ISSN: 2321-8819 (Online) 2 348-7186 (Print) Impact Factor: 1. 498 Vol. 6, Issue 9 , September, 2018 15 Asian Journal of Multidisciplinary Studies, 6(9) September, 2018 The Moderating Effect of Growth Opportunity on the Relationship between Corporate Ownership and Dividend Policy Mousa Sharaf Adin Hezam Saleh 1, 2 , Yusnidah Ibrahim 3 , Hanita Kadir Shahar 3 1. PhD Candidate, School of Economics, Finance & Banking, University Utara Malaysia. 2. Faculty of Administrative Science, Ibb University, PO Box 70270, Yemen. Corresponding Author’s email: msalbrmaki@yahoo.com. Phone no: 00601119609641 3. School of Economics, Finance & Banking, University Utara Malaysia, 06010 UUM Sintok, Kedah, Malaysia. Abstract The study investigates the role of corporate ownership identities on dividend policy of Malaysian listed firms. It also examines the severity of agency problems among identities of ownership through its effect on dividend policy after controlling for the moderating effect of growth opportunity. The study sample includes 407 firms for the period of 2012 to 2015. In general, the results show that ownership concentration aligns the managers- owner interests toward the optimal growth opportunity, thus the demand of substantial shareholders' on dividends shifts from positive to negative after considering the moderating effect of growth opportunity. In firms controlled by managers, the high alignment of interests results in lower dividend payout. The severity of agency and expropriation threats in family controlled firms leads to higher dividends even after considering the moderating effect of growth opportunity. Finally, whereas government and foreign ownership are associated with higher dividend payout, the interaction effects of growth opportunities are unclear in such firms. Keywords: dividend policy, ownership structure, growth opportunity 1. Introduction Dividend policy has received great interest in the extant literature as an influential key in firms’ corporate governance. Researchers argue that dividends impose a financial monitoring mechanism that restrains managers from using firms' cash flows for their own interests (Easterbrook, 1984; Jensen, 1986; Rozeff, 1982). They suggest that dividends curtail the excess cash that might be subject to managers' discretion. Moreover, disgorging the cash out in dividends form keeps firms constantly under financial market monitoring as they regularly depend on the market for capital. Consequently, high dividends alleviate the agency costs that arise due to the contradiction of interests between managers and shareholders. However, high dividends might not be desirable at all time. Myers (1984) and Myers and Majluf (1984) argue that the severity of external finance costs increases when firms experience high growth opportunities. Therefore, firms balance their internally generated funds with investment opportunities. Accordingly, firms reduce dividends to avoid expensive external finance and increase dividends only when there is a persistent surplus in free cash flow over investment expenses. They attribute the costs of external finance to the information asymmetry between managers and investors. Given the agency costs and information asymmetry costs, if shareholders are aware of growth opportunities, their demand for dividends should be decreased, but the separation of shareholdings and management undermines the shareholders' awareness of growth opportunities. Furthermore, the severity of agency problems might overwhelm the firms’ concern regarding costs of finance. Jensen and Meckling (1976), Rozeff (1982) and Easterbrook (1984) assert that ownership concentration, large shareholders and managerial ownership result in great convergence between managers and shareholders. Such convergence of interests relieves the agency costs and could substitute the dividends-induced monitoring. In contrast, La Porta et al. (2000a) and Faccio et al. (2001) highlight a different sort of agency conflicts that are associated with ownership concentration. They suggest that controlling shareholders, like managers, might extract benefits from firms’ policies at the expense of minority shareholders. La Porta et al. (2000a) find that firms with high growth opportunity keep paying high dividends when the threats of expropriation of minority wealth are high. In addition, researchers demonstrate that the relationship between dividends and corporate ownership varies based on the identity of dominant shareholders (Al- Nawaiseh, 2013; Maury & Pajuste, 2002; Truong & Heaney, 2007). The objective of this study is to investigate the role of different corporate ownership identities on the dividend policy of the Malaysian firms. The study also examines the interaction between growth opportunities and ownership identities as a determinant factor of dividend policy. The corporate ownership in Malaysia has been reported to be highly concentrated. In a study of 599 sampled firms from Malaysia, Lim et al. (2014) document that the largest shareholders on average