The purpose of this study is to analyze the determinants of dividend distribution to shareholders of banks in Malaysia. The multiple linear regressions modeling approach is adopted to examine the reaction of dividend payment with 17 years sample data by using annual time series data in the period 1993-2009 that based on availability of data in data stream. This research expect that the result will be in accordance with Edward and Samuel (2011), who revealed that factors are positively correlated with dividend distribution are profitability (return on asset), leverage (debt ratio), growth (growth of interest income) and collateral capacity (total fixed asset).
The Ordinary Least Squares (OLS) is used to examine these explanatory variables. Keywords: Determinants, Dividend policy, Bank, Malaysia CHAPTER 1 INTRODUCTION 1. HISTORY OF DIVIDEND Dividend Policy is one of the main decisions in corporate finance. Dividend payment or distribution has been subject of debate in financial literature due to various researchers have their own perceptions and this topic still remain vague issue in the field of finances. However, it becomes interested topics among academicians and many researchers have developed numerous theoretical models describing the factors that managers should considers when making dividend policy decisions.
There is some basic information about dividend distribution either in conventional perspective or Islamic perspectives. Sharing the knowledge and information of Islamic Finance, Shari’ah-Compliant transaction, Islamic commercial laws and global financial issues towards establishing an ethical socially responsible has become attention among investors (Hussain, 2008).
The Essay on Implementation Of A Data Classification Policy
One the first steps in implementing an effective security plan is to periodically assess Organizational risks. Identifying and mitigating risk will help in establishing a security management structure and assigning security responsibilities. Without having an understanding of your risk you are unable to determine the proper security policies, procedures, guidelines, and standards to put in place ...
In conventional terms, dividend represent distribution of earning to the shareholders of certain company that usually declared at Annual General Meetings and paid to shareholders of records. There have fours decision areas in finances which one of them are dividend or profit allocation decisions. The others are financing, investing and working capital management decisions.
Dividend policy also can provide information to stakeholders in order to know the performances of the companies. According to Ross, Westerfield and Jaffe (2002) companies view the dividend decisions as quite important because it determines what flow to investors and what funds retained by the firm for investment. In other words, on annual bases when profits are made, the company should determines what proportion of the profit that is available to shareholders in the form of dividends, and what amount should be reinvestment. Since banks are companies, theirs shareholders as professional investors typically expect some income as return on investments.
The distribution of dividend may be in the form of cash dividend or the cash being passed on to shareholders by buying back some shares. In Islamic term dividend is normally known as distribution of profits. However, distributions and payments are specifically included in term of dividend. The term distribution in turn means the release, by the company; of all or any part of its assets including money to the extent it possesses accumulated profits to its shareholders. But, Muslim investors are only allowed to make an investment that must comply with Islamic principles. Therefore, Muslim investors should study an investment based on two concerns. Firstly, it has to be free of interest and secondly, the business model of the stock must not be haram in nature.
In Islamic term, dividends are also known as profit sharing. Thus, the investor is actually sharing the returns of the company he or she has invested in. This is way where income earned is not seen as passive income (interest) but this income is based on the performance of the company. Besides the definition of both conventional and Islamic, this study has been search the term of dividend in side of investment itself. Therefore, payment made to shareholders when the company earns profit or surplus from operation or business (Li, W. and Lie, E. 2006).
The Term Paper on Distribution policy
... company would have extra money for their shareholders. In the residual distribution policy when the investment opportunities goes up the dividend ... were applied exactly the residual model would result in dividend payments that fluctuated significantly from year to year as capital ... things that could happen is that it would send investors conflicting signals over time regarding the firms future ...
1. 1 BACKGROUND OF STUDY There have many reasons as why companies should pay and not to pay dividend.
The payment of dividend is very important for investors because it provide certainty about the company’s financial well-being. Then, dividend is attractive for investors looking to secure current income and dividend may help to maintain market prices of the share. The ability of a bank to pay dividends will rely to a large extent on its financial performances. Therefore, extensive studies should be doing in order to know various factors affecting dividend distribution of a bank. As far as the recently researchers are concerned, most of time the dividend payment patterns have been studied for cash payout. This paper analyzes the determinants of dividend distribution to shareholders of bank in Malaysia.
In other words, it is focusing on factors that may influence the dividend payment that need to be defined in Malaysian banking sectors. Return on assets (ROA), debt ratio (DR), growth of interest income (II) and total fixed asset (TFA) as information in order to determine whether profitability (ROA), leverage (DR), growth of interest income (II) and collateral capacity (TFA) are statistically me be effected dividend payment of bank in Malaysia. The data are taken base on yearly basis for seventeen years from ten listed bank in Bursa Malaysia. This study also based on previous research on the significant area of journal but it is not evidence yet in the case of Malaysia itself. 1. 2 PROBLEM STATEMENT Due to the volatility of dividend distribution or payment in the country it s proves that many factors that may influence this problem and the people nowadays are aware about this problem especially who are the investors that interested to make an investment and become one of the shareholders in certain companies. It is because dividend payment plays an important role that can increase the investment of shareholders and directly to achieve the objective of the companies. The problem of this study focuses on the component or factors that may influence dividend distribution of bank in Malaysia such as in term of profitability (return on assets), leverage (debt ratio), growth (growth of interest income) and collateral capacity (total fixed assets).
The Research paper on Home Schooling Study School Research
Abstract: Home schooling is one of the oldest school choice options available to parents and their children; however, it is not often regarded as a school choice option, nor has there been much review of how the advent of school choice may be affecting home schooling. According to widely-repeated estimates, as many as two million American children are schooled at home, with the number growing as ...
1. 3 RESEARCH QUESTION
In this study, there have a several research questions that has been developed regarding the problem statement occurred for further investigating on this research. These research questions can be divided which are: 1. 2. 1. Does higher return on asset of bank can influence higher dividend payment to shareholders? 2. What are the effects of debt ratio toward dividend distribution? 3. Is it growth of interest income will give impact the dividend distribution? 4. Is total fixed asset of bank influences payment of dividend to investors? 1. 4 OBJECTIVE OF STUDY The topic of this research is “Determinants of Dividend Distribution of Bank in Malaysia. According to this research topic, there are three objectives why we do this research: 1. 1. 2. 3. 1.
To identify the factors that significantly influences dividend distribution to shareholders of bank in Malaysia. 2. To analyze the relationship between dividend policy distribution with profitability, leverage, growth and collateral capacity factors. 3. To identify the functional form model are following all the best criteria in order to make OLS estimator are still BLUE. 1. 5SIGNIFICANT OF THE STUDY The significant of this study is to help in better understanding of the relationship profitability (return on assets), leverage (debt ratio), growth (growth of interest income) and collateral capacity (total fixed assets) toward dividend payment by using the method such multiple regression method.
Even though, there is less evidences in Malaysia but it may provide additional knowledge ad findings to existing literature based on other countries on both dependent and independent variables. Besides that, this paper provides useful information to various individual, investors and student in order to make any investment decision in any financial institutions. It will make easier way to investors in selection of best portfolio of investment that will get higher current income through choosing the best stock that may be benefits for them. In addition, this research also can give guidelines to managers in an organization or board of directors in determining their dividend policy distributions.
The Research paper on Business Research Study Of Wal-Mart’s Profitability
When first quarter results came in for Wal-Mart, the new CEO was not too happy and quickly recognized the challenges he would face as he strategized to increase sales. The results showed that profits decreased by 5% and that the future months were not looking good for the organization. Wal-Mart is the world’s largest retailer and has witnessed its fifth straight quarterly decline in U.S. sales ( ...
The manager can know how to effectively and efficiency in managing their companies while maximizing their shareholder wealth through higher dividend payment without affects their companies or bank performances. At last, it is also hoped this study will useful for other academicians and researcher as a guidelines, references and direction in the future. 1. 6 SCOPE OF STUDY Based on objective, the scope of study would covers part of banking sectors in Malaysia that focus on dividend of the bank listed in the Main Board of the Bursa Malaysia and aspect that may effected the dividend distribution of banks. The time horizon that may be collected in term of yearly basis data from 1993 to 2009 which is means this research have been using time series data. 3. 4. 5. 6. 1.
A sample of 10 bank listed on main board in Bursa Malaysia is taken based on the availability of data for this study. 2. The period of analysis covers 17 years, from 1993 to 2009. 3. The data have been collected and used are dividend per share, return on asset, debt ratio, growth of interest income and total fixed assets. 4. This study using Multiple Linear Regression Model in order to test whether the effects exist between profitability (return on assets), leverage (debt ratio), growth (growth of interest income) and collateral capacity (total fixed assets) toward dividend payment. 1. 7LIMITATION OF STUDY Availability of Data and Information
The information needed is not fully access due to the unavailability of data. The main sources of which are the annual reports of the sample banks usually lack of available data . Some of the data, which is on the targeted, were not available in term of the date. Therefore, the time frame of data may be used just for seventeen years from ten listed bank in the main board of Bursa Malaysia. So it is hard to gather in any other sources since it require the long period of date due to the uncompleted, unreliability or was absent from the sources. Lack of Experiences and Knowledge Experiences and Knowledge are very important to make a research in order to get accuracy and good results or findings.
Due to lack of these aspects, the student especially needs guidance from professional and lecturers. However, continuous effort and attention may help to successfully completion of this research. Financial constraint The costs of collecting the data usually is quite high due to some data cannot found in datastream and can only be found in library of Bursa Malaysia. Additionally, this cost may included printing cost which is print out many journals, article and information in order to get correctly and accuracy of results. Time constraint Due to the limited time given to complete the study, it is not enough to get the best quality of research.
The Essay on Sampling and Data Collection in Research 2
Sampling and Data Collection in Research are tools that assist researchers to gather important information regarding a specific group of people (Monette, Sullivan, & DeJong, 2011). There are fundamental steps that need be followed to practice accurate research as much as possible. For example, probability and nonprobability as stated by Monette, Sullivan, & DeJong, 2011, “Researchers use ...
This is because due to the practical training and at the same time to complete the study. There are many other factors which can influence the dividend distribution of bank in Malaysia; however, the data are very difficult to find and have to give a lot of time to find it. 1. 8 DEFINITION OF TERMS 1. 8. 1Dividend Dividend is payment made by a corporation to its shareholder members. In other words, it is a taxable payment declared by a company’s board of directors and given to its shareholders. It is the portion of corporate profits paid out to stockholders. When a corporation earns profit or surplus, that money can be put to two uses whether it can either be re-invested in the business, or it can be distributed to shareholders. Dividends are usually given as cash (cash dividend), but they can also take the form of stock (stock dividend) or other property. 4. 5. 6. 7. 1. 2. Dividend policy A dividend policy is a company’s approach to distribute profits back to its owners or stockholders. This is represent the policy that the compay apply and used to declare and decides how much they will pay ou to shareholders in dividend. 3. Dividend per share (DPS) Dividends per share are the amount of dividends that a publicly-traded company pays per share of common stock, over their reporting period that they have issued. Otherwise, it is the amount of dividend that a stockholder will receive for each share of stock held.
It can be calculated by taking the total amount of dividends paid over an entire year and dividing it by the total shares outstanding have been issued. 4. Return on asset (ROA) The return on assets (ROA) shows how profitable of a company’s assets are in generating revenue. The return on assets formula, sometimes abbreviated as ROA, is a company’s net income divided by its average of total assets. The return on assets formula looks at the ability of a company to utilize its assets to gain a net profit. Sometimes this is referred to as “return on investment”. 5. Debt ratio (DR) Debt ratio shows the proportion of debt a firm to its assets. The measure gives an idea to the leverage of the company along with the potential risks the company faces in terms of its debt-load.
The Research paper on Case Study Jyske Bank
Jyske Bank was established in 1967 after merging four Danish banks operating in Jutland. Jyske Bank had been considered as a typical Danish bank, which is prudent, conservative, well managed and undifferentiated till the late 1990s. However, with the new strategy, the bank developed to guide differentiation from the mid of 1990s among great amount of Danish banking customer satisfaction. Q1. What ...
This will tell you how much the company relies on debt to finance assets. Debt ratio can be formulated by divide total debt with total assets of the firms. 6. Interest income (II) Interest income is income earned in the form of interest which accumulates on investments. The term that companies use on their income statement for reporting the interest earned on cash. Net interest income can be calculated which is the difference between interest payments the bank receives on loans outstanding and interest payments the bank makes to customers on their deposits. A substantial growth in net interest income may help bank to increase its net profits. 7. Total fixed assets (TFA)
Total fixed assets is an asset that is not consumed or sold during the normal course of business and owned by a corporation, such as land, buildings, equipment, machinery, vehicles, leasehold improvements, and other such items. Fixed assets enable their owner to carry on its operations. 1. 9SUMMARY This chapter is focusing on the introduction and the background part of this study. A brief understanding is important in order to emphasize the objective and research questions that possible to analyze of this research and as well as the background of this study. In other words, dividend distributions are very essential to support the business activity of any corporations.
The degree of essential of this research is stressed through the problem statement that explains the important of this research. In this study, there have own method that will be use to test the significant affect between the dependent and independent variables. CHAPTER 2 LITERATURE REVIEW INTRODUCTION This study is focused mainly on dividend distribution of bank in Malaysia. Therefore, this chapter will be discussing on the issue that are relevant with this research from previous studies and came out with an empirical theoretical framework of measuring the effect of dividend distributions. Hence, this study want to look the same purpose and reason with the previous study, but it also want to make comparing the factors that give more impact to dividend distribution.
This chapter based on of the broad review of the documented empirical studies on the relationship between dependent and independent variables that are related with this research. The independent variables in this research consist of profitability (return on assets), leverage (debt ratio), growth (growth of interest income) and collateral capacity (total fixed assets).
Therefore this research wants to investigate the correlation between these variable with the dividend payment of bank in Malaysia. This chapter is quietly important because to avoid the important variables that are likely to influence the problems are left out of this research. This is done so that the testability of the findings of this research can be enhanced.
This review hopefully can contribute a better understanding of the issue regarding this research. 7. PREVIOUS STUDY Key factors which have been identified to have an effect on dividend policy include profitability, leverage, ownership structure, firm size, risk, age, firm growth dividend changes (Eriostis and Vasiliou, 2003; Amidu and Abor, 2006; Al-Malkawi, 2007;Kowaleski, Stetsyuk and Talavera, 2007;).
1. Profitability affect on the dividend payment Amidu and Abor (2006) found a positive relationship between corporate profitability and dividend payout ratios. Anil and Kapoor (2008) indicate that profitability has always been considered as a primary indicator of dividend payout ratio.
Profitability is among the main characteristics that strongly and directly influences dividend policy, Al-Kuwari (2009).
Pruitt and Gitman (1991) conclude that current and past years’ profits, the year-to-year and prior years’ dividend are important factors that influence dividend policy. Consequently, it is expected that profitable firms are likely to pay dividend as compared to non profitable firms (Eriostis and Vasiliou, 2003; and Ahmed and Javid, 2009).
2. Leverage affect on the dividend payment Kowalski et al (2007) argue that more indebted firms prefer to pay lower dividends. Also, Al-Kuwari (2009) confirms that dividend policy is negatively related to leverage ratio.
Nonetheless, the use of debt has been associated with lower agency cost and enhanced firm profitability, both of which have the tendency of improving dividend payment. Dhillon (1986), however, found conflicting evidence for the relationship between dividend payout ratios and leverage. In some industries payout and leverage ratios are positively related while in other industries the relationship is negative. Lloyd et al. (1985) and Collins et al. (1996) found statistically significant and negative relationship between firm’s risk and the dividend payout ratios. 3. Growth of interest income affect on the dividend payment Firms that experience recent growth in revenues tend to pay lower dividends (Chen and Dhiensiri, 2009).
Higgins (1972) show that payout ratio is negatively related to a firm’s need for funds to finance growth opportunity. 4. Collateral capacity affect on the dividend payment Generally, firms which have a greater portion of their assets in the form of tangible assets enhance their ability to raise debt finance and at cheaper cost, thereby reducing the pressure on internally generated funds (Bradley, Jarell and Kim, (1984)).
Thus collateral capacity is expected to have a positive effect on a firm’s dividend policy. CHAPTER 3 METHODOLOGY AND DATA 3. 0INTRODUCTION This chapter will significantly contain the methods of gathering data to be analyzed and procedure used for the purpose of this study.
Procedures for collection and analyzing data are discussed in order to give and provide more depth understanding of the research. Therefore, the major aims of this chapter is to explain about the features in the design of this study which consist of research purpose, types of investigation, study setting, and unit analysis and also time horizon to complete this research. The development theoretical framework and hypotheses is important in order to be tested in the subsequent chapter. This chapter also explains the data collection methods which the data are collected using the secondary data such as company data, journal, articles and government publications.
All of these variables were getting from DataStream financial database. The objective of this study was to determine the significant variable that influenced the dividend distribution o bank in Malaysia. To achieve the above objectives, this study test on the hypothesis of factors that influence the dividend payment. The analysis was done by used the data from 1993 until 2009. The study will use the multiple regression method to get the result. 3. 1 DATA COLLECTION In order to gain an accuracy and reliability in the finding, the way of data gathering need to be considered and it is very important. This is significant for the purpose of analysis, testing of hypotheses, and answering the research questions.
The aim of the study was to collect data in order to test out the hypotheses regarding the factors, which affect dividend payment of bank. Based on this study, data were being collected from secondary data. Secondary data can be defines as data gathered and recorded by “someone else” prior to (and for purpose other than) the current needs of researcher. . These data can be collected and inexpensively. There are two types of secondary data, which are: a)Internal Sources Internal sources consist of sources within the banks such as annual report of the bank and other report. The sources were obtained from DataStream at Uitm Segamat, Johor. b)External Sources It refers to the source outside the organization.
The sources that are being use for obtaining information are text book (economy, banking), journal (Journal of Banking, Journal of the Finance, and Journal of Business Management), newspaper, magazines, Internet, brochures and pamphlets. Therefore, all data gathered, is in term of dividend per share (DPS), return on assets (ROA), debt ratio (DR), growth of interest income (II) and total fixed asset (TFA).
3. 2 SAMPLING FRAME In this study, the population was conducted on Malaysian banks over in the period 1993-2009 that based on availability of data in data stream. A sample is subset of the population. The samples used are associated with the research paper (Raymond James Jensen).
The sample was taken on 10 banks listed on main board of Bursa Malaysia based on market capitalization.
The decisions of choosing the sample are in order to achieve the main objective of this research. Then, the factors is refers to profitability, leverage, growth and collateral capacity of the bank. 3. 3 VARIABLES AND MEASUREMENT The variables used in this study can be categorized into two main types which are; the dependent and the independent variables. The measurement of all data gathered is regression analysis. 3. 3. 1Dependent Variable The dependent variable for this study dividend distribution where calculated as total amount distributed dividend divided by the number of ordinary outstanding equity shares that also known dividend per share (DPS).
3. 3. Independent Variables I First independent variable for this study is profitability of bank which will be measured by return on asset (ROA).
ROA measures how efficiently a bank is being run because it indicates how much profits are generated on average by each Ringgit of assets. 3. 3. 3Independent Variables II Second is leverage which will be measured by debt ratio (DR) that calculates by dividing total debt to total assets of the bank. 3. 3. 4Independent Variables III Third is growth which will be measured growth of interest incomes. 3. 3. 5Independent Variables IV Fourth is collateral capacity which will be measured total fixed asset (TFA).
3. 4 RESEARCH DESIGN
This paper is designed on order to investigate the relationship between dependent and independent variables which are explains significant correlation between the effect of profitability (return on assets), leverage (debt ratio), growth (growth of interest income) and collateral capacity (total fixed assets) towards dividend distribution of bank in Malaysia. Research design may comprise of purpose of study, types of investigation, unit of analysis and time horizon were will discuss below: 3. 4. 1Purpose of the Study According to Uma Sekaran (2006), the purpose of an academic research can be exploratory in nature, descriptive, or can be conducted to test hypothesis . The purpose of this study is to determine the relationships between the dependent variables of dividend distribution with the independents variables of profitability (return on assets), leverage (debt ratio), growth (growth of interest income) and collateral capacity (total fixed assets).
3. 4. 2 Types of Investigation
In this study, the type of investigation is casual study since this study has explained the effects of profitability (return on assets), leverage (debt ratio), growth (growth of interest income) and collateral capacity (total fixed assets).
3. 4. 3Unit of Analysis In this paper,the unit of analysis is the ten bank which are selected to do an analysis for an example are Maybank, Affin Bank, Public Bank and so on. 3. 4. 4Time Horizon This study will use yearly basis data from year 1993-2009. The wider time horizon was chosen means the better to get good result from the research. 5. THEORETICAL FRAMEWORK There is a classical theory that explained the high correlation between the factors may influence dividend payment of bank in Malaysia: • Dependent variable: Dividend distribution (dividend per share) Independent variables: Profitability (return on assets), leverage (debt ratio), growth (growth of interest income) and collateral capacity (total fixed assets).
Figure 1: Schematic Diagram (Relationship Diagram) Independent Dependent According to the schematic diagram above, it can be elaborated that the dividend distribution of banks in Malaysia are determine profitability (return on assets), leverage (debt ratio), growth (growth of interest income) and collateral capacity (total fixed assets).
When the return on asset (ROA) and total fixed asset (TFA) increase, it will affect the increasing dividend payment of bank.
While, when debt ratio (DR) and growth of interest income (II) decrease, it will increase dividend distribution of bank. 6. DATA ANALYSIS AND TREATMENT The statistical tools use in the study is Multiple Linear Regression Model. This model of analysis is done to examine the simultaneous effects of several independent variables on a dependent variable that is interval scaled. The studied using Ordinary Least Square OLS approach in able to show that the estimators of the parameter of explanatory variable are satisfy with statistical property that best, linear, unbiased and estimator that called BLUE. This study as earlier to assesses the determinants of dividend distribution to shareholders of banks in Malaysia.
The dividend per share is specified and estimated using multiple regression analysis for the explanatory variable chosen for this study: return on asset, debt ratio, growth (interest income) and total fixed asset. This based on linear regression form DPS= f (ROA, DR, GRO, TFA) Multiple Linear Regression Model: [pic](Equation 1) Where; Y =Dependent variable which dividend distribution [pic]=The constant number of equation[pic] [pic]=Coefficient Beta value [pic]=Independent variable which represent return on asset (ROA) [pic] =Independent variable which represent debt ratio (DR) [pic]=Independent variable which represent growth of interest income (II) [pic]=Independent variable which represent log of total fixed asset (TFA) [pic]=Error 3. 7HYPOTHESIS STATEMENT
Dividend distribution of banks can be influenced by many factors. The expected relationship with regard return on asset, debt ratio, growth (interest income) and total fixed asset can be outline in the following hypotheses. These hypotheses will be examined in chapter four in order to know whether the independent variables is the main factors that dividend distribution of bank in Malaysia. To test whether this is applicable to the banks, it is hypothesized that: • Hypothesis 1 H0: There is no significant relationship between the dividend per share and return on asset. H1: There is significant relationship between the dividend per share and return on asset. • Hypothesis 2
H0: There is no significant relationship between the dividend per share and debt ratio. H1: There is significant relationship between the dividend per share and debt ratio. • Hypothesis 3 H0: There is no significant relationship between dividend per share and growth of interest income H1: There is significant relationship between dividend per share and growth of interest income • Hypothesis 4 H0: There is no significant relationship between dividend per share and total fixed asset H1: There is significant relationship between dividend per share and growth of total fixed asset Where: H0 is the null Hypothesis H1 is the alternate Hypothesis Table 2. Hypothesis Testing |Null Hypothesis |Alternative Hypothesis | | |Individual Test | |1 |H0 : ? 1 = 0 |H1 : ? 1 ? 0 | |2 |H0 : ? 2 = 0 |H1 : ? 2 ? 0 | |3 |H0 : ? 3 = 0 |H1 : ? 3 ? 0 | | |Overall / Joint Test | |1 |H0 : ? 1= ? 2 = ? 3 = 0 |H1 : H0 is not true | Table 2 shows a Hypothesis Testing where we should include it in order to make a research.
Hypothesis Testing may be test by using many approaches like individual test (T-Test), overall test (F-Test), P-Value and Confidence Interval approach. For each test, there consist two hypothesis which is null hypothesis and alternative hypothesis. The null hypothesis may occur when there is no significant relationship between repressors and dependent variable (H0: ? i = 0) is tested against the alternative hypothesis (H1: ? i ? 0) using T-test approach and P-value approach. If the estimated t-value is greater than critical t-value, then the null hypothesis is rejected. The F-test is designated with a null hypothesis about that contains multiple hypotheses. The null hypothesis in an F-test of overall significance is that all the slope coefficients in the equation equal zero simultaneously.
The F-statistic is used in regression analysis to deal with a null hypothesis that contains multiple hypotheses or a single independent about a group of coefficients. If the estimated F-value is greater than critical F-value, the null hypothesis is rejected. To detect Multicollinearity ( using Variance inflation factor (VIF).
The VIF is a method (indicator) of detecting the severity of multicollinearity by looking at the extent to which a given explanatory variable can be explained by all the other explanatory variables in the equation. Formula: VIF (? j) = 1 / (1-Rj? ).
The larger the value of VIF, the more collinear the variable Xj. Rule of thumb: VIF (? j) > 10, the multicollinearity is severe.
To detect Heteroscedasticity ( using White Test. White does not rely on the normality assumption and easy to implement. From the data, estimate regression and obtain residuals. Then, run the auxiliary regression and obtain R squared. If the computed chi-square value exceeds the critical chi-square at the chosen level of significance, there is heteroscedasticity. If does not exceed, there is no heteroscedasticity. n. R? ~ X? df To detect Autocorrelation ( using Durbin-Watson d-test (Dw).
Formula: Dw (d) = ? ( u t – u t-1 )? ? 2(1- d/2) ? ut? Firstly run OLS regression and obtain residuals. Then computed d.
From sample size and number of explanatory variables, find out the critical dL and dU values. Reject H0 Zone of Do not reject H0 Zone of Reject H0 Evidence of indecision indecision Evidence of Positive Negative Autocorrelation Autocorrelation 0 dL dU 2 4-dU 4-dL d 3. 8SUMMARY In chapter 3, the explanation is focus on the methodology that used in this study.
All the equation and data used in this method also being discuss and explained. The theoretical framework is explained about the relationship between the dependent and independent variables whether it exist that significant relationship and the data analysis will proof that the relationship is significant or not. Then, the hypothesis testing will be used to see the relationship between these variables. This chapter can also part of the important chapter beside the findings because the whole process for this study is discussed in this chapter. ———————– Profitability (ROA) Dividend Distribution (DPS) Leverage (DR) Growth (Growth II) Collateral capacity (TFA) ((((TFA)
