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Monetary Policy Restriction and Dividend Behaviour of Pakistani Firms: An Empirical Analysis

Listed author(s):
  • Muhammad Shahzad Ashraf

    (Shaheed Zulfikar Ali Bhutto Institute of Science and Technology, Islamabad)

  • Hasan M. Mohsin

    (Department of Econometrics and Statistics, Pakistan Institute of Development Economics, Islamabad.)

Studies upon impact of macro variables on firm’s dividend policy are very limited and specifically rare in Pakistan perspective. Main purpose of this research paper is to observe impact of restricted monetary policy on dividend behaviour of Pakistani firms. During restricted monetary policy, cost of external funds increases and firms prefer to utilise internal funds leading to reduction in dividend payout. Behaviour of 100 listed firms, selected purposefully, has been observed for the period from 2001 to 2009 by using Lintner’ modified model. During the research period of nine years, monetary policy has been gone through both loose and tight phases. Proposed model is dynamic one as lagged dependent variable has been used as explanatory variable. Results of the all three estimations reveal almost same results. First lagged dividend has been proved to be most deterministic factor of dividend policy followed by current earnings. Monetary policy and lagged dividends interactive variables provide mixed results. First interactive variable has negative coefficients in all three, fixed effect, random effects and GMM, models but with insignificant p-values. Second monetary policy interactive variable has positive coefficients with significant values in random effects and GMM model. Firms seem to follow relatively stable dividend policies with lower adjustment factor. Monetary policy has not been observed as significant determinant of dividend policy of Pakistani firms according to dynamic GMM model.

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File URL: http://www.pide.org.pk/pdf/PDR/2012/Volume4/683-693.pdf
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Article provided by Pakistan Institute of Development Economics in its journal The Pakistan Development Review.

Volume (Year): 51 (2012)
Issue (Month): 4 ()
Pages: 683-693

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Handle: RePEc:pid:journl:v:51:y:2012:i:4:p:683-693
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  1. I.M. Ramesh Bhat, 2007. "Dividend behaviour of Indian companies under monetary policy restrictions," Managerial Finance, Emerald Group Publishing, vol. 33(1), pages 14-25, January.
  2. Garrett, Ian & Priestley, Richard, 2000. "Dividend Behaviour and Dividend Signaling," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 35(02), pages 173-189, June.
  3. Rashid Ameer, 2008. "Product market competition, regulation and dividend payout policy of Malaysian banks," Journal of Financial Regulation and Compliance, Emerald Group Publishing, vol. 16(4), pages 318-334, November.
  4. N. Bhattacharyya, 2007. "Dividend policy: a review," Managerial Finance, Emerald Group Publishing, vol. 33(1), pages 4-13, January.
  5. Malcolm Baker & Jeffrey Wurgler, 2004. "A Catering Theory of Dividends," Journal of Finance, American Finance Association, vol. 59(3), pages 1125-1165, 06.
  6. Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, 2000. "Agency Problems and Dividend Policies around the World," Journal of Finance, American Finance Association, vol. 55(1), pages 1-33, 02.
  7. Varouj Aivazian & Laurence Booth & Sean Cleary, 2003. "Do Emerging Market Firms Follow Different Dividend Policies From U.S. Firms?," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 26(3), pages 371-387.
  8. Nalinaksha Bhattacharyya, 2008. "Dividend payout and executive compensation: theory and Canadian evidence," Managerial Finance, Emerald Group Publishing, vol. 34(8), pages 585-601, July.
  9. Doron Nissim, 2001. "Dividend Changes and Future Profitability," Journal of Finance, American Finance Association, vol. 56(6), pages 2111-2133, December.
  10. John Goddard & David G. McMillan & John O.S. Wilson, 2006. "Dividend smoothing vs dividend signalling: evidence from UK firms," Managerial Finance, Emerald Group Publishing, vol. 32(6), pages 493-504.
  11. Omneya Abdelsalam, 2008. "Board composition, ownership structure and dividend policies in an emerging market," Managerial Finance, Emerald Group Publishing, vol. 34(12), pages 953-964, October.
  12. 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.
  13. Khaled Hussainey, 2009. "Disclosure and dividend signalling when sustained earnings growth declines," Managerial Auditing Journal, Emerald Group Publishing, vol. 24(5), pages 445-454, May.
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