A RELATIVE STUDY OF DIVIDEND PAYOUT AND LIFE CYCLE STAGE OF FIRMS

Abstract

Purpose The aim of this study is to determine that if any relationship exist between dividend payout ratio and life cycle stage of firms. The ratio of retained earnings to total shareholder’s equity to find out the life cycle stage of firms. Other variables which effect is used as a measure dividend payout such as growth rate, firm size, age, retained earnings, debt/equity ratio, return managerial efficiency are also considered. No evidence of research showing the on earnings, impact of life cycle stage in Pakistan on chemical firms has been found in Pakistan. Methodology & Design The analysis is performed utilizing the panel data for all 32 chemical firms listed on PSX extracted from the annual publications of SBP. The time period for the selected data is 2006- 2015. Regression analysis is done to determine the relationship. Findings The outcome of the research shows no relationship between dividend payout and life cycle stage of firms. Growth rate, debt/equity ratio and life cycle stage are found to have a negative relationship with dividend payout whereas firm size, age, retained earnings, return on equity and managerial efficiency have a positive relationship. The overall model is significant at significant level of 5 %. Limitations The results in this study suggest that market participants, potential investors and financial analysts should focus more on firm size, retained earnings, return on equity and managerial efficiency while making decisions related to dividends. This study has shown that life cycle stage has no impact on dividend payout, however literature implies that life cycle stage is an important factor and should therefore be considered.