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Dynamics and determinants of dividend policy in Pakistan (evidence from Karachi stock exchange non-financial listed firms)

Author

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  • Ahmed, Hafeez
  • Javid, Attiya Yasmin

Abstract

This 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. It is also one of the very first examples which try to identify the potential dynamics and determinants of dividend payout in Pakistan by using the well established dividend models in context of emerging market. For dynamic equation we used the extended model of Lintner, Fama and Babiak and ‘Proposed’ model in dynamic setting. The results consistently support that Pakistani listed non-financial firms rely on both the change in dividends and change in net earnings which clearly demonstrate that the firms rely on both current earning per share and past dividend per share to set their dividend payments. However the study clearly shows that 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 to smoothing their dividend payments. To find out the determinants of dividend payout policy dynamic panel regression has been performed. Firstly, 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 slack 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 clearly shows that the firms prefer to invest in their assets rather than pay dividends to its shareholders.

Suggested Citation

  • Ahmed, Hafeez & Javid, Attiya Yasmin, 2008. "Dynamics and determinants of dividend policy in Pakistan (evidence from Karachi stock exchange non-financial listed firms)," MPRA Paper 37342, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:37342
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    References listed on IDEAS

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    Cited by:

    1. Muhammad Shahzad Ashraf & Hasan M. Mohsin, 2012. "Monetary Policy Restriction and Dividend Behaviour of Pakistani Firms: An Empirical Analysis," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 51(4), pages 683-693.
    2. Joseph Yensu & Charles Adusei, 2016. "Dividend Policy Decision across African Countries," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 8(6), pages 1-63, June.
    3. Huma Fatima & Abdul Haque & Muhammad Usman, 2020. "Is there any association between real earnings management and crash risk of stock price during uncertainty? An evidence from family-owned firms in an emerging economy," Future Business Journal, Springer, vol. 6(1), pages 1-12, December.
    4. Ahmed Imran Hunjra & Muhammad Shahzad & Muhammad Irfan Chani & Sabih ul Hassan & Umer Mustafa, 2014. "Impact of Dividend Policy, Earning per Share, Return on Equity, Profit after Tax on Stock Prices," International Journal of Economics and Empirical Research (IJEER), The Economics and Social Development Organization (TESDO), vol. 2(3), pages 109-115, March.
    5. Aliya Bushra & Nawazish Mirza, 2015. "The Determinants of Corporate Dividend Policy in Pakistan," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 20(2), pages 77-98, July-Dec.
    6. OKORO, Cyprian Okey, 2018. "Analysis Of The Determinants Of Dividend Payout Of Consumer Goods Companies In Nigeria," Annals of Spiru Haret University, Economic Series, Universitatea Spiru Haret, vol. 9(1), pages 141-165.
    7. Faruk Bostanci & Eyup Kadioglu & Guven Sayilgan, 2018. "Determinants of Dividend Payout Decisions: A Dynamic Panel Data Analysis of Turkish Stock Market," IJFS, MDPI, vol. 6(4), pages 1-16, November.
    8. Kartal Demirg ne, 2015. "Determinants of Target Dividend Payout Ratio: A Panel Autoregressive Distributed Lag Analysis," International Journal of Economics and Financial Issues, Econjournals, vol. 5(2), pages 418-426.
    9. Ruqia Shaikh & Guo Fei & Muhammad Shaique & Muhammad Rizwan Nazir, 2019. "Control-Enhancing Mechanisms and Earnings Management: Empirical Evidence from Pakistan," JRFM, MDPI, vol. 12(3), pages 1-23, August.
    10. Firas N. Dahmash & Hashem Alshurafat & Raed Hendawi & Abdallah Bader Alzoubi & Hamzeh Al Amosh, 2023. "The Retained Earnings Effect on the Firm’s Market Value: Evidence from Jordan," IJFS, MDPI, vol. 11(3), pages 1-11, July.
    11. Mubashir Ali Khan & Fareeha Abbasi & Muhammad Azeem Ahmad & Imran Arshad, 2020. "What Determines A Dividend Policy Of Listed Non-Financial Firms Of Pakistan," IBT Journal of Business Studies (JBS), Ilma University, Faculty of Management Science, vol. 16(2), pages 103-121.
    12. Fernau, Erik & Hirsch, Stefan, 2019. "What drives dividend smoothing? A meta regression analysis of the Lintner model," International Review of Financial Analysis, Elsevier, vol. 61(C), pages 255-273.
    13. Nwidobie Barine Michael, 2013. "Agency Conflict and Corporate Dividend Policy Decisions in Nigeria," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 3(8), pages 1110-1121, August.
    14. Okun O. Omokhudu & Ohidoa Toluwa, 2018. "Agency Cost and Dividend Policy in Nigerian NonFinancial Quoted Firms," International Journal of Academic Research in Business and Social Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Business and Social Sciences, vol. 8(4), pages 325-350, April.

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    More about this item

    Keywords

    Dynamics panel data; dividend policy; partial adjustment model; dividend dynamics; target payout;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • A1 - General Economics and Teaching - - General Economics
    • M2 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics
    • G0 - Financial Economics - - General

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