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Dividend Policy of the Plantation Sector: Evidence from Shariah and
Non-Shariah Compliant Firms in Malaysia
Nur Amiera Hamizan
1
, Nor Adriana Atikah Satar
2
, Nur Hazimah Amran
3*
, Wahida Ahmad
3
1
UIS Technologies Sdn Bhd, Penang Science Park, 14100 Simpang Ampat, Pulau Pinang, Malaysia
2
Economic Planning Unit, Federal Government Administrative Centre, 62675 Putrajaya, Malaysia
3*
Arshad Ayub Graduate Business School, University Teknologi MARA, 40450 Shah Alam,
Selangor, Malaysia
*
Corresponding author
DOI:
https://dx.doi.org/10.47772/IJRISS.2025.915EC00746
Received: 03 February 2025; Accepted: 10 February 2025; Published: 06 November 2025
ABSTRACT
A firm's dividend policy conveys essential information about its decisions on profit distribution, making it highly
relevant for shareholders and investors while potentially influencing the firm's overall value. In this study,
dividend payment is used as a proxy to assess whether firms distribute high or low dividends, offering insights
into their dividend policies. The study has three key objectives: (i) to examine the factors influencing dividend
payments in Malaysia’s plantation sector, (ii) to determine significant differences in dividend payments between
Shariah-compliant and non-Shariah-compliant firms, and (iii) to analyze differences in dividend payments
during crisis and non-crisis periods. The study considers several determinants of dividend policy, including
dividend payout ratio, firm size, liquidity, leverage, sales growth, profitability, and two dummy variables—
Shariah status and crisis period. Adopting a quantitative approach, the research investigates 40 plantation firms
listed on Bursa Malaysia from 2000 to 2022. A Fixed Effects Model with clustered standard error estimation is
employed to address heteroscedasticity and serial correlation issues. The findings indicate a significant positive
relationship between dividend payments and both firm size and profitability, whereas leverage and the crisis
period exhibit a significant negative relationship with dividend payments. This study contributes to the existing
body of knowledge by providing valuable insights for management, stakeholders, and policymakers within
Malaysia’s plantation sector.
Keywords– Dividend Payout Ratio, Dividend Policy, Plantation Sector
INTRODUCTION
The rationale behind firms opting to distribute dividends has been a longstanding inquiry for scholars and
executives alike. The significance attributed to dividends by investors raises the question of why such emphasis
is placed on them. Dividends serve as tangible rewards for shareholders' investments, with firms choosing to
distribute them as a recognition of investors who have contributed capital through share purchases. This capital,
in turn, is utilized for ongoing operations, development, and expansion. Dividends enhance a firm's appeal to
potential investors by allowing them to share in the firm's profits directly. This practice not only acknowledges
investor contributions but also fosters positive investor relations, making dividend-paying stocks more attractive
compared to non-dividend options.
Investors seeking a steady income are naturally drawn to firms that regularly pay dividends, as opposed to relying
solely on capital growth. Dividends act as indicators of an organization's overall development, managerial
effectiveness, financial stability, and solvency. The Dividend Payout Ratio (DPR), representing the percentage
of net income paid to shareholders as dividends, serves as a crucial benchmark for investors assessing the returns
derived from a firm's earnings.
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Gordon [1] emphasized investors' interest in dividends over uncertain future capital gains, prompting firms to
allocate a significant percentage of dividends to attract investors. Financial management decisions in a firm
encompass three key aspects: selecting investments, determining funding solutions, and distributing dividends
[2]. These decisions collectively aim to maximize capital gains tax and enhance overall firm value, with
dividends playing a pivotal role.
Investors, who buy stocks for both capital gains and dividends, often find dividend distributions advantageous.
The consistent payment of dividends signals a firm's strong performance and attractiveness for investment. While
some sectors, such as construction, banking, technology, energy, and healthcare, offer dividends, the plantation
sector in Malaysia also provides dividends to investors. Previous studies suggest that dividends are integral to a
firm's finance and investment decisions, serving as a crucial aspect that cannot be easily separated from other
considerations. Examining financial performance data and economic conditions allows investors to assess a
firm's performance annually. The preference for dividends over capital gains stems from their reliability.
In the context of Malaysia's plantation sector during both crisis and non-crisis periods from 2000 to 2022, the
percentage of firms distributing dividends varies. Notably, some firms pay dividends, while others refrain from
doing so during different crisis, revealing an inconsistent pattern of dividend distribution as presented in Figure
1. This highlights the need for plantation sector managers to consider factors influencing dividend payments.
Therefore, this study explores determinants of dividend payments in the plantation sector, focusing on Shariah
and Non-Shariah Compliant firms in Malaysia during both crisis and non-crisis periods, contributing to existing
knowledge on the subject.
Fig. 1: Percentage of Firms in Dividend Distribution in Malaysia Plantation Sector from 2000 to 2022
Sources: Refinitiv Datastream [3]
Malaysia plantation firms is one of the drivers on the Malaysia’s economic, contributing significantly to its
export and gross domestic products as being the second largest producer of oil palm in the world. According to
the statistics provided by Ministry of Plantation Industries and Commodities (MPIC), it was anticipated that oil
palm export revenue for 2022 would increase by 11.8 percent, reaching RM72.25 billion, compared to the
RM64.62 billion recorded in 2021. According to the Director General of Malaysian Palm Oil Board (MPOB),
oil palm export volume climbed by 0.9% to 15.71 million tonnes over the previous year, which is year 2021,
owing to increasing demand, mainly from the United Arab Emirates, Saudi Arabia, Japan, Bangladesh, Egypt,
and Turkey. Further state in Economic Performance and Outlook 2023 report that the Malaysia plantation sector
is expected to be one of the main contributors for Malaysia’s gross domestic product (GDP) in 2023 [4]. As a
one of the key contributors for Malaysia’s economic gross domestic, it attracts investor who seek both economic
growth potential as well as dividends return. However, firms have choice to pay or not to pay the dividends to
their shareholders by looking at the performance of firms [5]. It is observed among firms in Malaysia plantation
sector, that there are some firms that decided not to pay, and some firms maintain to pay either increase or reduce
dividend payment during crisis and non-crisis period. Therefore, this lead to inconsistency of dividend
distribution pattern among firms in Malaysia plantation sector.
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Most Malaysia plantation firms prefer to pay dividends rather than not pay dividends during the crisis period.
Krieger, et al. [6] discover that well-size firms prefer to lower their payments rather than eliminate dividend. The
reduction on dividend payment made by the firms during a crisis enables the firms to maintain a higher level of
cash. This possibly helps the firms respond to any uncertainty that would happen during a crisis. Some plantation
firms also decided to increase the dividend payment during the crisis period. This happens as firms possibly want
to maintain existing shareholders during crisis period by to give a positive signal to shareholders on firms’
performance in the market [7]. Towards in the end of the crisis period, the numbers of firms that pay lower
dividends reduce and firms do not pay dividend increase. This might because some firms possibly prefer to retain
more earnings to boost the firms rather than make a higher dividend distribution which lead firms to pay lower
dividends or not pay dividends. Therefore, the inconsistent pattern of paying dividends in Malaysia plantation
firms takes to the question that "what are the factors that influences the dividend decision of firms during crisis
and non-crisis period?".
Besides, as for Shariah Compliant firms, firms are subject to certain restriction on the amount of total debt and
cash due to Shariah screening methodology in assessing financial ratio benchmark [8]. The screening criteria
required cash over total assets and debt over total asset which placed in conventional account must not above
33%. While Non-Shariah Compliant firms do not have any restriction on that. Thus, this might lead to different
dividend payment between Shariah Compliant and Non-Shariah Compliant firms in Malaysia plantation sector.
Bakri and Yong [9] state that low leverage is one of the crucial elements of Shariah Compliant firms that leads
the firms to rely on the availability of cash to make dividend distribution due to Shariah screening criteria.
Meanwhile, Anwer, et al. [10] discover that Shariah Compliant firms tend to make higher dividend distributions
than Non-Shariah Compliant firms. This happens as Shariah Compliant firms have higher profitability which
lead firms to distribute higher return to the shareholders through dividend payment.
In response to these issues, the study is motivated to investigate the possible factors that firms in the Malaysia
plantation sector consider before deciding to pay dividends to their shareholders. Due to inconclusive and
debatable issues, the study takes into consideration the Shariah status of the Malaysia plantation firms as well as
the crisis period. This study seeks to address these gaps. Emphasizing the gap, the study compares the dividend
payment of Shariah and Non-Shariah Compliant firms in Malaysia plantation sector. The study also differentiates
the dividend payment during crisis period and non-crisis period in which the crisis includes global financial crisis
from 2007 to 2009 and COVID-19 pandemic from 2020 to 2022. The study is essential because it contributes to
a better understanding on the factors that influence dividend payment of Shariah and Non-Shariah Compliant
firms in Malaysia's plantation sector during the crisis and non-crisis period.
LITERATURE REVIEW
The cornerstone of determining dividend distribution lies in a firm's overall financial performance, specifically
its capacity for dividend payments derived from profitability, liquidity, and financial position. Some firms refrain
from distributing dividends to preserve retained earnings, even with impressive profitability levels [11].
Dividend payment, representing management's distribution of accessible profits to shareholders, involves a
delicate balance. It serves as a mechanism to mitigate conflicts between management and shareholders, ensuring
rightful entitlements [12]. Firms navigate the decision to distribute profits or retain them for future reinvestment,
aiming for a balance between wealth maximization and financing expansion projects [13]. The decision involves
evaluating the firm's current situation, growth potential, and the choice between current cash distributions.
Shareholders prefer steady dividend distributions, reducing uncertainty and fostering trust, potentially increasing
the value of their shares [14]. The study measures dividend payment using the Dividend Payout Ratio (DPR),
aligning with Sharma and Bakshi [15], as it accurately reflects managerial conduct by analysing the proportion
of profits disbursed to shareholders compared to retained by the firm. The following paragraph discusses the
theoretical literature and followed by empirical literature.
The study identifies four (4) theories relevant to dividend distribution. Among others, signalling theory posits
that dividends act as messages from management to investors, revealing information about the firm's future
prospects. Miller and Modigliani [16] argued that dividend changes convey valuable insights, prompting investor
reactions. Increased dividends signal strong future earnings and higher profitability, as profits are partially
distributed to shareholders. Bhattacharya [17] further strengthened this notion, arguing that dividends,
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particularly in settings with asymmetric information, act as a powerful signal of a firm's performance and
potential. By distributing dividends, managers signal their confidence in the future, attracting investors and
distinguishing themselves from less promising firms. Thus, dividend changes signal positive or negative
expectations, guiding investor decisions and shaping perceptions of the firm's future profitability.
The bird in hand theory suggests investors prioritize the guaranteed reward of dividends (the bird) over the
uncertain promise of future capital gains (the bush). Investors favour the security of present income over the
potential, but risky, allure of future profits. Gordon [18] and Lintner [19] proposes that high dividend payouts
signal stability and profitability, leading to increased firm value and higher stock returns. However, the debate
remains heated, with many studies acknowledging the complex interplay between dividend policy, investor
preferences, market conditions, and firm growth potential. Unravelling this intricate relationship holds the key
to crafting the optimal dividend strategy that truly makes firms soar in the eyes of investors.
The agency theory, proposed by Jensen [20], highlights the conflicting priorities of shareholders (immediate
dividends) and managers (future growth). This conflict intensifies as firms mature and excess cash generates
potential misallocation and misuse by management [21]. To mitigate these conflicts, dividends act as a powerful
tool. Distributing dividends reduces free cash at managers' disposal, curbing potential malinvestment [22]. This
aligns with findings by Ogundajo, et al. [23], who suggest higher dividends reduce agency costs by restricting
managerial discretion over cashflows. Therefore, a carefully crafted dividend policy, balancing shareholder
desires and mitigating agency conflicts, can be a key driver of long-term value creation.
Firm life cycle theory, pioneered by Mueller [24], paints a dynamic picture of how dividend policy evolves with
a firm's age. Young firms, brimming with potential but facing uncertainties, prioritize reinvesting profits for
growth, aligning with the long-term interests of shareholders seeking market dominance. As maturity sets in and
competition intensifies, lucrative investment opportunities dwindle. Consequently, mature firms, flush with cash
from past investments, shift towards distributing dividends, fulfilling shareholder expectations for income
streams [25]. Notably, Fama and French [26] highlight the exception of young firms, often reliant on capital
gains, that hold off on dividends to fuel research and development (R&D) and growth, attracting investors
prioritizing future potential over immediate returns. Thus, firm life cycle theory suggests a compelling link
between dividend policy and a firm's age and growth trajectory, offering valuable insights for both managers and
investors.
Empirically, larger firms tend to decrease dividends as size increases [27]. Hartono, et al. [28] and Ogundajo, et
al. [23] support this notion, emphasizing that larger firms, despite increased profits, often reduce dividend
distribution to retain earnings for future investment. In specific situations, the size and profitability of a firm may
prompt a reduction in dividend rates to prioritize retained earnings for growth opportunities [15]. Contrastingly,
Nor, et al. [29] propose that larger firms distribute higher dividends. This finding aligns with Nyere and Wesson
[30] observation that as firm size increases, so does the level of dividend payment. Utami [11] highlights that
firms with substantial assets, enjoying easier access to the capital market, are inclined to pay higher dividends.
This positive relationship between firm size and dividend payment aligns with the life-cycle theory by Le, et al.
[31], positing that larger, mature firms with substantial profit accumulation become attractive dividend payers
as markets saturate, and competition intensifies [21].
Studies like Manaf, et al. [32] and Miller and Modigliani [16], suggest high liquidity leads to lower dividends.
The authors argue that firms with ample cash reserves prioritize reinvestment for future growth, potentially
sacrificing immediate shareholder payouts. This aligns with the life-cycle theory, where mature firms with strong
liquidity might favour reinvestment over dividends, while younger, cash-strapped firms prioritize dividends to
attract investors. However, another research paints a different picture. Tahir, et al. [33] highlight high liquidity
translates to higher dividends. The authors propose that excess cash signals strong financial health and future
profitability, prompting firms to reward shareholders through generous dividends. This aligns with the signalling
theory proposed by Christopher and Chalid [34], where high liquidity can be viewed as a positive signal,
attracting investors, and strengthening shareholder confidence.
Leverage, representing the extent to which a firm's assets are financed with debt, is a crucial factor influencing
dividend payments [14]. Studies by Afzal and Awais [35] and Angelia and Toni [12] suggest that firms with
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higher financial leverage tend to pay out lower dividends. This is likely due to the increased interest expenses
incurred on loans, as highlighted by Azmal, et al. [36]. Firms with high debt levels prioritize debt repayment
over dividend distribution, impacting profits and reducing dividend payments, aligning with findings from
Hartono, et al. [28] and Thakur and Kannadhasan [37]. In contrast, Nurfitri, et al. [38] and Biwott [39] highlight
firms with higher leverage tend to have higher dividend payments, supported by signalling theory, indicating
that high-leverage firms signal financial strength through consistent dividend payments [40]. Trisanti [5] and
Grace, et al. [41] also confirm a positive relationship between leverage and dividend policy, emphasizing that
higher debt levels may lead to increased profits and higher dividend payments.
Sales growth is a pivotal factor influencing a firm's financial performance and dividend distribution.
Warganegara, et al. [42] reveal higher sales growth among KSE-100 index-listed firms suggest well-performing
operations and increased capacity for dividend distribution. Similar findings by Nor, et al. [29], Chumari [43],
and Narindro and Basri [44] emphasize that firms with robust sales growth generate higher profits, enabling
greater dividends and reinvestment for future expansions. Contrarily, Kengatharan [45] and Utami [11] suggest
that firms with lower sales growth may retain profits for working capital needs and future dividend payments,
implying a negative impact on dividend distribution decisions. Chumari [43] supports this, stating that higher
sales growth leads to lower dividend payments among firms listed at NSE in Kenya, as growing firms prioritize
retaining earnings for expansion. Imamah, et al. [46] reinforce this perspective, indicating that firms with
significant sales growth might decrease dividend payments to secure funds for future uncertainties. Firms with
minimal sales growth focus on maintaining their current position by attracting investors through consistent
dividend payments. This nuanced relationship underscores the intricate interplay between sales growth and
dividend policies, reflecting the strategic considerations firms make based on their growth trajectory and
financial objectives.
Profitability stands as a crucial determinant of a firm's ability to declare and distribute dividends [47]. Studies
by Hariz [48], Bakri and Yong [9], and Ali, et al. [49] consistently affirm higher profits signal a firm's capacity
to distribute dividends, attracting and retaining investors, in line with the signalling theory. Cejnek, et al. [50]
highlight that profitable firms, by generating high free cash flow, have the means to increase dividend payments.
However, contradictory findings by Chan, et al. [51], Krieger, et al. [6], and Tekin [52] suggest firms with high
profitability may prioritize other financial obligations, such as debt repayment, over dividend distribution,
leading to lower dividend payment.
Tran, et al. [53] and Tinungki, et al. [7] indicate that Shariah Compliant firms, driven by higher profitability and
limited investment options, tend to distribute higher dividends compared to Non-Shariah Compliant firms. This
is attributed to the mature nature of profitable firms, which prioritize dividends over expansive investments.
Eugster, et al. [54] and Tekin [52] support this view, emphasizing the implicit expectation within the Shariah
system favouring dividends. In contrast, Ariani, et al. [55] find that Shariah Compliant firms in the Islamic
Indonesia Stock Index may decide not to pay dividends, citing lower profitability and losses compared to Non-
Shariah Compliant firms. The CEO of the Employee Provident Fund (EPF) attributes lower dividend distribution
in Malaysia to the lack of exposure of Shariah Compliant assets to global conventional banking systems,
impacting profit inclusion in dividends [29]. Additionally, Hasnawati [21] note that Shariah Compliant firms'
low leverage and reliance on cash, due to screening criteria, result in lower liquidity and, consequently, lower
dividend payments.
During crisis periods, Utami [11] emphasize that firms are significantly more inclined to omit or reduce dividend
payments. Firm-level characteristics such as profitability, asset turnover, and size play a role, with more
profitable and larger firms less likely to omit dividends. Le, et al. [31] note a higher likelihood of dividend
abolition among firms with elevated debt levels, particularly during crises. Hartono and Matusin [56] find that
highly leveraged Malaysian non-financial firms are prone to cutting dividends in crisis periods to mitigate risks
and maintain liquidity, reflecting a cautious approach amidst market pessimism.
Conversely, Singla and Samanta [27] stress that larger firms prefer reducing payments rather than completely
eliminating dividends during a crisis. This reduction allows firms to maintain higher cash levels, enhancing their
ability to navigate uncertainties. Tahir, et al. [33] suggests that small firms, guided by signalling theory, decrease
dividend payments during crises to communicate concerns to the market. Wahjudi [14] show that firms facing
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economic uncertainty during crises prioritize saving cash over dividend payments, especially if firm have high
leverage, reflecting limitations imposed by creditors. In contrast to these findings, Khan, et al. [57] discover
many firms manage to increase dividend distribution during the COVID-19 pandemic, signalling positive
performance. Stephen [58] note an overall increase in firms maintaining or raising dividend payments during the
pandemic, aligning with signalling theory, which shows sustained dividend distribution signals strong market
positioning and profit potential.
The debatable arguments on dividend payment motivates the study to further investigate possible factors (firm
size, liquidity, leverage, sales growth, and profitability) influence dividend payment of firms in Malaysia
plantation sector. Additionally, two (2) dummy variables, Shariah status and crisis period, are included. In the
study, the study uses dividend payment as a proxy to measure whether the firm is paying a high or low dividend
to portray their dividend decision.
RESEARCH METHODOLOGY
This study includes both Shariah and Non-Shariah Compliant firms in plantation sector listed on Bursa
Malaysia's main market which consists of 41 firms. Due to availability of a list of Shariah Compliant securities
provided by the Shariah Advisory Council of the Securities Commission Malaysia starting in 2000, the study
includes data from the year 2000 until 2022, consist of 23 years of data collection. As a result, the study obtained
943 observations. The data is collected from Refinitiv Datastream and Eikon Database which recently known as
London Stock Exchange Group (LSEG) Eikon. However, the study anticipates the potential missing values due
to the unavailability of certain data. Due to that, the observation of the study reduces and leads to unbalanced
panel data.
Table 1 presents variables definition and proxies measurement of selected variables used in the study. The
dependent variable in the study is dividend payment The study uses Dividend Payout Ratio (DPR) as the proxy
measurement to dividend payment, either firms pay lower or higher dividend payment which portrays the firms’
dividend decision.
TABLE 1 VARIABLES DEFINITION AND PROXIES MEASUREMENT
Variables
Notation
Proxy Measurement
Dependent Variable
Dividend Payment
DP
Dividend Payout Ratio = Dividends Per Share / Earnings Per Share * 100%
Independent Variables
Firm Size
SIZE
Natural Logarithm of Total Asset
Liquidity
LIQ
Current Ratio = (Total current assets)/ (total current liabilities) * 100%
Leverage
LEV
Debt to Equity = (Long Term Debt + Short Term Debt & Current Portion
of Long-Term Debt) / Common Equity * 100%
Sales Growth
SG
Sales Growth = Net Sales/Revenue Growth * 100%
Profitability
PROF
Return on Asset = (Net Income – Bottom Line + ((Interest Expense on
Debt-Interest Capitalized) * (1-Tax Rate))) / Average of Last Year's and
Current Year’s Total Assets * 100%
Dummy Variables
Shariah Status
SS
1 for Shariah Compliant Firm, 0 Otherwise
Crisis Period
CRIS
1 for Crisis Period, 0 Otherwise
Note: All variables are in percentage except for dummy variables.
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The independent factors for the study are firm size, liquidity, leverage, sales growth, and profitability which
includes dummy variables such as Shariah status and crisis period. Firm size in the study is measured using the
natural logarithm of total assets to normalize the data, which align with the study by Tran, et al. [53]. This is due
to the substantial gap between minimum and maximum amount of total asset for the Malaysia plantation firms.
This study uses two (2) dummy variables that are Shariah status and crisis period. Shariah status of firms is
categorized based on the latest annual status in which if the announcement of Shariah status state the firms is
Non-Shariah Compliant in May but in November is Shariah Compliant, the status of firms is Shariah Compliant
Firms in that year. Meanwhile, period of crisis is categorized into two (2) crisis period which encompassing the
financial crisis from 2007 to 2009 and COVID-19 pandemic from 2020 to 2022. This is aligned with a study by
Miller and Modigliani [16] and Imamah, et al. [46] that includes those particular years as crisis period.
Before proceeds with the multiple regression analysis, the study tests for several diagnostic testing which include
outlier test, multicollinearity test using a Variance Inflation Factor (VIF), Modified Wald test to perform a
heteroscedasticity test and autocorrelation test using Wooldridge test. The study also conducts unit root test using
the Fisher type unit root test based on Phillips-Perron test as the dataset of the study is unbalanced panel data.The
study uses multiple regression analysis to test the relationship between firm size, liquidity, leverage, sales growth,
profitability, Shariah status, crisis with dividend payment of firms in Malaysia plantation sector. The following
econometric equation (1) is presented to substantiate the study hypotheses:
In the analysis, various variables and terms are employed to examine the relationship between dividend payment
and several key factors. Dividend Payment (DP) serves as the dependent variable, representing the focus of
investigation. The constant term is denoted by
, while the coefficients of independent variables are represented
by
. Among these independent variables, Firm Size (SIZE), Liquidity (LIQ), Leverage (LEV), Sales
Growth (SG), Profitability (PROF), Shariah Status (SS), and the presence of a Crisis Period (CRIS) are
examined. The error term in the model is symbolized by Ɛ. The analysis spans across cross-sectional dimensions,
denoted by , and time series dimensions, represented by . Through this framework, insights into the
determinants of dividend payment behavior within the study context are sought.
FINDING AND DISCUSSION
The study employs the Cook's Distance test to identify the outliers. The study identifies an observation that
stands out from the rest of data points due to extreme values. Due to an outlier issue, the number of samples in
the study reduced from 41 firms to 40 firms in the Malaysia plantation sector. There are 513 observations
classified as Shariah Compliant firms and 154 observations present as Non-Shariah Compliant firms, which
comprises 77 percent and 23 percent of the total, respectively. Meanwhile, 197 observations are classified under
the crisis period and 470 observations under the non-crisis period, which comprises 30 percent and 70 percent
of total observations, respectively.
The study also conducts multicollinearity test using a Variance Inflation Factor (VIF), Modified Wald test to
perform a heteroscedasticity test, as well as autocorrelation test using Wooldridge test. As the dataset of the study
is unbalanced panel data, unit root test has also been conducted using the Fisher type test based on Phillips-
Perron test. The diagnostic testing reveals no serious multicollinearity and stationary issues. However, there are
heteroscedasticity and autocorrelation issue. Therefore, in order to fix both heteroscedasticity and autocorrelation
issues that exists in the panel data, the study uses clustered standard error to counter these issues.
The study proceeds with panel data testing to identify the most suitable panel data estimation model by
comparing three panel data estimation which is Panel Ordinary Least Square model (POLS), Fixed Effect model
(FEM), and Random Effect model (REM). The test is carried out using three panel data tests includes F-Chow
test and Breusch-Pagan Lagrange Multiplier (BPLM) test and Hausman test. The F-Chow test conducts to
compare POLS and FEM, while BPLM test conducts to compare between POLS and REM. The result of F-
Chow test shows that the p-value for F-statistic is significant at 1 percent level. This indicated that FEM is better
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than REM. The Chibar2 of BPLM test shows the significant value at 1 % significant level. Thus, REM is the
best model. Therefore, the study proceeds with the last panel data which is Hausman test to compare Fixed Effect
Model (FEM) and Random Effect Model (REM). The Hausman test shows a significant result at 1 percent level,
hence Fixed Effect Model is chosen as an appropriate model of final estimation. The result for F-Chow Test,
Breusch-Pagan Lagrange Multiplier (BPLM) test and Hausman test are ilustrates in Table 2.
TABLE 2 DIVIDEND PAYMENT OF FIRMS IN MALAYSIA PLANTATIONS SECTOR
F-Chow Test
Breusch-Pagan Lagrange Multiplier
(BPLM) Test
Hausman Test
F-statistics
8.01***
Chibar2
269.92***
Chi2
40.80***
Appropriate
Model
FEM
Appropriate Model
REM
Appropriate
Model
FEM
Sources: Authors’ calculation.
Therefore, the study employs Fixed Effect Model (FEM) with clustered standard errors to counter the
heteroscedasticity issue and autocorrelation issue. Table 3 presents the regression result for dividend payment of
firms in Malaysia plantation sector. The estimation for panel data is fit, which is significant at 1 percent level.
The R-squared shows that firm size, liquidity, leverage, sales growth, profitability, Shariah status, and crisis
period can be explained by 10 percent of the dividend payment in Malaysian plantation firms. The remaining 90
percent can be explained by other variables that are not included in the study.
Firms with larger size are more inclined to allocate higher portion of its earnings as dividends. The larger size of
Malaysia plantation firms portrays the firms in the mature stage with established market positions, potentially
leading to higher profitability which resulting in the higher dividend distribution to the shareholders [6]. This is
because these firms typically have a stable cash flow and are less likely to reinvest their profits in growth which
leads firms to have higher retain earnings. At this stage, mature firms often generate significant profit from their
previous investment. Due to that, larger firms in Malaysia plantation sector tend to distribute a larger portion of
their earnings as dividends. Moreover, larger firms typically have easier access to capital through debt financing
which reducing their reliance on retained earnings for growth. This allows them to distribute more profits to
shareholders through dividends. The finding is similar to Utami [11] and Le, et al. [31].
TABLE 3 DIVIDEND PAYMENT OF FIRMS IN MALAYSIA PLANTATIONS SECTOR
Variables
Fixed Effect Model
Size
4.56***
Liquidity
-0.10
Leverage
-0.07***
Sales Growth
-0.01
Profitability
1.04***
Shariah Status
2.49
Crisis
-2.83**
Constant
-43.62***
F-Statistic/Wald Chi
2
10.38***
Observations
667
R-Squared Within
0.10
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R-Squared Between
0.61
R-Squared Overall
0.39
Note: ***, ** represents significance at 1% and 5% levels respectively. The dependent variable is Dividend
payment (DP) is measured by Dividends Per Share / Earnings Per Share * 100%. The independent variables
are Firm size (SIZE) proxy by Natural Logarithm of Total Asset (%); Liquidity (LIQ) is measured by (Total
Current Assets)/ (Total Current Liabilities) * 100%; Leverage (LEV) proxy by (Long Term Debt + Short Term
Debt & Current Portion of Long-Term Debt) / Common Equity * 100 (%); Sales growth (SG) is measured by
(Net Sales or Revenue / Last Year’s Net Sales or Revenues for the same period –1) * 100%; Profitability
(PROF) proxy by (Net Income – Bottom Line + ((Interest Expense on Debt-Interest Capitalized) * (1-Tax
Rate))) / Average of Last Year's and Current Year’s Total Assets * 100%; Shariah status (SS) is 1 for foreign
Islamic banks, 0 otherwise. Crisis (CRIS) is 1 for crisis period, 0 otherwise. Sources: Authors’ calculation.
Liquidity of firms is less substantial towards dividend payment of Malaysia plantation firms. Plantation firms’
operating cycle is longer which directly increase the cash cycle of firms. This is due to the extended time between
planting and harvesting as most crops have a specific harvesting cycle which creates uneven cash flow patterns.
Thus, firms might hold onto cash into a certain level of liquidity to ensure firm have enough resources to sustain
operations until the next harvest cycle. Due to that, firms with higher liquidity tend to make lower dividend
distribution to the shareholders as in responding to uncertain potential disruptions during this cycle. The
insignificant result is consistent with findings by Hartono and Matusin [56] and Singla and Samanta [27].
Malaysia plantation firms with higher debt levels tend to distribute lower dividend payment. This is because
firms with high amount debt means more interest payments need to be made which resulting in less cash available
for firms. The reductions amount of cash available of firms make it difficult to distribute higher portion of
earnings to the shareholders as dividends. Moreover, having higher debt levels of firms raise the firm's financial
risk. As a result, firms may choose to conserve cash and prioritize debt repayment over dividend payment to
maintain financial stability of the firms. The findings align with study by Tahir, et al. [33] and Wahjudi [14].
Sales growth to be less substantial towards dividend payment of firms in Malaysia plantation firms due to the
operational cycle of the plantation sector. The longer operational cycles in the plantation sector due to long
gestation period of crops like oil palm and rubber trees create a longer timeframe for revenue generation over
the year as it takes several years to mature and begin producing fruits and latex. This extended timeframe can
lead to some Malaysian plantation firms to pay lower dividends over immediate high dividend payments to the
shareholders. The insignificant result is consistent with findings by Khan, et al. [57] and Stephen [58] suggests
that the less substantial relationship between sales growth and dividend payment.
Malaysia plantation firms with high profitability tend to pay higher dividends to the shareholders. This is due to
the plantation firms experience higher retain earnings which enables firms to distribute large portion of its
earnings as dividends to the shareholders. The finding is consistent with the signalling theory developed by
Miller and Modigliani [16], which states that firms with higher profitability reflects the ability of firms to
distribute dividends, as more profit signifies higher dividend payments for shareholders. Therefore, it allows
firms to retain existing shareholders while attracting new potential investors. The result is supported by Nyere
and Wesson [30] and Widyawati and Indriani [59], which state that profitable firms make higher dividend
distributions.
Shariah status found to be less substantial with dividend payments of Malaysia plantation firms. The result
represents that there is no significant difference between dividend payment of Shariah and Non-Shariah
Compliant firms in Malaysia plantation sector. The estimation result found that dividend payment of Shariah
Compliant firms in Malaysia plantation sector higher by 2.49 percent relative to Non-Shariah Compliant firms
in Malaysia plantation sector. Shariah-compliant firms do have narrower investment options due to adhering to
Islamic principles. This restricted investment opportunities can lead firms to have higher retained earnings, as
firm may not have as many avenues to deploy their financial resources. Shareholders of these firms, especially
those seeking high returns, may have expectations for lucrative dividends. Besides, the higher profitability of
Shariah compliant firms leads firms to distribute higher dividend payment to the shareholders. However, it is
INTERNATIONAL JOURNAL OF RESEARCH AND INNOVATION IN SOCIAL SCIENCE (IJRISS)
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noted that the difference between dividend payments of Shariah Compliant firms and Non-Shariah Compliant
firms is not statistically significant. The insignificant result aligned with a study by Imamah, et al. [46] discovers
that Shariah status is not statistically significant towards dividend payment of the firms.
The study found significant difference between dividend payment of firms in Malaysia plantation sector during
the crisis and non-crisis period. The result shows the dividend payment of Malaysia plantation firms during crisis
period is lower by 2.83 percent relative to non-crisis period. Economic downturns cause market pessimism which
lead to reduce in demand and sales. Lower sales directly lead to decreased profits of the firms. Besides, firms
with high level of debt tend to pay lower dividends during the crisis period to conserve cash in maintains high
level of liquidity of firms. High debt burden during a crisis increases the risk of defaulting on loan repayments.
Therefore, holding more cash through dividends reduction can serve as a buffer against potential loan defaults
during crisis period. Therefore, Malaysia plantation firms tend to make lower dividend distribution to the
shareholders during crisis period. The result synchronizes with Tran, et al. [53] and Krieger, et al. [6] that
emphasized firms tend to hold more cash which leads to lower dividend payment to the shareholders.
CONCLUSION
Driven by the inconsistent dividend patterns in Malaysia's crucial plantation sector, this study delves into the
factors influencing dividend payment of Malaysia plantation firms. The results show that larger Malaysia
plantation firms tend to pay higher dividends than small firms. Malaysia plantation firms with lower level of
debt, significantly tend to increase the dividend distribution by the firms to their shareholders. The study also
emphasizes that firms with high profitability tend to provide high returns in the form of dividends to their
shareholders. Besides, the study found that firms in Malaysia's plantation sector make lower dividend
distributions to their shareholders during crisis periods compared to non-crisis periods. In this context, firms are
likely to reduce dividend payments during crisis to retain more cash while continues to make returns through
dividends to the shareholders. Shariah status is found to have less impact on Malaysian plantation firms' dividend
payments, which demonstrates that there are no significant differences in the dividend payments made by Shariah
Compliant firms and Non-Shariah Compliant firms in the Malaysian plantation sector. The study also found that
liquidity and sales growth is less substantial towards dividend payments among Malaysian plantation firms.
Policy Implication
In addressing the intricacies of dividend policy within Malaysia's plantation sector, specifically within the
context of Shariah and Non-Shariah Compliant firms, nuanced policy recommendations are essential for
optimizing outcomes related to firm size, liquidity, leverage, sales growth, profitability, Shariah status, and crisis
periods.
Starting with firm size, the positive and significant relationship with dividend payments suggests the importance
of policies promoting responsible and sustainable growth in the plantation sector. Managers should focus on
operational efficiency, strategic mergers, acquisitions, and investments in technology to optimize resource
allocation and productivity. Policymakers can create an enabling environment by facilitating access to financing,
providing incentives for sustainable agricultural practices, and streamlining regulatory processes. This aligns
with the nature of the plantation business in Malaysia, where larger firms can enhance productivity through
advanced technologies and diversified revenue streams.
Conversely, the negative and significant relationship between leverage and dividend payment underscores the
need for a nuanced approach to capital structure management. Managers should optimize debt levels and
prioritize stable financing sources, mitigating negative impacts on dividend payments. Policymakers can
incentivize responsible borrowing practices through clear guidelines on acceptable debt levels, contributing to a
more predictable environment for investors. This is particularly relevant in the plantation sector, where managing
debt prudently ensures financial stability amid fluctuations in commodity prices.
For liquidity and sales growth, which show a less substantial impact on dividend payments, policymakers should
encourage an environment supporting flexible liquidity management. Initiatives such as facilitating access to
diverse financing options can help optimize liquidity without compromising long-term growth prospects in the
INTERNATIONAL JOURNAL OF RESEARCH AND INNOVATION IN SOCIAL SCIENCE (IJRISS)
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plantation sector. Policies promoting environmentally conscious cultivation practices align with the sector's long-
term stability goals, ensuring that sales growth is sustainable and in harmony with the business nature in
Malaysia.
Enhancing profitability is crucial for Malaysian plantation firms to attract investors and contribute to sector
growth. Managers should focus on long-term profitability through operational efficiency and cost reduction.
Policymakers can support these efforts by creating an environment that encourages research and development in
sustainable practices. This aligns with the plantation business nature in Malaysia, where profitability is closely
tied to sustainable and efficient agricultural practices.
Regarding Shariah status, the slightly higher dividend payments by Shariah Compliant firms suggest an
opportunity for managers to leverage this status for a competitive advantage. Policymakers can promote financial
education programs and incentives for responsible financial practices. Investors should consider the ethical
implications of Shariah compliant when making investment decisions, recognizing that higher dividend
payments among Shariah Compliant firms can attract ethically conscious investors.
During crisis periods, policymakers can implement mechanisms, such as government reserves or tax breaks, to
promote financial resilience in the plantation sector. Managers should maintain cash reserves and manageable
debt levels to withstand economic downturns, aligning with the cyclical nature of commodity markets in
Malaysia. Shareholders, recognizing the potential for reduced dividend payments during crises, should prioritize
the long-term growth potential of firms in the plantation sector when making investment decisions.
In conclusion, nuanced policy interventions aligned with the specific characteristics of the plantation sector in
Malaysia can optimize dividend policy outcomes. This includes encouraging responsible growth, prudent capital
structure management, flexible liquidity practices, and sustainable profitability initiatives, thereby contributing
to the overall resilience and success of the plantation industry in Malaysia.
ACKNOWLEDGMENT
The authors alone are responsible for any errors. The authors have no conflicts of interest.
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