The Determinants of Corporate Dividend Policy: An Investigation of Pakistani Banking Industry

Abstract

The paper investigates the impact of different firm specific factors on the dividend policy of companies by selecting a sample of 18 banks listed in KSE for the period 2006-2011. The dependent variable is dividend policy where as explanatory variables include, firm size and risk, profitability, firm’s growth and leverage. It was found that out of 18 banks 11 banks pay dividends whereas seven banks do not. The results have shown that the independent variables growth, profitability and firm size have positive coefficient of correlation when the dependent variable is dividend yield and Dividend Payout Ratio. However there is strong linear association between profitability and firm size with dividend policy but the variable growth rate has weak positive correlation with dividend policy. In contrast, the variables leverage and firm risk has inverse linear relationship with dividend policy. Banks that pay dividends were found, when we use method of correlation coefficient more profitable, stable and less risky as compare to banks that do not pay dividends.

Keywords: Dividend Policy, Listed Banks, Pakistan