Investment opportunity set and dividend policy in Malaysia: Some evidence on the role of ethnicity and family control

This paper investigates the relationship between Investment Opportunity Set (IOS) and dividend policy and if ethnicity and family ownership moderates this relationship in an emerging economy context. The contracting explanation based on Jensen's Free Cash Flow Theory (FCF) [22, 36] is empirically examined using a series of firm characteristics including industry type, size, return on assets, duality, government linked and debt to assets. Family ownership is examined because there seemed to be companies in the Bursa which are less diffused and dominated by companies with substantial shareholders. Ethnicity is examined because Malaysia is not only a developing country with an emerging capital market but also because there is considerable division based on ethnicity, language and religion. The results suggest that, there is strong support on the negative significant association between growth opportunities and dividend payout in the context of family controlled firms but not in the context of ethnicity.