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Do Liquidity and Financial Leverage Constrain the Impact of Firm Size and Dividend Payouts on Share Price in Emerging Economy

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  • Syed Ali Raza, Mohd Zaini Abd Karim

    (IQRA University)

Abstract

This study investigates the influence of liquidity position and financial leverage on the relationship of share price with firm size and dividend payouts in Pakistan by using the annual panel data of 356 non-financial firms listed on Karachi stock exchange from the period of 1999 to 2013. Pedroni panel cointegration approach confirms the valid long run relationship between considered variables. Results indicate that firm size and dividend payout have significant positive relationship with the firms' stock prices in long run. Results of causality test show the bidirectional causal relationship of firm size and dividend payout with stock prices in non-financial firms of Pakistan. The findings also support the dividend relevance theory, which means dividend payout have significantly impact on stock price, stock returns and firms' value. It is suggested that investors should invest in stock of those firms who pay higher dividend and having large firm size in order to get higher returns on their investments. On the other hand, results also suggest that the coefficient of dividend payout is more than coefficient of firm size. In the light of these findings management of firms should focus more on dividend payout than retained earnings to increase the firms' value in the market.

Suggested Citation

  • Syed Ali Raza, Mohd Zaini Abd Karim, 2016. "Do Liquidity and Financial Leverage Constrain the Impact of Firm Size and Dividend Payouts on Share Price in Emerging Economy," Journal of Finance and Economics Research, Geist Science, Iqra University, Faculty of Business Administration, vol. 1(2), pages 71-86, October.
    • Handle: RePEc:gei:jnlfer:v:1:y:2016:i:2:p:71-86
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    3. Emad Kazemzadeh & José Alberto Fuinhas & Narges Salehnia & Fariba Osmani, 2023. "The effect of economic complexity, fertility rate, and information and communication technology on ecological footprint in the emerging economies: a two-step stirpat model and panel quantile regressio," Quality & Quantity: International Journal of Methodology, Springer, vol. 57(1), pages 737-763, February.
    4. Emad Kazemzadeh & José Alberto Fuinhas & Matheus Koengkan & Fariba Osmani, 2022. "The Heterogeneous Effect of Economic Complexity and Export Quality on the Ecological Footprint: A Two-Step Club Convergence and Panel Quantile Regression Approach," Sustainability, MDPI, vol. 14(18), pages 1-24, September.
    5. Syed Danial Hashmi & Saqib Gulzar & Zeshan Ghafoor & Iram Naz, 2020. "Sensitivity of firm size measures to practices of corporate finance: evidence from BRICS," Future Business Journal, Springer, vol. 6(1), pages 1-19, December.
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