Family ownership and dividend payout in Malaysia

Abstract

Purpose – The purpose of this paper is to investigate the effects of family ownership on dividend payout from the perspective of agency costs in Malaysia. Design/methodology/approach – Annual financial, board and family ownership data of 160 firms listed on the Bursa Malaysia are collected for the period 2005-2010. Analyses are carried out using descriptive statistics, χ2 tests, Tobit regression and three-stage least square regression analysis. Findings – The empirical results suggest that family share ownership at the dispersed level from between 0 to 5 percent is negatively associated with dividend payout and positively associated from the 5 to 33 percent level with dividend payout. Consistent with the extant literature, the observed relationship between family share ownership and dividend payout is stronger in firms with smaller total assets (size), low debt and low-growth opportunities. Further examination of investment decisions lends support to arguments which attribute higher agency costs as a result of family ownerships. Research limitations/implications – The observed results at the different family ownership levels are attributed to the possible expropriation in family-owned firms and accordingly, to the proportional pressure by minority and other shareholders for dividend payout. Practical implications – For policy makers, findings from this study could serve to justify initiatives to further strengthen the institutional and regulatory architectures that would enhance the power of minority and other shareholders of public listed firms in Malaysia. Originality/value – This study contributes to the growing literature on dividend policy and family firms. Particularly, it provides further understanding of the effect of family ownership on dividend policy.