Factors Affecting Dividend Policy: An Empirical Investigation of Food Sector of Pakistan

Kalim Ullah

doi:10.7176/rjfa/10-5-02

Abstract

Dividend policy is considered to be one of the paramount important areas of corporate finance and its real consequences for all the companies and stakeholder. Dividend decision is get affected multiple factors like Leverage, Profitability, Business Risk, Liquidity, Growth Opportunities and other micro and Macro economies variables. On this premise, this study investigates factors affecting dividend policy of non-financial food firms listed in Pakistan Stock Exchange (PSE) by analyzing panel data of 20 non-financial firms for the period of 2011 to 2016. The results from fixed effect model estimation revealed (E-views) that the variables profitability, liquidity and leverage are positively and significantly related to the dividend payout, whereas business risk and growth opportunity are negatively and significantly related to the dividend payout. Therefore, it can be argued that increasing the profitability, liquidity and leverage of the firm ultimately they also increase the dividend payment to shareholder. The study provides valuable information to the Board of Directors for formulating and reviewing the dividend policy, taking into account the factors that have been shown to have a significant impact on the dividend payout. In particular, if the Board of Directors considers increasing the dividend payment to shareholders, the factors of profitability, leverage, liquidity, growth opportunity and business risk must be carefully considered. Keywords: Dividend Payout, Profitability, Liquidity, Leverage, Fixed Effect Model DOI : 10.7176/RJFA/10-5-02 Publication date :March 31 st 2019

Highlights

In the recent years, dividend policy is considered to be one of the paramount important areas of corporate finance and its real consequences for all the companies and stakeholder is not a new phenomenon
The aim of this study is to examine the impact of financial variables and ratios such as leverage, business risk, profitability ratio, liquidity ratio, and growth opportunities on corporate dividend policy
Descriptive statistics about the dividend payout policy define that dividend payout are not fixed and variation in them is high according to the policy of the firm

Summary

Introduction

Dividend policy is considered to be one of the paramount important areas of corporate finance and its real consequences for all the companies and stakeholder is not a new phenomenon. The continued distribution of the dividend is important for investors to guarantee a longer holding period for the shares. This means that the decision to pay the dividend on a continuous basis is directly related to the dividend policy. We use the return on asset (ROA) and the dividend payout ratio as proxy for profitability and dividend policy. For this we use data for the period from 2011 to 2016 and took 16 food companies listed on the Pakistan Stock Exchange

Objectives

Methods

Results