A RELATIVE STUDY OF DIVIDEND PAYOUT AND LIFE CYCLE STAGE O FIRMS A CASE FOR THE CHEMICAL INDUSTRY OF PAKISTAN

Abstract

Purpose: The aim of the study is to determine whether a relationship exists between dividend payout and life cycle stage of firms. The ratio of retained earnings to total equity is used as a measure to find out the life cycle stage of firms. Other variables which effect dividend payout such as growth rate, firm size, age, retained earnings, debt/equity ratio, return on earnings, managerial efficiency are also considered. No evidence of research showing the impact of life cycle stage in Pakistan on chemical firms has been found in Pakistan. Design/ Methodology: The analysis is performed utilizing the panel data for all 32 chemical firms listed in KSE taken from the annual publications of SBP. The time period for the selected data is 2006-2011. Regression analysis is done to determine the relationship. Findings: The results of the study show that there is 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 %. Practical Implications: 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.