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Modeling Dividend Behavior in Pakistan

  • Haleem, Fazli
  • Javid, Attiya Yasmin

This study examines the determinants of dividend policy by Lintner (1956) and Braittan (1966) and their extended versions to examine their relative significance in the Pakistani context. The sample consists of thirty-five firms in the overall manufacturing sector and three sub-sectors: textile, energy and chemicals the period 2007 to 2009. The analysis reveals that Lintner model is better than other models examined in the study and net profit and lag dividends are important determinants of dividend policy in Pakistani manufacturing sector. The depreciation and liquidity has significant impact on the dividend policy when included in the Lintner model while investment demand, interest rate, share price behavior and debt turn out to be insignificant. The results imply that for dividend decisions, past dividends, profits and depreciation matters and Lintner model fits the data well in case of manufacturing sector of Pakistan.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 37564.

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Date of creation: 2011
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Publication status: Published in Information Management and Business Review 6.3(2011): pp. 289-301
Handle: RePEc:pra:mprapa:37564
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  1. Jayant R. Kale & Thomas H. Noe, 1990. "Dividends, Uncertainty, And Underwriting Costs Under Asymmetric Information," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 13(4), pages 265-277, December.
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  6. Alon Brav & John R. Graham & Campbell R. Harvey & Roni Michaely, 2003. "Payout Policy in the 21st Century," NBER Working Papers 9657, National Bureau of Economic Research, Inc.
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  8. Shlomo Benartzi & Roni Michaely & Richard Thaler, . "Do Changes in Dividends Signal the Future or the Past?," CRSP working papers 327, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
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  10. Marsh, Terry A & Merton, Robert C, 1986. "Dividend Variability and Variance Bounds Tests for the Rationality ofStock Market Prices," American Economic Review, American Economic Association, vol. 76(3), pages 483-98, June.
  11. Chen, Carl R & Steiner, Thomas L, 1999. "Managerial Ownership and Agency Conflicts: A Nonlinear Simultaneous Equation Analysis of Managerial Ownership, Risk Taking, Debt Policy, and Dividend Policy," The Financial Review, Eastern Finance Association, vol. 34(1), pages 119-36, February.
  12. Malcolm Baker & Jeffrey Wurgler, 2003. "A Catering Theory of Dividends," NBER Working Papers 9542, National Bureau of Economic Research, Inc.
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  15. Jensen, Michael C, 1986. "Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers," American Economic Review, American Economic Association, vol. 76(2), pages 323-29, May.
  16. 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.
  17. Merton H. Miller & Franco Modigliani, 1961. "Dividend Policy, Growth, and the Valuation of Shares," The Journal of Business, University of Chicago Press, vol. 34, pages 411.
  18. Easterbrook, Frank H, 1984. "Two Agency-Cost Explanations of Dividends," American Economic Review, American Economic Association, vol. 74(4), pages 650-59, September.
  19. Smith, Clifford Jr., 1977. "Alternative methods for raising capital : Rights versus underwritten offerings," Journal of Financial Economics, Elsevier, vol. 5(3), pages 273-307, December.
  20. Chinmoy Ghosh & J. Randall Woolridge, 1988. "An Analysis Of Shareholder Reaction To Dividend Cuts And Omissions," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 11(4), pages 281-294, December.
  21. Higgins, Robert C., 1972. "The Corporate Dividend-Saving Decision," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 7(02), pages 1527-1541, March.
  22. Titman, Sheridan & Wessels, Roberto, 1988. " The Determinants of Capital Structure Choice," Journal of Finance, American Finance Association, vol. 43(1), pages 1-19, March.
  23. Lee, Cheng F. & Wu, Chunchi & Djarraya, Mohamed, 1987. "A further empirical investigation of the dividend adjustment process," Journal of Econometrics, Elsevier, vol. 35(2-3), pages 267-285, July.
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