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Transcript of Masters Presentation
Evidence from Malaysian Government Linked Companies
26 June 2014
Supervisor: Dr. Fauzi Zainir
Allen, D.E. and Rachim, V.S. (1996), “Dividend policy and stock price volatility: Australian evidence”, Journal of AppliedEconomics, Vol. 6, pp. 175-88.
Al-Malkawi, H.-A., N., Rafferty, M. and Pillai, R. (2010), ''Dividend policy: a review of theories and empirical evidence'', International Bulletin of Business Administration, Vol.9, pp. 7-18.
Baskin, J. (1989), “Dividend policy and the volatility of common stock”, Journal of Portfolio Management, Vol. 15, pp. 19-25.
Black, F. (1976), ''The dividend puzzle'', Journal of Portfolio Management, Vol. 2, pp. 1-5.
Fama, E. and French, K. (2002), “Testing Trade-Off and Pecking Order Predictions About Dividends and Debt”, The Review of Financial Studies, Vol. 15, pp. 1-33.
Gordon, M.J. (1959), "Dividends, Earnings and Stock Prices'', Review of Economics and Statistics, Vol.41, pp.99-105.
Modigilani, F. (1982), “Debt, dividend policy, inflation and market valuation”, The Journal of Finance, Vol. 37, pp. 225-75.
A significant negative relationship between stock price volatility with dividend yield and payout.
Firm size has a significant negative relationship with stock price volatility.
Two most dominant variables that stimulated stock price volatility are dividend yield and size.
Debt, earnings volatility and growth have positive coefficient in relation to stock price volatility but these variables are insignificant.
Industries do not materially shift the independent variables’ coefficient much but changes in the beta statistics signify influence.
Panel Data Regression Analysis
Standard Deviation: Mean price volatility (0.44475) x constant (0.6008) = 26.72% (Parkinson, 1980)
In line with results obtained by Allen and Rachim (1996) of 29.42% regarding Australian firms, Baskin (1989) of 36.9% regarding US firms and Hussainey et al. (2011) of 17.66% regarding UK firms.
Variables and Hypotheses
Measurement of Variables
Sample Description and Data Collection
Despite numerous studies done to assess the influence of dividend policy on
stock price volatility there is no conclusive evidence to relate these two factors.
As part of the GLC Transformation Program, dividend policy is one such
guideline implemented to increase the performance and shareholders' value.
However, the effectiveness of this policy on increasing the valuations of these
stocks is not known.
This study attempts to fill up this research gap by trying to ascertain whether the
dividend policy put in place by the government on Malaysian GLCs have helped to
abate investors fears in investing in this stocks.
Plays a significant role in nation building and spurring economic activities (Abdullah, 2007)
As government invest heavily in GLCs, ensuring its effectiveness is crucial due to public scrutiny (Ang & Ding, 2006)
Role of GLCs
‘’Success is a journey not a destination. The doing is more important than the outcome.’’ – Arthur Ashe
Compare the influence of other ownership structures on dividend policy, such as:
- less diffused ownership; and
- family controlled ownership.
Analyse the level of government ownership and its effect on dividend policy.
Explore the association of director's tenure, CEO duality and other board characteristics.
Apply different control variable to get a much more significant relationship betweendividend policy and stock price volatility.
Examining the duration effect and its sensitivity to movement in interest rates could also be explored.
Pearson’s Correlation Analysis
Panel Data Regression Model
Variables and Hypotheses
Measurement of Variables....cont
Ownership structure is a substantial factor in influencing a company's strategies, objectives, shareholders
wealth and integrity of managers (Jensen ,2000).
Government intervention provides a commendable level of corporate governance (Ang and Ding, 2006).
Degree of government ownership is positively correlated to companies’ value (Lau and Tong, 2008). Based on study done on 25 Malaysian GLC from 2000 – 2005.
Post 97/98 Asian financial crisis, the relationship between governance and dividend grew stronger due to rise in governance empowering shareholders (Abdul, 2002).
In countries with solid investor protection, dividends represent an important role in minimising agency problems, vice versa (La Porta et al., 2000). – China, Malaysia, Singapore, Holland, etc
GLC and Dividend Policy
Volatility is the measure of dispersion in the price of a stock over a time period and it is also closely related to the level of uncertainty.
The higher the volatility the higher the risk a stock will be exposed to significant gain or loss (Profilet & Bacon, 2013).
According to Baskin (1989), despite controlling industrial and financial factors, dividends are strong predictor of volatility.
Dividend Policy and Share Price Volatility
The Putrajaya Committee on GLC High Performance (PCG)
Scope of the GLC Transformation Programme
Perhaps dividends represents return for investors?
Perhaps corporations pay dividends as an incentive?
Perhaps dividends give investors a chance to sell shares at a higher price?
Fischer Black, 1976
Dividend is a firm’s strategy to paying out its earnings to shareholders as opposed to using it for reinvestment purposes.
Dividend policy is a strategy and decision that management need to plan on a regular basis (Allen and Michaely, 2002).
Dividend policy is tracked using two ratios:
1) DPR – Dividend Payout ratio 2) DY – Dividend Yield
Dividend Policy and Share Price Volatility
a) To examine the influence of dividend payout ratio on stock price
olatility in government owned companies.
b) To examine the influence of dividend yield on stock price volatility in government owned companies.
a) Is there any relationship between dividend payout ratio and stock price volatility in government owned companies?
b) Is there any relationship between dividend yield and stock price volatility in government owned companies?
Purple Book: Capital Management Guidelines
Development of Hypotheses
Background on GLCs
GLC Transformation Timeline
The 10 Initiatives
History and Evolution of GLCs
Results and Findings
Thank you for your attention!