Impact of COVID-19 on Financing Sustainability: A Case of Dividend Payments in Malaysia

This paper investigates the impact of COVID-19 on the dividend payment behavior of Malaysian companies. Using a sample of 356 firms from 2015 to 2021, the payment behavior trend was determined by analyzing the total dividend paid and dividend decisions made during the study period. The findings show that the total dividend paid in 2020 was lower than the average payment in the normal period (2015–2019), while dividend reduction and increase decisions recorded an increase and drop, respectively. Firms in Malaysia also show higher omit decisions during and post-COVID period, where 58 and 82 decisions were made compared to an average of 25 during the normal period, which supports signaling theory where managers used dividends to signal a firm’s future earnings capabilities. The post-COVID period also shows an increasing trend in the total amount paid, thereby supporting the agency theory that dividends are paid to prevent managers from misusing cash in value-destroying projects. The results attained suggest that dividend payment should follow after cash conservation action is taken during the crisis to minimize agency costs, while policymakers should revise taxation policy to lessen the financial burden through additional revenue collection from firms that experience supernormal returns following the crisis.