Dividend policy choice : do earnings or investment opportunities matter?

The aim of this paper is to analyse the influence of a company's level of earnings and growth opportunities in determining the dividend policy choice of Malaysian-listed firms. The analysis is based on a sample of 136 firms listed on the Bursa Malaysia Index over a period of six years, from 1990 to 1996. The evidence suggests that the payers are more profitable than non-payers. Likewise, investment opportunity, which is measured by (∂At /At-1) and (Vt /At), differed for both payers and non-payers. The regression estimates from Logit model suggest that the average coefficient for EATA is a significant determinant for firm's dividend policy choice in Malaysia. This is consistent with the supposition that profitable firms are more likely to pay dividends than less profitable firms. Although investment opportunities, the firm's size and leverage were not found to be statistically significant, they provided some explanation for the dividend policy choice.