Please use this identifier to cite or link to this item: http://prr.hec.gov.pk/jspui/handle/123456789/20288
Title: Theoretical Advancement and empirical evidence in dividend policy: A case study of Pakistan
Authors: , Abdul Hameed
Keywords: Bussiness & Management
Finance
Issue Date: 2021
Publisher: Iqra University Karachi, Karachi.
Abstract: Dividends are payments made to the shareholders (owners) out of firms’ earnings. A dividend policy is the structure of the dividend payout by the company to its shareholders. When the company needs some additional fund it sells a portion of their shares to generate fund. The policy decides the distribution of residual income to its shareholders. Empirical evidence refers to the observation and documentation of dividend policy in this regard. Theoretical advancement refers to the advancement of related theories over a period of time. The objective of this dissertation was to study theoretical advancement and empirical evidence of dividend policy in Pakistan’s context. While talking of dividend it has been observed that there are two schools of thought. One thought advocates that the rise or fall in dividend increases or decreases the value of the company while the other is of the opinion that the dividend and company worth or value has no direct relationship. The present research study has analysed a number of observations in Pakistani context. Researchers have argued on the impact or influence of dividend and the value of the company. They forwarded their justifications on the basis of their varied observations. They have also argued whether dividend can be predicted on the basis of company business. However, there is no unanimous agreement on this issue. While studies on the established markets are available with conclusive opinion, the observations on emerging markets like Pakistan is still under the process of some conclusive opinion. The current research study intends to minimize the knowledge gap on the referred topic. In Pakistan earlier than June 2010, capital gain in shares was exempted from taxation. But after this period capital gain have also been included in the tax system. This is a comparatively new development and has provided an impetus to the researcher to explore and rationalize. Among other factors the following were also found to be important:  Management structure of the organization and type of corporate governance Theoretical Advancement and Empirical Evidence in dividend policy: A case of Pakistan 3  Political structure and ruling government of the country influencing the business climate The study has been done on the basis of data taken from 319 companies listed in Pakistan Stock Exchange. The panel data includes an eleven-year period 2008-2018. To analyse the data panel regression model was used. The research also discusses the managerial preferences of dividend types and the factors influencing dividends. These factors are: the company’s market value; the financing decision; the investment decision; signalling theory; agency theory; shareholder structure, delisting risk probability and catering feature of Pakistan listed firms. The study concludes that the irrelevant theory is not valid in Pakistan and there is a relationship between shareholders earning and market value of the company. The study also finds that in addition to earnings investment also plays a role in the market value of the company. However, it has been found that Pakistani companies in general do not follow a residual dividends policy, implying no preference for investment policy over dividend policy, except for the two sectors banking and insurance companies where the results showed that they follow the residuals dividends policy. The study also observed a deviation from the theory that the banking and insurance companies this relevancy is not valid. The observation also concludes that Pakistani companies follow cash dividend policy over other choices. While announcing cash dividend, the shareholders structure is also taken into consideration by most of the company management. The results conclude that Pakistani listed firms have constant dividend policy year to year with respect to increase in share prices. Overall results suggest that share prices increases during Noon League Government tenure as dividend policy constant as well as increase to pay shareholder but during PPP Government tenure shows that companies has constant dividend policy and decrease in share prices. Probability of delisting risk also affects to pay dividend with change a positive in share prices. Corporate Governance has less effect on dividend to decrease in share prices. In Pakistan, this study shows that factors such as financial factors (size, Age, delisting risk, taxes, return on equity, return on asset, earning per share, dividend per share, dividend payout ratio, dividend yield, decision to pay or not pay and market capitalization) use as a proxies for dividend theories, economic variables, non-financial variables such as Corporate governance, shareholding pattern, Government tenure, and political connection of firms effects on share Theoretical Advancement and Empirical Evidence in dividend policy: A case of Pakistan 4 prices of listed Pakistani firms during study period. As expected dividend pay-out ratio has positive, dividend yield has negative, government tenure positive, shareholding pattern has positive impact on share prices. Managers rationally cater to investor demand, they pay dividends when investors put higher prices on payers and do not pay when investor prefer nonpayer. This will be tested that the propensity to pay dividends of corporate sector of Pakistan depends on a dividend premium in stock prices. The implication of the study results shows that Pakistani listed firms stock prices has not influence single dividend theory but with multiple theories implications.
Gov't Doc #: 25728
URI: http://prr.hec.gov.pk/jspui/handle/123456789/20288
Appears in Collections:PhD Thesis of All Public / Private Sector Universities / DAIs.

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