 5 – 3 – 1
= 1
INDEPENDENT
COMPUTED BOO OUTCOME ACCEPT/REJECT
VARIABLES
t Kt H1
CS 3.644 6.314 Insignificant Reject H1
LQ 2.013 6.314 Insignificant Reject H1
NP - 20.330 6.314 Significant Accept H1
Refer to book t (at 90% confidence level), the value of t- stat is 6.314.
From the result shown, only one independent variable ( net profit)
are statistically significant in explaining the variation in the dividend

payment at 90% confidence level because the computed t exceeded the
value of book t.
4.2.2.5 F-Statistics
F = explained variation / (k-1)____

Unexplained variation / (n- k)
F = _3 – 1_ = 2_
5–3 2
From the book F, the value is 19.00. The value of computed F is
then compared with the critical value from book F in order to test the
significant of the overall model. The result shown the following..
COMPUTED F BOOK F
>
509.959 19.00
Therefore, the overall model is significant since the computed F
exceeded the value of book F.

4.2.2.6 Standard Error of Estimate (SE)
^
Y = Y + t n-k SE
__
Y = current value of the dependent variable

n-k = degree of freedom
n = number of observation
k = number of coefficient estimated
^
Y = Y + 6.314 (0.0336993)
__
= Y + 0.2128
__
Therefore, at 90% probability the actual value of Y
(dividend payment) will fall within the range of Y – 0.2128
units and Y + 0.2128 units.

4.3 RESULTS FOR MANUFACTURING SECTOR
DIV = -25.817 + 49.166 CS + 12.779 LQ - 0.00000003483 NP
Se = (11.178) (17.862) (5.276) (0.000)
t-stat = (-2.310) (2.753) (2.422) (-2.516)
Where;
NP = NET PROFIT
LQ = LIQUIDITY

VARIABLES
CS 49.166
If debt to equity ratio increases by 1%,
(Debt to equity
ratio) dividend payment will increase by
RM49.166.
LQ
If quick ratio increases by 1%,
(Quick ratio) 12.779
dividend payment will increase by
RM12.779.
NP - 0.00000003483 If net profit increases by RM1,

dividend payment will decrease by
RM0.00000003483.

VARIABLES
CS + Debt to equity ratio increases, dividend payment

(Debt to equity ratio)
increases.
LQ + Quick ratio increases, dividend payment increases.

(Quick ratio)
NP __ Net profit increases, dividend payment decreases.
R2 = 0.927
(dividend payment) for manufacturing sector can be explained by the
change in independent variables (capital structure, liquidity and net profit).

Only 7.3% can be explained by other variables (not mentioned).
Therefore, the equation has high explanatory power because of high R2.
4.3.2.4 T-statistic

df = 5 – 3 – 1
= 1
INDEPENDENT
COMPUTED t BOOK t OUTCOME ACCEPT/REJECT
VARIABLES
H1
CS 2.753 6.314 Insignificant Reject H1
NP - 2.516 6.314 Insignificant Reject H1
From the result shown, all the independent variables (capital
structure,liquidity and net profit of the firms in manufacturing sector) are
not statistically significant in explaining the variation in the dividend
payment at 90% confidence level because the computed t less than the
value of book t. There are several factors that cause such result to arise.
One of them is may be due to short time frame of the study that may
influence the value of number of observation (N) of this study. Although
the regression equation has high explanatory power due to high value of
R2, but because of lack number of observation, it may effect the result for
the t-test.

F = _3 – 1_ = 2_
5–3 2
significant of the overall model. For this sector, the result shown the
following;
COMPUTED F BOOK F
<
4.206 19.00
Therefore, the overall model is insignificant since the computed F
less than the value of book F.
^
Y = Y + t n-k SE
__

^
Y = Y + 6.314 (0.6953302)
__
= Y + 4.3903
__
4.3 RESULT FOR PROPERTIES SECTOR
DIV = -0.799 – 1.057 CS + 0.796 LQ - 0.000000009333 NP
Se = (0.552) (0.672) (0.452) (0.000)
t-stat = (-1.448) (-1.573) (1.763) (-1.054)
Where;
NP = NET PROFIT
LQ = LIQUIDITY

VARIABLES
CS - 1.057
If debt to equity ratio
(Debt to equity
ratio) increases by 1%, dividend
payment will decrease by
RM1.057.
LQ
If quick ratio increases by
(Quick ratio) 0.796
1%, dividend payment will
increase by RM0.796.
If net profit increases by

NP - 0.000000009333
RM1, dividend payment will
decrease by
RM0.000000009333.

VARIABLES
CS __ Debt to equity ratio increases, dividend

(Debt to equity
ratio) payment decreases.
LQ + Quick ratio increases, dividend

(Quick ratio)
payment increases.
NP __ Net profit increases, dividend payment

decreases.

R2 = 0.847
(dividend payment) for properties sector can be explained by the change
in independent variables (capital structure, liquidity and net profit). Only
15.3% can be explained by other variables (not mentioned). Therefore,
the equation has high explanatory power because of high R2.
4.3.2.4 T-statistic

df = 5 – 3 – 1
= 1
INDEPENDENT
COMPUTED BOOK t OUTCOME ACCEPT/REJECT
VARIABLES
t H1
CS -1.573 6.314 Insignificant Reject H1
NP - 1.054 6.314 Insignificant Reject H1
From the result shown, all the independent variables (capital
structure,liquidity and net profit of the firms in properties sector) are also
not statistically significant in explaining the variation in the dividend
payment at 90% confidence level because the computed t less than the
value of book t. However, although the result obtained on average
showed insignificant, but if we go to regression for each companies in this
sector, the result for several companies are statistically significant in
explaining the variation in the dividend payment.

F = _3 – 1_ = 2_
5–3 2
significant of the overall model. For this sector, the result shown the
following;
COMPUTED F BOOK F
<
1.841 19.00
Therefore, the overall model is insignificant since the computed F
less than the value of book F.
^
Y = Y + t n-k SE
__

^
Y = Y + 6.314 (0.0334237)
__
= Y + 0.2110
__
4.4 LINE GRAPH

D IV ID E N D P A Y O U T R A T IO F O R T H R E E S E C T O R S
3 .5 0 0 0
3 .0 0 0 0
2 .5 0 0 0
2 .0 0 0 0
CO NSUM ER SE
MEAN DPR
1 .5 0 0 0
M AN U F AC TU R I
1 .0 0 0 0 SEC TO R
P R O P E R T IE S S
0 .5 0 0 0
0 .0 0 0 0
1 2 3 4 5
YEAR
Besides to examine the relationship between independent variables and
dependent variable, one of the specific objective of this study is to identify which
sector pay highest dividend payment through the time frame (2002 to 2005). The
graph above shown the fluctuate of dividend payment made by each sector
which is measured by the mean of dividend payout ratio (DPR). Overally, it is
clearly shown that consumer sector has pay the highest dividend through the five
years period. Although for the year 1 (2002) showed that manufacturing sector
pay more dividend than consumer sector, but thereafter it has decreased
significantly from 3.2393 to 0.3129 while the consumer sector increased the
payment slightly in year 2. It then continuously decreased until year 5 (2005).
Properties sector on the other hand did not show significant fluctuation for the
overall period.

Determinants of Dividend Payment Empirical Finding

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DETERMINANTS OF DIVIDEND PAYMENT EMPIRICAL FINDING

by using simple regression analysis through the SPSS program. SPSS

program is used to derive the estimated regression as stated earlier.

In this study, the mean of dividend payment which is measured as

dividend payout ratio (DPR) of ten companies from consumer, industrial

and properties sectors were regressed against independent variables of

each independent variable for the companies also computed as a mean.

sector for the purpose of comparison.

4.2 RESULTS FOR CONSUMER SECTOR

4.2.1 ESTIMATED REGRESSION EQUATION

By using the SPSS program, the regression equation and the

result from the data are as follows;

DIV = 4.157 + 1.243 CS + 1.16 LQ - 1.6340 NP

Se = (0.223) (0.341) (0.058) (0.000)

t-stat = (18.613) (3.644) (2.013) (-20.330)

DIV = DIVIDEND PAYMENT

4.2.2 INTERPRETATION OF RESULT

4.2.2.1 Value of Coefficient

INDEPENDENT COEFFICIENT INTERPRETATION

4.2.2.2 Priori Relationship

INDEPENDENT SIGN INTERPRETATION

CS + Debt to equity ratio increases, dividend

LQ + Quick ratio increases, dividend payment

NP __ Net profit increases, dividend payment

4.2.2.2 Coefficient of Determination ( R2)

This means 99.90% of the variation in dependant variable

(dividend payment) can be explained by the change in independent

explained by other variables (not mentioned). Therefore, the equation has

high explanatory power because of high R2.

According to the t distribution table:

DEGREES OF FREEDOM (df)

are statistically significant in explaining the variation in the dividend

payment at 90% confidence level because the computed t exceeded the

F = explained variation / (k-1)____

From the book F, the value is 19.00. The value of computed F is

significant of the overall model. The result shown the following..

Therefore, the overall model is significant since the computed F

exceeded the value of book F.

4.2.2.6 Standard Error of Estimate (SE)

Y = current value of the dependent variable

Therefore, at 90% probability the actual value of Y

(dividend payment) will fall within the range of Y – 0.2128

units and Y + 0.2128 units.

4.3 RESULTS FOR MANUFACTURING SECTOR

4.3.1 ESTIMATED REGRESSION EQUATION

DIV = -25.817 + 49.166 CS + 12.779 LQ - 0.00000003483 NP

Se = (11.178) (17.862) (5.276) (0.000)

t-stat = (-2.310) (2.753) (2.422) (-2.516)

DIV = DIVIDEND PAYMENT

4.3.2 INTERPRETATION OF RESULT

4.3.2.1 Value of Coefficient

INDEPENDENT COEFFICIENT INTERPRETATION

NP - 0.00000003483 If net profit increases by RM1,

4.3.2.2 Priori Relationship

INDEPENDENT SIGN INTERPRETATION

CS + Debt to equity ratio increases, dividend payment

LQ + Quick ratio increases, dividend payment increases.

NP __ Net profit increases, dividend payment decreases.

4.3.2.3 Coefficient of Determination ( R2)

This means 92.70% of the variation in dependant variable

(dividend payment) for manufacturing sector can be explained by the

change in independent variables (capital structure, liquidity and net profit).