Ownership Concentration, Dividend Policy and Firm Performance in Pakistan

Amel Aguir

doi:10.7176/rjfa/10-21-04

Abstract

Data is drawing from a sample of Chemical firms listed at Karachi Stock Exchange of Pakistan over the period 2002–2017, this paper investigates the relationship between ownership concentration and dividend policy on firm financial performance. Using panel data analysis, the evidence is found to support the assumption of a significant relationship between ownership concentration and dividend policy on firm financial performance. The findings reveal that ownership concentration has a significant positive association with firm financial performance. This stated that larger shareholders can attribute to the alignment of managerial incentives with shareholder interests. They also monitor the team very effectively and efficiently. Dividend policy has a significant positive relationship with ROA. Leverage and Tangibility have a significant negative relationship with financial performance. Board size also has a significant positive impact on firm performance. These results potentially can be relevant for policymakers and academic research. Keywords: Firm’s Performance, Ownership Concentration, Dividend Policy, Chemical Sector, Pakistan DOI : 10.7176/RJFA/10-21-04 Publication date: November 30 th 2019

Highlights

Firm ownership and management decisions are the primary sources of corporate governance
The code of corporate governance of Pakistan is conducted by the Security and Exchange Commission of Pakistan (SECP) in March 2002 (Kazi, Arain, & Sahetiya, 2018) and it is stated that ownership structure plays an important role in firm performance (Shah, Xiao, & Quresh, 2019)
3.2- Empirical Model In order to examine the role of ownership concentration and dividend policy on firm performance, we used the following model specification: ROAi,t = β0 + β1OWNRi,t + β2DPi,t + β3BSZi,t + β4FSZi,t + β5LEVi,t + β6LEVi,t + β7TANi,t + εi,t Where, return on assets (ROA) = Return on Asset OWNR = Ownership Concentration DP = Dividend Policy LEV = Financial Leverage LIQ = Liquidity Board size (BSZ) = Board Size firm size (FSZ) = Firm Size TAN = Tangibility i= firms t= time β0 = constant term ɛ = error term

Summary

Firm size

Whereas leverage (LEV) is calculated as total debt divided by total assets (Ilmas, Tahir, & Asrar-ul-Haq, 2018) and firm size (FSZ) is calculated by taking the natural logarithm of total assets (Abdullah, 2005; Murtaza & Azam, 2019). 3.2- Empirical Model In order to examine the role of ownership concentration and dividend policy on firm performance, we used the following model specification: ROAi,t = β0 + β1OWNRi,t + β2DPi,t + β3BSZi,t + β4FSZi,t + β5LEVi,t + β6LEVi,t + β7TANi,t + εi,t Where, ROA = Return on Asset OWNR = Ownership Concentration DP = Dividend Policy LEV = Financial Leverage LIQ = Liquidity BSZ = Board Size FSZ = Firm Size TAN = Tangibility i= firms t= time β0 = constant term ɛ = error term

4- Empirical Results

Variables VIF

Research model

Findings

Standard errors in parentheses