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Dividend Policy and Role of Corporate Governance in Manufacturing Sector of Pakistan

Author

Listed:
  • Zubaida Batool

    (Pakistan Institute of Development Economics, Islamabad)

  • Attiya Yasmin Javid

    (Pakistan Institute of Development Economics, Islamabad)

Abstract

This study examines the relationship between internal mechanisms and external mechanisms of corporate governance and dividend policy for 100 manufacturing firms listed on Karachi Stock Exchange over the period 2003 to 2011. The dividend stability model is used and the results indicate that firms follow a smooth dividend policy but are not considering the long term target dividend payout to fix their dividend policy. The positive relationship between dividend yield and corporate governance structures i.e. board composition, ownership structure, audit quality, shareholder rights etc. indicate that firms implementing corporate governance strategies pay higher dividends. The results suggest that firms earn and grow more they are capable of paying dividends. The results reveal that as economic conditions deteriorate and Pakistani firms reduce their dividend payments. As the inflation increases the nominal value of product also increases and dividend payments tend to be higher. The findings show that when firm specific factors as well as business or economic conditions factors are added along with corporate governance mechanisms in the dividend stability model the impact of corporate governance remains the same. It is concluded that good governance has strong influence on dividend policy of listed manufacturing companies listed at KSE.

Suggested Citation

  • Zubaida Batool & Attiya Yasmin Javid, 2014. "Dividend Policy and Role of Corporate Governance in Manufacturing Sector of Pakistan," PIDE-Working Papers 2014:109, Pakistan Institute of Development Economics.
    • Handle: RePEc:pid:wpaper:2014:109
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    References listed on IDEAS

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    2. Haroon Hussain & Rohani Md-Rus & Hamdan Amer Ali Al-Jaifi, 2017. "Board Size and Dividend Policy: A Review," International Journal of Business and Administrative Studies, Professor Dr. Bahaudin G. Mujtaba, vol. 3(5), pages 197-201.
    3. Olayinka Olufisayo Akinlo & John Ayobamibo Olayiwola, 2021. "Dividend policy-performance nexus: PMG-ARDL approach," Future Business Journal, Springer, vol. 7(1), pages 1-9, December.
    4. Hussain Haroon & Md-Rus Rohani & Al-Jaifi Hamdan Amer & Hussain Rana Yassir, 2022. "Determinants of Corporate Pay-Out Policy and the Moderating Effects of Firm's Growth: Evidence from Pakistan," Studia Universitatis „Vasile Goldis” Arad – Economics Series, Sciendo, vol. 32(3), pages 65-101, September.

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    Keywords

    Dividend Policy; Corporate Governance; Dividend Stability Model;
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