# 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.

DETERMINANTS OF DIVIDEND PAYMENT

EMPIRICAL FINDING

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 Se

= 4.157 + 1.243 CS + 1.16 LQ - 1.6340 NP = (0.223) (0.341) (0.058) (2.013) (0.000) (-20.330)

t-stat = (18.613) (3.644)

Where; DIV CS NP LQ = = = = DIVIDEND PAYMENT CAPITAL STRUCTURE NET PROFIT LIQUIDITY

DETERMINANTS OF DIVIDEND PAYMENT

EMPIRICAL FINDING

4.2.2

INTERPRETATION OF RESULT

4.2.2.1

Value of Coefficient

INDEPENDENT VARIABLES CS (Debt to equity ratio)

COEFFICIENT 1.243

INTERPRETATION

If debt to equity ratio increases by 1%, dividend payment will increase by RM 1.243.

LQ (Quick ratio)

1.16

If quick ratio increases by 1%, 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.

DETERMINANTS OF DIVIDEND PAYMENT

EMPIRICAL FINDING

4.2.2.2

Priori Relationship

INDEPENDENT VARIABLES CS (Debt to equity ratio) LQ (Quick ratio)

SIGN

INTERPRETATION

+

Debt to equity ratio increases, dividend payment increases.

+

Quick ratio increases, dividend payment 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.

DETERMINANTS OF DIVIDEND PAYMENT

EMPIRICAL FINDING

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 VARIABLES t CS 3.644 LQ 2.013 NP - 20.330

BOO Kt 6.314 6.314 6.314

OUTCOME Insignificant Insignificant Significant

ACCEPT/REJECT H1 Reject H1 Reject H1 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

DETERMINANTS OF DIVIDEND PAYMENT

EMPIRICAL FINDING

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_ 5–3

=

2_ 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.

DETERMINANTS OF DIVIDEND PAYMENT

EMPIRICAL FINDING

4.2.2.6 Standard Error of Estimate (SE)

^ Y = Y + t n-k SE __

Y n-k n k

= current value of the dependent variable = degree of freedom = number of observation = 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.

DETERMINANTS OF DIVIDEND PAYMENT

EMPIRICAL FINDING

4.3

**RESULTS FOR MANUFACTURING SECTOR 4.3.1
**

ESTIMATED REGRESSION EQUATION

DIV Se

= -25.817 + 49.166 CS + 12.779 LQ - 0.00000003483 NP = (11.178) (17.862) (2.753) (5.276) (2.422) (0.000) (-2.516)

t-stat = (-2.310)

Where; DIV CS NP LQ = = = = DIVIDEND PAYMENT CAPITAL STRUCTURE NET PROFIT LIQUIDITY

DETERMINANTS OF DIVIDEND PAYMENT

EMPIRICAL FINDING

4.3.2

INTERPRETATION OF RESULT

4.3.2.1

Value of Coefficient

INDEPENDENT VARIABLES CS (Debt to equity ratio)

COEFFICIENT 49.166

INTERPRETATION

If debt to equity ratio increases by 1%, dividend payment will increase by RM49.166.

LQ (Quick ratio)

12.779

If quick ratio increases by 1%, dividend payment will increase by RM12.779.

NP

- 0.00000003483

If net profit increases by RM1, dividend payment will decrease by RM0.00000003483.

DETERMINANTS OF DIVIDEND PAYMENT

EMPIRICAL FINDING

4.3.2.2

Priori Relationship

INDEPENDENT VARIABLES CS (Debt to equity ratio) LQ (Quick ratio)

SIGN

INTERPRETATION

+

Debt to equity ratio increases, dividend payment increases.

+

Quick ratio increases, dividend payment increases.

NP

__

Net profit increases, dividend payment decreases.

4.3.2.3

Coefficient of Determination ( R2)

R2

= 0.927

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).

DETERMINANTS OF DIVIDEND PAYMENT

EMPIRICAL FINDING

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

According to the t distribution table:

DEGREES OF FREEDOM (df) = NO. OF OBSERVATION – NO. OF INDEPENDENT VAR - 1

df = 5 – 3 – 1 = 1

INDEPENDENT VARIABLES CS LQ NP

COMPUTED t 2.753 2.422 - 2.516

BOOK t 6.314 6.314 6.314

OUTCOME Insignificant Insignificant Insignificant

ACCEPT/REJECT H1 Reject H1 Reject H1 Reject H1

DETERMINANTS OF DIVIDEND PAYMENT

EMPIRICAL FINDING

Refer to book t (at 90% confidence level), the value of t- stat is 6.314.

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.

4.3.2.5

F-Statistics

F =

explained variation / (k-1)____ Unexplained variation / (n- k)

F = _3 – 1_ 5–3

=

2_ 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

DETERMINANTS OF DIVIDEND PAYMENT

EMPIRICAL FINDING

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.

4.3.2.6

Standard Error of Estimate (SE)

^ Y = Y + t n-k SE __

Y n-k n k

= current value of the dependent variable = degree of freedom = number of observation = number of coefficient estimated

^ Y = Y + 6.314 (0.6953302) __

= Y + 4.3903

__

DETERMINANTS OF DIVIDEND PAYMENT

EMPIRICAL FINDING

Therefore, at 90% probability the actual value of Y (dividend payment) will fall within the range of Y – 4.3903 units and Y + 4.3903 units.

4.3

RESULT FOR PROPERTIES SECTOR

4.3.1

ESTIMATED REGRESSION EQUATION

DIV Se

= -0.799 – 1.057 CS + 0.796 LQ - 0.000000009333 NP = (0.552) (0.672) (0.452) (1.763) (0.000) (-1.054)

t-stat = (-1.448) (-1.573)

Where; DIV CS NP LQ = = = = DIVIDEND PAYMENT CAPITAL STRUCTURE NET PROFIT LIQUIDITY

DETERMINANTS OF DIVIDEND PAYMENT

EMPIRICAL FINDING

4.3.2

INTERPRETATION OF RESULT

4.3.2.1

Value of Coefficient

INDEPENDENT VARIABLES CS (Debt to equity ratio)

COEFFICIENT - 1.057

INTERPRETATION

If debt to equity ratio increases by 1%, dividend payment will decrease by RM1.057.

LQ (Quick ratio)

0.796

If quick ratio increases by 1%, dividend payment will increase by RM0.796.

NP

- 0.000000009333

If net profit increases by RM1, dividend payment will decrease by

DETERMINANTS OF DIVIDEND PAYMENT

EMPIRICAL FINDING

RM0.000000009333.

4.3.2.2

Priori Relationship

INDEPENDENT VARIABLES CS (Debt to equity ratio) LQ (Quick ratio)

SIGN

INTERPRETATION

__

Debt to equity ratio increases, dividend payment decreases.

+

Quick ratio increases, dividend payment increases.

NP

__

Net profit increases, dividend payment decreases.

4.3.2.3

Coefficient of Determination ( R2)

DETERMINANTS OF DIVIDEND PAYMENT

EMPIRICAL FINDING

R2

= 0.847

This means 84.70% of the variation in dependant variable (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

According to the t distribution table:

DEGREES OF FREEDOM (df) = NO. OF OBSERVATION – NO. OF INDEPENDENT VAR - 1

df = 5 – 3 – 1 = 1

INDEPENDENT VARIABLES CS LQ NP

COMPUTED t -1.573 1.763 - 1.054

BOOK t 6.314 6.314 6.314

OUTCOME Insignificant Insignificant Insignificant

ACCEPT/REJECT H1 Reject H1 Reject H1 Reject H1

DETERMINANTS OF DIVIDEND PAYMENT

EMPIRICAL FINDING

Refer to book t (at 90% confidence level), the value of t- stat is 6.314.

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.

4.3.2.5

F-Statistics

F =

explained variation / (k-1)____ Unexplained variation / (n- k)

DETERMINANTS OF DIVIDEND PAYMENT

EMPIRICAL FINDING

F = _3 – 1_ 5–3

=

2_ 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. 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.

4.3.2.6

Standard Error of Estimate (SE)

^ Y = Y + t n-k SE __

Y n-k n k

= current value of the dependent variable = degree of freedom = number of observation = number of coefficient estimated

DETERMINANTS OF DIVIDEND PAYMENT

EMPIRICAL FINDING

^ Y = Y + 6.314 (0.0334237) __

= Y + 0.2110

__

Therefore, at 90% probability the actual value of Y (dividend payment) will fall within the range of Y – 0.2110 units and Y + 0.2110 units.

4.4

LINE GRAPH

DETERMINANTS OF DIVIDEND PAYMENT

EMPIRICAL FINDING

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 MEAN DPR 2 .0 0 0 0 1 .5 0 0 0 1 .0 0 0 0 0 .5 0 0 0 0 .0 0 0 0

CO NSUM ER SE

M AN U F AC TU R I SEC TO R P R O P E R T IE S S

1

2

3

YEAR

4

5

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

DETERMINANTS OF DIVIDEND PAYMENT

EMPIRICAL FINDING

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.