Agency Cost, Dividend Policy, Capital Structure, Size, and Company's Future Growth: Evidence from Top 20 Shariah-Compliant Companies at Bursa Malaysia

Abstract

This study is motivated by the desire to investigate the behavior of the top twenty Shariah-compliant companies listed on Bursa Malaysia, focusing on how their agency costs, dividend policy, capital structure, and size may impact their future growth. Within the agency theory framework, bird-in-hand theory on dividends, and some well-known capital structure theories, this paper utilizes the Generalized Method of Moments (GMM) estimation technique and extracts annual data from 2014 to 2020. Only two of the four explanatory variables are significant in explaining the outcome variable of interest, according to the empirical results of the generalized method of moments (GMM). It comes out that dividend per share (DPS) and capital structure (proxied by D/E) impact the future growth of a company (proxied by P/E). Thus, the dividend and capital structure theories appear pertinent for explaining the company's anticipated future growth variations. Even though DPS and CS are control variables, it is essential to include them in our empirical model to improve our study's internal validity. Since its p-value is greater than 0.05, the asset turnover (ATO) as a proxy for agency costs appears insignificant in influencing the P/E ratio of a company. In summary, the empirical evidence presented in this study demonstrates conclusively the significance of dividend policy and capital structure theories in determining the future growth of top-performing companies.