To read this content please select one of the options below:

Corporate cash flow and dividends smoothing: a panel data analysis at Bursa Malaysia

Apedzan Emmanuel Kighir (Department of Financial reporting, Accounting research institute, Shah Alam, malaysia)
Normah Haji Omar (Accounting Research Institute, Universiti Teknologi MARA, Shah Alam, Malaysia)
Norhayati Mohamed (Accounting Research Institute, Universiti Teknologi, MARA, Shah Alam, Malaysia)

Journal of Financial Reporting and Accounting

ISSN: 1985-2517

Article publication date: 6 July 2015

1975

Abstract

Purpose

The purpose of this paper is to contribute to the debate and find out the impact of cash flow on changes in dividend payout decisions among non-financial firms quoted at Bursa Malaysia as compared to earnings. There has been renewed debate in recent finance and accounting literature concerning the key determinants of changes in dividends payout policy decisions in some jurisdictions. The conclusion in some is that firms base their dividend decisions on cash flows rather than published earnings.

Design/methodology/approach

The research made use of panel data from 1999 to 2012 at Bursa Malaysia, using generalized method of moments as the main method of analysis.

Findings

The research finds that Malaysia non-financial firms consider current earnings more important than current cash flow while making dividends payout decisions, and prior year cash flows are considered more important in dividends decisions than prior year earnings. We also found support for Jensen (1986) in Malaysia on agency theory, that managers of firms pay dividends from free cash flow to reduce agency conflicts.

Practical implications

The research concludes that Malaysian non-financial firms use current earnings and less of current cash flow in making changes in dividends policy. The policy implication is that current earnings are dividends smoothing agents, and the more they are considered in dividends payout decisions, the less of dividends smoothing.

Social implications

If dividends smoothing is encouraged, it could lead to dividends-based earnings management.

Originality/value

The research is our novel contribution of assisting investors and government in making informed decisions regarding dividends policy in Malaysia.

Keywords

Acknowledgements

The researchers gratefully acknowledge financial support from the Ministry of Education, Malaysia, through Accounting Research Institute, Universiti Teknologi MARA, Malaysia, towards the research.

Citation

Kighir, A.E., Omar, N.H. and Mohamed, N. (2015), "Corporate cash flow and dividends smoothing: a panel data analysis at Bursa Malaysia", Journal of Financial Reporting and Accounting, Vol. 13 No. 1, pp. 2-19. https://doi.org/10.1108/JFRA-09-2013-0072

Publisher

:

Emerald Group Publishing Limited

Copyright © 2015, Emerald Group Publishing Limited

Related articles