The determinants of dividend policy in Pakistan
AbstractThis study examines the dynamics and determinants of dividend payout policy of 320 non-financial firms listed in Karachi Stock Exchange during the period of 2001 to 2006. For the analysis we use dividend model of Lintner (1956) and its extended versions in dynamic setting. The results consistently support that Pakistani listed non-financial firms rely on both current earning per share and past dividend per share to set their dividend payments. However, the dividend tends to be more sensitive to current earnings than prior dividends. The listed non-financial firms having the high speed of adjustment and low target payout ratio show the instability in smoothing their dividend payments. To find out the determinants of dividend payout policy dynamic panel regression has been performed. It is found that the profitable firms with more stable net earnings can afford larger free cash flows and therefore pay larger dividends. Furthermore the ownership concentration and market liquidity have the positive impact on dividend payout policy. Besides, the investment opportunities and leverage have the negative impact on dividend payout policy. The market capitalization and size of the firms have the negative impact on dividend payout policy which shows that the firms prefer to invest in their assets rather than pay dividends to their shareholders.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 37339.
Date of creation: 2008
Date of revision:
Dividend policy; partial adjustment model; dividend dynamics; target payout; Dynamics panel data;
Find related papers by JEL classification:
- G2 - Financial Economics - - Financial Institutions and Services
- A1 - General Economics and Teaching - - General Economics
- G0 - Financial Economics - - General
- G00 - Financial Economics - - General - - - General
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