Effects of Dividend Tax Reform on Dividend Behavior: A Clientele Theory Approach

Ida Suriya Ismail, Mohd Rizal Palil, Rosiati Ramli, Mara Ridhuan Che Abdul Rahman

Abstract


ABSTRACT

Clientele theory claims that investors have their own systematic preference to plan their dividend portfolios based on tax and transaction cost incurred. Due to that, companies need to decide on their dividend payout policy that can attract investors to invest in their company especially when dividend tax laws change from full imputation system to single tier tax system (STT). STT is expected to enhance the simplicity and efficiency of the tax administration process with the intention of encouraging companies to pay dividend. Therefore, this paper attempts to examine company dividend payouts by focusing on two observations periods; during transitional period of STT and after the compulsory effects of STT. This study has selected 141 public listed companies from two of the biggest industries in Malaysia and produced 4,508 observations for the period of 2002 until 2015. This study has used t-test of significant difference to test the changes on dividend payouts by splitting the data into full sample and among the payers only. Initially, during the transitional period, results were consistent with clientele theory when it was found that both regular and special dividend had significantly increased during transitional period. In addition, this study also found that companies with the best performance in terms of return on equity had significantly increased their regular dividend, while moderate companies has significantly increased special dividend during transitional period. But the results were insignificant among poor performance companies. In contrast, the results suggested that there is no significant difference of dividend payouts once the compulsory effects of STT took place.

Keywords: dividend tax reform; dividend behavior; clientele theory; Malaysia.

ABSTRAK

Teori pelanggan mendakwa bahawa pelabur mempunyai pendekatan yang sistematik untuk merancang portfolio dividen mereka berdasarkan kos cukai dan urus niaga yang perlu ditanggung. Oleh itu, syarikat perlu membuat keputusan mengenai polisi pembayaran dividen bagi menarik pelabur untuk melabur di syarikat mereka terutama apabila undang-undang cukai dividen berubah daripada sistem imputasi penuh ke sistem cukai satu peringkat (STT). STT dijangka dapat meningkatkan kecekapan proses pentadbiran cukai dengan tujuan mendorong syarikat untuk membayar dividen. Oleh itu, kertas kerja ini cuba mengkaji pembayaran dividen syarikat dengan memberi tumpuan kepada dua tempoh pemerhatian iaitu semasa tempoh peralihan STT dan selepas kesan wajib STT. Kajian ini telah memilih 141 syarikat tersenarai awam daripada dua industri terbesar di Malaysia dan menghasilkan 4,508 pemerhatian bagi tahun 2002 hingga 2015. Kajian ini menggunakan ujian T yang boleh membezakan perubahan pembayaran dividen dengan memisahkan data ke dalam sampel penuh dan antara pembayar dividen sahaja. Pada mulanya, semasa tempoh peralihan, hasil kajian adalah konsisten dengan teori pelanggan apabila didapati bahawa dividen tetap dan dividen khas telah meningkat dengan ketara dalam tempoh peralihan. Di samping itu, kajian ini juga mendapati bahawa syarikat yang mempunyai prestasi terbaik dari segi pulangan atas ekuiti telah meningkatkan dividen tetap dengan ketara manakala syarikat sederhana telah meningkatkan dividen khas dalam tempoh peralihan. Tetapi hasil kajian adalah tidak signifikan dalam kalangan syarikat yang berprestasi lemah. Sebaliknya, hasil kajian mendapati bahawa tiada perbezaan yang signifikan dalam pembayaran dividen apabila kesan wajib STT berlaku.

Kata kunci: Pertukaran cukai dividen; tingkah laku dividen; teori pelanggan; Malaysia.


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