Economic Reforms, Corporate Governance and Dividend Policy in Sectoral Economic Growth in Pakistan

The paper attempts to establish a relationship economic reforms, dividend policy and economic growth. Broadly, the study tries to develop a link between economic reforms and economic growth. Further narrowing down, we split economic reforms into monetary, fiscal and governance reforms and find their influence on sectoral growth specifically focusing on corporate governance reforms. In Pakistan, as we have gone through phenomenon economic and structural changes during the last decade so the study has been conducted over this period i.e., 1998 through 2008. Data was collected from State Bank of Pakistan, Pakistan Bureau of Statistics, and Annual Reports of Companies. This study covers two major sectors of Pakistan, Large Scale Manufacturing Sector and Financial Sector. We used two-stage regression analysis to avoid the possible endogenous relationship among two growth variable including GDP growth and sectoral economic growth. The results show that all three factors, economic reforms, corporate governance, and dividend policy have significant impact on sectoral economic growth of Large Scale Manufacturing and Financial Sector. In economic reforms variables, GDP growth and interest rates have positive and negative impact respectively on sectoral economic growth while FDI has no impact. This shows low interest rates and high economic growth contribute in sectoral economic growth. Further, the results show that board independence has an important role in the progress and growth of LSM and FS whereas board size showed no linkage with sectoral growth. Finally, dividend policy has positive impact on sectoral economic growth. Further studies can explore the relationship to the other sectors.