The purpose of this study is to examine the factors that influence dividend policy in the Malaysian banking sector. For this purpose, a sample of 19 commercial banks in Malaysia were selected including eight domestic banks and eleven foreign banks. Ordinary Least Squares (OLS) Regression was used to examine the impact of leverage, profitability, liquidity, past dividend, size of firm, sales growth, corporate tax, and business risk on dividend policy in the banking sector over a period of five years from 2007 to 2011. The empirical results of this study show that profitability, liquidity, past dividend, size of firm, and sales growth have a positive relationship with dividend payout. Meanwhile, leverage, corporate tax and
business risk have a negative relationship with dividend payout. The results of the analysis indicated that profitability, past dividend, size of firm and corporate tax were the major factors that affected dividend payment decision. Furthermore, we found that domestic banks had higher dividend payout than foreign bank
