Determinants of Payout Policy in Pakistan: Firm Analysis

Abstract

The primary focus of this research is to explore mainly the impact of cash flow uncertainty with other potential determinant such as agency conflict, investment opportunity, Earned/Contributed capital mix, firm size, cash holdings, and operating profitability (ROA) on dividend policy of the firms of Pakistan. For the analysis panel data from 1990 to 2019 is used and adopted panel models for the data analysis. The significance of cash flow vulnerability in payout strategy has gotten little consideration in observational investigations, while overview studies; for example, (Lintner,1956 ; Brav et al., 2005) shows its significance. For this analysis two models are implemented named as Tobit and Logit model. For both the models it has been observed that SRVOL and ROAVOL both of the cash flow uncertainty variables has huge impact on probability to pay dividend and hence stand out the major role while designing the payout policy of the firms of Pakistan. The effect of cash flow uncertainty on the dividend is large more grounded than the effect of other likely determinants of payout strategy, for example, the earned/contributed capital mix, agency conflict, and investment opportunities. Our study is parallel to the result outlined by Denis & Osobov (2008) our results go along with financial life cycle theory of dividend, as there is an impact of RE/TE on probability to pay dividend