Determinants of Dividend Policy in Manufacturing Sector of Pakistan: A Case Study from the Textile, Engineering and Cement Sector (

Abstract

This paper focuses on the determinants of payout ratio in the Pakistani environment. As previous researchers have concluded that the dividend payout of the firms is affected by different factors like Beta, Liquidity, Cash flow, Taxes, Growth, and size of the firm. Out of these factors some are found to be significant and they positively affect the dividend payout of the firms, while some of them have a negative impact on the dividend payout of the firms. In our current study we have taken four independent variables that are Profitability, Leverage, Growth and Size of the firm. We have taken a sample of 38 companies from Textile, Cement and Engineering Sector. These firms are listed on the Karachi stock exchange. We have analyzed the data for these firms from 1996 to 2008. As these firms have paid dividends during this time period. To empirically test the data we have applied the pooled regression model and fixed effect model. Finally we concluded that the Total Debt ratio (TDR) is only statistically significant in explaining the variations in Dividend Payout ratio (DPO). Further we concluded that total debt ratio and dividend payout is negatively related. Rest of the variables like profitability is found to be an insignificant variable.