Abstract
Dividend Policy is among the widely addressed topics in modern financial literature. The inconclusiveness of the theories on importance of dividend in determining firm’s value has made it one of the most debatable topics for the researchers (see for example, Ramcharan, 2001; Frankfurter et. al 2002; Al-Malkawi, 2007). The present study investigates the impact of firm specific characteristics on corporate dividend behavior in emerging economy of Pakistan. Three years data (2005-2007) of 100 companies listed at Karachi Stock Exchange (KSE) has been analyzed using Ordinary Least Square (OLS) regression. The results show that managerial and individual ownership, cash flow sensitivity, size and leverage are negatively whereas, operating cash-flow and profitability are positively related to cash dividend. Managerial ownership, individual ownership, operating cash flow and size are the most significant determinants of dividend behavior whereas, leverage and cash flow sensitivity do not contribute significantly in determining the level of corporate dividend payment in the firms studied in our sample. Estimated results are robust to alternative proxy of dividend behavior i.e. dividend intensity.
Highlights
Dividend policy is among the widely addressed topics in modern financial literature
In the context of Pakistan, recently Ayub (2005) and Ahmed and Attiya (2009) has studied determinants of dividend policy but both studies did not consider the cash flow aspect, which is argued by many researchers as a potential determinant of dividend policy (See for example, Lawson, 1996; DeAngelo and DeAngelo, 2006; )
Present study attempts to extend this literature by examining the impact of cash flows and ownership structure on corporate payouts
Summary
Dividend policy is among the widely addressed topics in modern financial literature. The inconclusiveness of the theories on perceived importance of dividend policy in determining firm’s value has made it one of the most debatable topics for researchers. This debate is rooted back to the seminal work of Modigliani and Miller (1961), in which they challenged the common belief that payment of dividend increases firm’s value and argued that in perfect capital market a firm’s dividend decision does not affect its value. Financial researchers have identified a variety of firm specific factors, which are important in making dividend decision including the ownership structure
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