Firm Level Determinants and Dividend Policy in Pakistan

Abstract

Dividend policy is a challenge in the field of corporate finance. This paper finds out the important factors of dividend policy of Pakistani listed firms. The current paper aims to examine the impact of firm specific factors of dividend policy in Pakistan. The factors examine in this study are profitability, free cash flow, firm size, liquidity, financial leverage, investment opportunities and corporate tax. The data are collected from annual reports and Pakistan Stock Exchange. To accomplish the objective, financial data from 2000 to 2017 are collected and analyzed to examine the impact of firm level determinants on dividend payout. This paper used pooled ordinary least squares model and fixed effect model. The findings reveal that firm specific factors have significant influence on dividend policy in Pakistan. The profitability of firm and corporate tax has positive influence, whereas firm size and investment opportunities have negative impact on dividend payout. The implication of current research is useful for board of directors and managers to decide the appropriate dividend policy for firm. This study is also helpful for investors about investment decision. This research is a contribution to the existing body of knowledge about the determinants that influence dividend policy of Pakistani listed firms. Future researcher should use the same phenomenon in different emerging economies using the different approach to reduce the dividend puzzle in the field of corporate finance