Sample and methodology Proceeding E Book 4A Turky

2040 decreases in a given fiscal year as occurring if the dividend per share increases decreases. A firm is defined to have repurchased shares in a given year only if it actually repurchased their shares, rather than simply making a repurchase announcement. The key determinant that is likely related to payout decision is earnings. Similar to Lie 2005 and Jagannathan et al. 2000, I constructed several variables for earnings before the potential payout occurs. Prior Operating Income is the average of operating income scaled by total assets during years t –2 and t–3. Prior operating income volatility is the standard deviations of operating income scaled by total assets from year t –3 to year t–1. Operating income OI shock is the difference between the operating income scaled by total assets during years t –1 and t-0 the event year and the operating income scaled by total assets during years t –3 and t–2. To explain the situation in the Malaysian market, Days of repurchase, a dummy variable on the total number of days spent on repurchase activities, takes the value of 1 if more than 60 days are spent on repurchase in the calendar year, and 0 otherwise. I included this dummy in order to investigate whether firms use repurchase as a complement to or substitute for dividends. For example, firms that repurchase shares and increase their dividends should spend fewer days repurchasing their shares, in which case it can be concluded that these firms are complementing their dividend payout by repurchasing fewer shares. Independent directors‟ composition is the total number of independent directors scaled by total board members. This variable measures whether the composition of independent directors affect the payout pattern of the respective samples. The other control variables 370 are Assets, the book value of assets during the event year that serves as an indicator of firm size measured in Ringgit εalaysia Rε‘000; Cash and near cash 370 To mitigate the effects of outliers, I restrict the variables to the following conditions a. 0 ≤ debt 1 b. 0 ≤ retained earnings 1 2041 scaled by total assets and total debt scaled by total assets captures the financial flexibility of the firms. Retained earnings scaled by total assets , which captures whether the probability of a firm‘s paying out its earnings through a particular payout channel is positively related to its accumulated earnings over the year, also indicates how long the firm has been operating. Fama and French 2001, Grullon et al. 2002 and DeAngelo et al. 2006 found that established firms are associated with a higher probability of paying dividends. The final sample consists of 135 observations of increased dividends and repurchased shares and 92 observations of decreased their dividends and repurchased shares. Table 1 provides preliminary statistics on the two groups. Table 1 Descriptive statistics Combination of repurchase and dividend increase Combination of repurchase and dividend decrease Assets RM ‘000 Mean 1,719,002 2,274,872 Median 645,996 730,008 Cash Mean 0.1401 0.1405 Median 0.1283 0.0888 Debt Mean 0.1673 0.2006 Median 0.1258 0.1721 Prior operating income Mean 0.0700 0.0595 Median 0.0643 0.0527 Operating income shock Mean 0.0082 -0.0136 Median 0.0089 -0.0142 Prior operating income volatility Mean 0.0251 0.0312 Median 0.0194 0.0267 Retained earnings Mean 0.3294 0.2827 2042 Median 0.3208 0.2696 Independent directors Mean 0.3808 0.3788 Median 0.3750 0.3489 Number of observations 135 92 Source: Bursa Malaysia Of firms that combined both types of payout, more firms increased dividends and repurchased than decreased dividends and repurchased. On the other control variable, firms that increased dividends and repurchased had higher cash and a lower debt ratio. On the operating income variables, firms that increased dividends and repurchased had higher prior operating income and income shock and more stable prior income, higher retained earnings, and more independent directors that firms that decreased dividends and repurchased. The overall conclusion from this descriptive statistics is that the dividend-increase-and- repurchase group is the ideal candidate to undertake both positive payout methods, as they are financially superior and have better corporate governance structure.

4. Results and discussion

To examine the combination of both payout methods, I estimate the logistic regression between dividend increases and repurchases versus dividend decreases and repurchases. Table 2 Correlation coefficient Prior OI volatility OI shock Prior OI Log assets Cash Debt Retained earnings Prior OI volatility 1 OI shock -0.036 1 Prior OI -0.008 -0.303 1 Log assets -0.211 0.061 0.104 1 Cash -0.028 -0.032 0.075 0.101 1 2043 Debt -0.061 -0.066 -0.193 0.329 -0.086 1 Retained earnings 0.085 0.074 0.248 0.15 0.08 -0.571 1 Table 2 provides the correlation coefficients between pairs of independent variables used in the analysis to check for multicollinearity. The data indicates that there are no significant correlations between any of the independent variables. Table 3 Logistic regression on the combined payout choice of dividend increases and repurchase versus dividend decreases and repurchase Model 1 Model 2 Model 3 Coefficients p-Value Coefficients p-Value Coefficients p-Value Intercepts 1.3145 0.4375 0.8446 0.6045 0.2237 0.8880 Log assets -0.1436 0.6523 -0.0950 0.7615 0.0033 0.9914 Cash 0.0286 0.9794 0.2896 0.7973 0.0242 0.9825 Debt -0.1683 0.8968 -0.1042 0.9370 -0.4417 0.7324 Prior operating income volatility -13.6791 0.0489 Operating income shock 13.0847 0.0003 Prior operating income 1.6681 0.5233 Retained earnings 1.8674 0.1218 1.4132 0.2393 1.2633 0.2761 Days repurchase -0.6134 0.0359 -0.7949 0.0078 -0.6886 0.0172 Number of observations 227 227 227 Table 3 presents the logit regression analysis between firms that increase dividends and repurchase versus firms that decrease dividends and repurchase. For the dependent variable, firms that increase dividends and repurchase take the value of 1, while firms that decrease dividends