Political Connections and Dividends Payout in Malaysia: The Influence of Institutional Investors

47 Pages Posted: 31 Jan 2015

See all articles by Samuel Benjamin

Samuel Benjamin

University of Otago

Mazlina Mat Zain

Multimedia University (MMU) - Faculty of Management

Effiezal Abdul Wahab

Curtin Business School

Date Written: January 30, 2015

Abstract

This study examines the agency problem of expropriation using dividends in politically connected firms and the relevance of institutional investors in limiting this problem. Our results suggest that politically connected firms (PCON) have a preference to pay lower dividends whereas institutional investors are more likely to demonstrate a higher preference for higher dividends. The interaction effects between political connection and institutional investors indicate a positive relationship with dividends which suggest that, in the presence of institutional investors, politically connected firms are more likely to be associated with higher dividends payout. This further emphasizes on the role of institutional investors in limiting expropriation concerns within PCON firms. Our further analysis also suggests that institutional investors are more concerned with higher capital investment which in turn creates the potential to enhance firm valuation (contrary to PCON firms). Our findings are important especially to regulators, in order for them to promote and facilitate the participations of institutional investors with a view to constrain the behavior of PCON firms, enhance firm value and protect shareholders’ interest.

Keywords: Political connection, Institutional investors, Dividend payout, Agency costs

JEL Classification: G35, G30, G23

Suggested Citation

Benjamin, Samuel and Zain, Mazlina Mat and Abdul Wahab, Effiezal, Political Connections and Dividends Payout in Malaysia: The Influence of Institutional Investors (January 30, 2015). 2015 Financial Markets & Corporate Governance Conference. Available at SSRN: https://ssrn.com/abstract=2557944

Samuel Benjamin

University of Otago ( email )

Commerce
Clyde Street
Dunedin, OR Otago 9016
New Zealand

Mazlina Mat Zain (Contact Author)

Multimedia University (MMU) - Faculty of Management ( email )

Persiaran Multimedia
Cyberjaya, Selangor Darul Ehsan
Malaysia
+603 8312 5664 (Phone)
+603 8312 5590 (Fax)

Effiezal Abdul Wahab

Curtin Business School ( email )

GPO Box U1987
Perth WA 6845
Australia

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