The Financial Determinant Of Dividend Policy Of Publicly Traded Firms

Dividend payout is a central corporate finance issue because of its substantial impact on the investment and financing decisions of the firm.Dividend payout influences the capital structure and the investment decision of the firm.This issue is called the “dividend puzzle”because of the existence of various opposing theoretical explanations.Even though scholars have been investigating the financial factors that impact the dividend payout,the evidence remains inconclusive and these studies were mostly carried out in the context of developed countries.Furthermore,attention has not been paid to the effect of family and state ownership of a firm on the determinants of its dividend payout.There are several unique features of Pakistan’s economy and capital market which make the ground to investigate the factors that affect publicly listed firms in Pakistan.due to the weak corporate governance in Pakistan,most firms’ ownership structure is dominated by a primary owner.Secondly,the payment of dividends in Pakistan is voluntary and not mandatory by the government,unlike in some developed countries.Third,the tax environment is different from developed economies.In Pakistan,there is no capital gain tax however,a 10% withholding tax is charged on dividend income.This study investigates the determinants of dividend payout on family and state-owned firms listed on the Pakistan stock exchange.It also investigates whether the determinants of dividend payout differ for family and state-owned firms.The study uses panel data from ten years spanning from 2010 to 2019 from all the non-financial firms(390)traded on Pakistan’s stock exchange.The ordinary least squares method is used to analyze the factors that significantly affect the dividend policy.The study investigates the effect of profitability,firm size,financial leverage,and liquidity on the dividend payout ratio.The study uses Stata SE 15 to perform the statistical and econometric analysis.The result of summary statistics shows that the mean value of dividend payout of family firms is 1.65 which is bigger than the average mean value of state-owned firms(0.24).It implies that on average family firms pay more dividends than state-owned firms.The average value of profitability is also higher for family firms which means that in Pakistan on average family firms are more profitable than state-owned firms.The empirical findings revealed that firm size significantly influences dividend payout for family-owned firms.For state-owned firms profitability,liquidity,and firm size are the main determinants of the dividend payout.This study provides valuable implications for investors and policymakers in developing economies,especially,Pakistan.It suggests that policymakers and lawmakers devise policies to protect the rights of minority shareholders.It is recommended that policymakers bound firms(especially family-owned and state-owned firms)to pay a minimum threshold of dividend payout to investors.Furthermore,it suggests that investors which prefer dividends over capital gains should invest in family firms in Pakistan.