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

Research output: Contribution to journalArticle

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.

Original languageEnglish
JournalJournal of Computational and Theoretical Nanoscience
Volume15
Issue number9
Publication statusPublished - 1 Jan 2018

Fingerprint

Dividend
Tax
Taxation
Malaysia
Industry
industries
costs
Transaction Costs
t-test
Imputation
Equity
Simplicity

Keywords

  • Clientele theory
  • Dividend behavior
  • Dividend tax reform
  • Malaysia

ASJC Scopus subject areas

  • Chemistry(all)
  • Materials Science(all)
  • Condensed Matter Physics
  • Computational Mathematics
  • Electrical and Electronic Engineering

Cite this

Effects of dividend tax reform on dividend behavior : A clientele theory approach. / Ismail, Ida Suriya; Palil, Mohd Rizal; Ramli, Rosiati; Abdul Rahman, Mara Ridhuan Che.

In: Journal of Computational and Theoretical Nanoscience, Vol. 15, No. 9, 01.01.2018.

Research output: Contribution to journalArticle

@article{980b99570f594498b16dbb078baa75b9,
title = "Effects of dividend tax reform on dividend behavior: A clientele theory approach",
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 = "Clientele theory, Dividend behavior, Dividend tax reform, Malaysia",
author = "Ismail, {Ida Suriya} and Palil, {Mohd Rizal} and Rosiati Ramli and {Abdul Rahman}, {Mara Ridhuan Che}",
year = "2018",
month = "1",
day = "1",
language = "English",
volume = "15",
journal = "Journal of Computational and Theoretical Nanoscience",
issn = "1546-1955",
publisher = "American Scientific Publishers",
number = "9",

}

TY - JOUR

T1 - Effects of dividend tax reform on dividend behavior

T2 - A clientele theory approach

AU - Ismail, Ida Suriya

AU - Palil, Mohd Rizal

AU - Ramli, Rosiati

AU - Abdul Rahman, Mara Ridhuan Che

PY - 2018/1/1

Y1 - 2018/1/1

N2 - 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.

AB - 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.

KW - Clientele theory

KW - Dividend behavior

KW - Dividend tax reform

KW - Malaysia

UR - http://www.scopus.com/inward/record.url?scp=85061089307&partnerID=8YFLogxK

UR - http://www.scopus.com/inward/citedby.url?scp=85061089307&partnerID=8YFLogxK

M3 - Article

VL - 15

JO - Journal of Computational and Theoretical Nanoscience

JF - Journal of Computational and Theoretical Nanoscience

SN - 1546-1955

IS - 9

ER -