Effect of Corporate Governance Index on Dividend Policy: An Investigation of Textile Industry of Pakistan

Safdar Husain Tahir,Irtaza Oayyum,Sara Sohail,Saba Babar

doi:10.15291/oec.300

Abstract

This study empirically observes the impact of corporate governance index on dividend payout policy by using the data on thirty textile firms listed at Karachi Stock Exchange. The data cover the five-year period from 2009 to 2013. The data were gathered from financial statements of all the sample firms. Multiple regression models were used to check the impact of corporate governance on dividend policy. No effect of corporate governance index on firm dividend policy was found, and the largest shareholders also had no impact on dividend payout policy. A significant positive relationship was found between payout policy and stock value. Gross profit margin and operating profit margin had significant positive impact on the firm’s dividend payout policy. There is a significant correlation between the firm’s performance and payout policy.

Highlights

The term Corporate refers to a larger entity that is split into units different from the owners
The maximum Corporate Governance Index (CGI) value shows the firms with best practice in corporate governance, and minimum value of CGI indicates the firms with worst practice of corporate governance
This study has empirically observed the impact of corporate governance index on dividend payout policy by using the data of thirty textile firms listed at Karachi Stock Exchange

Summary

Introduction

The term Corporate refers to a larger entity that is split into units different from the owners. Corporation has the right to enter into contracts, take money from people who invest or lend money to people, and it can take legal action against companies or be sued by someone. It pays taxes and owns some assets. Corporate Governance refers to the formation of policies and constant monitoring of their proper implementation by the members of the administration of an organization. Corporate Governance refers to the layout of policies and some regulations through which accountability and purity in the relationships with the company stakeholders are protected by the board of directors. Payout Policy refers to the policy used by the company to find out how much it will pay to the company shareholders

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