Impact of Financial Crunch (Great Recession 2007-09) On Dividend Policy. An Empirical evidence from textile sector in Pakistan

Abstract

Purpose – This study endeavors to examine the micro and macro factors affecting the dividend policies in textile sector of Pakistan covering the period of before, after and during1 financial crises of 2007-09. The micro regressors examined in this study are profitability, size, free cashflows, leverage, liquidity and investment opportunities. On the other hand, the macro regressors are annual GDP growth rate, annual inflation rate and corruption. Design/Methodology – The data for the study were acquired from data base of Statistical Bureau of Pakistan, State Bank of Pakistan, Transparency International, and from yearly reports of sampled companies. The study is done on 39 listed companies of textile sector. For the sake of data analysis, pooled OLS, fixed effect and random effect, and robust standard errors on fixed and random effect methods are used. Findings – The results obtained from the analysis are divided into three stages. Firstly, the overall sample analyzed that profitability, size, financial leverage, investment opportunities, GDP, inflation and corruption has significant impact on dividend policy while free cashflow and liquidity are the insignificant determinants. Secondly, before financial crisis, profitability, free cash flow, leverages and investment opportunities are significant to dividend policy whereas size, liquidity, annual GDP growth rate, inflation and corruption are insignificant. After financial crisis, investment opportunities and inflation has significant impact on the dividend policy, and on contrary, profitability, free cashflow, size, liquidity, leverage, annual GDP growth rate, and corruption are insignificant to dividend policy. Thirdly, during financial crisis regime, profitability, size, financial leverage, investment opportunities and corruption are the significant determinants of dividend policy, whereas free cash flow, liquidity, annual GDP growth rate, and inflation are insignificant to dividend. Practical Implications – Current study is among the first study to consider the diverse aspects of firm level and country level determinants of dividend policy under different economic regimes, especially as regards the determinants of dividend policy during financial crisis. Therefore, this study should act as a stepping-stone for forthcoming research in this area Originality – Current study covers the gap in existing literature by focusing on corruption influence as a country-level variable on dividend policies practiced in the textile division of Pakistan.