Factors affecting dividend policy of non-financial firms listed on Pakistan stock exchange

Abstract

This research is carried out in order to find out the effect of different variables on dividend payout ratio of the non-financial firms of Pakistan that are listed on Pakistan stock exchange. It is done to find out the factors that are affecting the dividend policy of non-financial firms. As it is known that the main aim of each organization is to maximize the profit and to maximize the wealth of its shareholders. This objective of the firm is achieved by the formulation of a sound dividend policy. Previous literature on the same topic is reviewed and five variables are identified as independent and their impact on dividend policy is analyzed. 56 firms that are listed on Pakistan stock exchange are taken into account. Their data is gathered from the financial statements available at state bank of Pakistan. The data is gathered for a time period of 6 years as 1 financial cycle is completed in 6 years. The time span taken is 2010 - 2015. 5 independent variables were selected which were corporate tax, growth opportunities, firm size, financial leverage and profitability. Dividend payout is taken as the dependent variable. To find out the relationship of independent variables with the dependent variable the data is analyzed in Eviews. Regression analysis is taken as the most appropriate tool for the analysis of the data. The result of regression analysis were found to be good as proved the model to be fit and reliable. No autocorrelation was found in the model and this was analyzed by Durbin Watson statistics. In order to check the multicollinearity Variance Inflationary function was run and its answer was in range hence no multicollinearity is found in the data. Results of profitability, firm size and growth opportunities are found to be positive while the corporate tax and financial leverage is found to be negative with dividend payout ratio. Hence in the Pakistani context those firms which are generating good profits, their sales are increasing and the size of firm is good are the firms which are able to announce high dividends.