Taxes and Dividend Policy (The Case of Pakistan)

Abstract

The paper investigates different firm specific factors that influence the decision relating to corporate dividend policy. The second aim of the study is to investigate the association between taxes and dividend policy, and to study the association between dividends, profits and taxes. The study sample consists of 120 Karachi Stock Exchange listed companies. The duration of the study is from 2000 to 2011. The sources of data are Karachi Stock Exchange, Securities and Exchange Commission of Pakistan, State Bank of Pakistan and the Audited Annual Reports from companies’ official websites. Using panal data technique the results indicate that variables liquidity, size and profitability have significant positive, whereas leverage has significant negative influence on dividend payments of companies. However the variable growth did not appear to have any significant influence on dividend payment behavior of companies. Using standard multiple regression for the accomplishment of second aim, we have found that the link between dependent variable profit and explanatory variable tax is positive but statistically insignificant. On the other hand dividend has direct positive correlation with profit.

Keywords: Dividend policy, Karachi Stock Exchange, Bird in the hand theory