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

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  • 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.)

Abstract

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.

Suggested Citation

  • 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.
  • Handle: RePEc:pid:journl:v:51:y:2012:i:4:p:683-693
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    References listed on IDEAS

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    Cited by:

    1. 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.

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    More about this item

    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • N2 - Economic History - - Financial Markets and Institutions

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