Abstract
The objective of this research is to investigate the factors affecting dividend policy formation of
business companies listed in Vietnam stock markets-Ho Chi Minh Stock Exchange (HOSE) and Hanoi Stock
Exchange (HNX) using survey to collect managers opinion. The data is collected from 180 respondents
who are at the leadership level such as CEOs, CFOs, directors of finance, controllers and board of
directors, etc of those 60 blue-chip firms in which 30 firms in VN30 of HOSE and 30 firms listed in HNX30
of HNX using a self-administered survey. Pearson correlation coefficient was applied for the data analysis.
The results indicate that profitability, stability of earning, cash flow, firm size and background and
investment opportunities are factors affecting dividend policy formation of business companies listed in
Vietnam stock markets. However, tax system was proved that do not affect the dividend policy formation
of listed firms. Based on these findings, the researcher also provides some recommendation.
Keyword: Dividend Policy, Profitability, Cash Flow, Investment Opportunities, Stability of Earnings, Vietnam
Introduction
In corporate finance, there are three basic types of decisions: investment decisions, financial decisions,
and the decision to pay dividends. All three types must be consistent with the firms objectives to
maximize the enterprise value. Dividend policy is defined as the policy that decides the distribution of
retained earnings for reinvesting in the company and dividend payments to shareholders (Damodaran,
2001). In simple terms, a company dividend policy consist two issues. Firstly, it imposes the optimal
dividend policy of the firm-how the profit after tax of the company is distributed? Secondly, when paying
dividend, how much is retained to reinvest and how much is used to pay dividends to shareholders. Many
researchers have provided theoretical and empirical evidence on different aspects of dividend policy, but
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Literature Review
Profitability
Pruitt and Gitman (1991) reported that, current and the previous years profits are important
factors in influencing dividend payments. Baker et al. (1985) also proved that a major determinant of
dividend payment was anticipated of future earnings. Additionally, there are many empirical literatures
claimed that profitability has a positive relationship with dividend policy (Pourheydari, 2009; Napompech,
2012) as firms with higher profitability level is located in a better position to pay dividends. Naceur et al.
(2006) insisted that profitability has a positive relationship with dividend payment of Tunisian firms.
Moreover, Baker and Powell (2009) also found out that profitability has impact on dividend policy. AlMalkawi (2007) proved that profitability of the firm is the vital determinant factors that play as the
significant role in corporate dividend policy in Jordan.
Stability of earnings
Lintner (1956) studied about behavioral model of dividends, and proved that the stability of
earnings affects firm dividend policy. In addition, Pruitt and Gitman (1991) suggested that firms with
volatile earnings are less capable of maintaining a high level of dividend, and therefore, those firms who
try to avoid committing to have a high level of dividends. Additionally, Baker et al. (1985) also proved that
the expected level of future earnings is one of the main determinants of dividend policy. Similarly, Higgins
(1972) pointed out that earnings affected dividend policy.
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Research Methodology
The purpose of this research is to investigate the factors affecting dividend policy formation of
business companies listed in Vietnam stock markets. The primary data collected from 180 respondents of
60 listed business companies in HNX30 Hanoi Stock Exchange and VN30 Ho Chi Minh Stock Exchange
who are at management level of the researched companies to get information about their opinions on
factors affecting dividend policy formation. The questionnaires consisted of three sections that represent
six independent variables, dependent variable and demographic factors. The researcher applied judgment
and non-probability sampling method.
Non-probability sampling
Non-probability sampling is a sampling technique that the sample units are chosen base on the
basic of personal judgment or convenience (Zikmund, 1997). So, non-probability sampling is used in this
research to find sampling unit since the respondents of this research have been clarified, which is firms
listed in VN 30 and HNX 30 of HOSE and HNX which had paid a cash dividends at least one time since Oct
2011 to Oct 2014.
Judgment Sampling
Judgment sampling is applied based on the firms listed in VN30 and HNX30, had paid a cash
dividend at least one time since Oct 2011 to Oct 2014. Additionally, the leadership level of 60 listed firms
such as CEOs, CFOs, directors of finance, controllers and board of directors, etc were asked in order to
collect their different opinions influencing dividend policy in their firms, so that the study can have
various opinions in different perspectives based on the position of the respondents.
Findings
The hypotheses testing, is supported by the conceptual framework. There are total six
hypotheses which were tested in this research. Based on the research objectives, Pearson Correlation
Coefficient was used in this study. After analyzing the hypotheses, five the null hypotheses were rejected.
The results are summarized as follows:
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Recommendations
The researcher would like to recommend for finding more independent variables and expand the
research to the whole Vietnam stock markets in order to improve and to have more accurate result as
the survey research is conducted only on six independent variables and there might be more variables
that have greater value to conclude the final comment. Moreover, the response may be bias as the
whole market that consist many other listed companies.
Based on the result from hypothesis one, business companies listed in Vietnam stock markets
should focus on more profitability in the formation process of dividend policy. It is suggested that listed
firms should keep their profit increasing sufficiently through having appropriate long-term and short-term
strategy for the business to develop and improve with the actual situation of the domestic and foreign
economies.
Based on the result from hypothesis two, in order to keep stable dividend policy, listed
companies should maintain their earnings in a stable mood through having a stable PE ratio and having a
target given fraction of earnings. Furthermore, some recommendations to maintain stable PE ratio can be
increasing firm profit, reduce the total capital stock, especially reducing the non-floating stock (stateowned share and legal-person share).
Based on the result from hypothesis three, to keep the stable cash dividend payments, cash flow
of listed firms should be maintained significantly. The growth of cash flow, liquidity and stability of
operating net cash flow and free cash flow to equity should be controlled strictly.
Based on the result from hypothesis five, listed firms should consider increasing their reputation
in the market, their market capitalization and their background and history of firms to make shareholders
have more belief in investing in listed firms. Moreover, the listed firms also should have a careful
consideration about the dividend practice of their industry sector and dividend policy in comparative
companies to set their dividend policy so that it can have competitive advantages with other listed
companies in the same industry sector and in Vietnam stock markets.
Based on the result from hypothesis six, listed firms should consider carefully their decisions in
future investing opportunities to balance the liquidity and the desire to pay cash dividend to satisfy the
shareholders. The listed firms should base on actual situation of the firm such as current available
profitability investment opportunity, financing decisions, and available sources of capital, cost of capital as
well as preference to take risk of the shareholders to set the most effective and efficient dividend policy.
Moreover, to overcome the potential problems in dividends payment of listed companies in
recent times and contribute to help listed companies to form the most effective and efficient dividend
policy some general recommendations are suggested such as listed company's dividend policy should be
associated with specific long-term and short-term investment strategy in future. Management board needs
to avoid retain too much profit and then have surplus cash to limit the use of unnecessary and
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