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The determinants of dividend policy in Pakistan

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. 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.

Suggested Citation

  • Ahmed, Hafeez & Javid, Attiya Yasmin, 2008. "The determinants of dividend policy in Pakistan," MPRA Paper 37339, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:37339
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    References listed on IDEAS

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    Cited by:

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    3. Zouhair Boumlik & Badia Oulhadj & Olivier Colot, 2023. "The Effect of the COVID-19 Pandemic on Corporate Dividend Policy of Moroccan Listed Firms," JRFM, MDPI, vol. 16(8), pages 1-17, July.
    4. 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.
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    6. Eliasu Nuhu & Abubakar Musah & Damankah Basil Senyo, 2014. "Determinants of Dividend Payout of Financial Firms and Non-Financial Firms in Ghana," International Journal of Academic Research in Accounting, Finance and Management Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Finance and Management Sciences, vol. 4(3), pages 109-118, July.
    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. Yakubu, Ibrahim Nandom, 2019. "The Effect of Working Capital Management on Dividend Policy: An Empirical Analysis of Listed Firms in Ghana," MPRA Paper 95318, University Library of Munich, Germany.
    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. Stela JAKOVA, 2017. "Impact of Dividend Taxation Changing on Dividend Policy of Romanian Companies Listed on Stock Market," Romanian Statistical Review, Romanian Statistical Review, vol. 65(3), pages 81-92, September.
    13. 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.
    14. Hussain Tahir & Ridzuan Masri & Mahfuzur Rahman, 2020. "Determinants of Dividend Pay-Out Policy of Listed Non-financial Firms in Malaysia," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 11(2), pages 68-76, April.
    15. Imran, Kashif & Usman, Muhammad & Nishat, Muhammad, 2013. "Banks dividend policy: Evidence from Pakistan," Economic Modelling, Elsevier, vol. 32(C), pages 88-90.
    16. Raheel Gohar & Mohammed Shahwar Alam, 2018. "Determinants and Behavior of Dividend Policy in Pakistani Listed Companies," Journal of Finance and Investment Analysis, SCIENPRESS Ltd, vol. 7(3), pages 1-1.
    17. 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.
    18. 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

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

    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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