THE EFFECT OF DIVIDEND POLICY ON SHARE PRICES OF BURSA MALAYSIA LISTED COMPANIES

Abstract

The objective of this study is to determine the effects of dividend policies on share prices with an emphasis on companies listed on the FTSE Bursa Malaysia 100 (FBM100) index. These research aims to investigate and examine the effect of dividend policy on the share prices performance of listed companies under FTSE FBM100. This study measures a relationship between dividend policies (independent variables) which include dividend yield, volume traded, dividend payout, and company size, return on invested capital, free cash flow yield, volume traded (control variables) toward share price as dependent variable. The effects of dividend policy on share price movement are one of the most disputed topics in corporate finance. The share price is the most common factor for investors when making decision to buy shares. Various empirical studies can be found examining and analyzing the effect of dividend policy on share prices, however, the results are inconsistent. This study focused on the effect of dividend policy on share prices of companies listed on the FTSE (Financial Time Stock Exchange) FBM100 index from 2011 to 2020.. A total of 56 companies are sampled in this study after filtering, and data were analyzed using the regression model. The results of panel data regression model indicated that dividend payout has an insignificant effect on share prices, however, dividend yield has negative and significant effect on share price. Return on invested capital, volume traded, and company sizes by market capitalization have significant effect on share price while free cash flow yield had no significant effect. As a result, dividend policy has considerable impact on share prices. Thus, the result is important. The findings of this study are expected to serve as a reference for companies in establishing dividend policies that will improve company performance and for investors in considering whether it should retain, increase, or decrease their stake in the company.