Factors Affecting Dividend Policy: An Empirical Investigation of Food Sector of Pakistan

Abstract

Dividend policy is considered to be one of the paramount important areas of corporate finance and its real consequences for all the companies and stakeholder. Dividend decision is get affected multiple factors like Leverage, Profitability, Business Risk, Liquidity, Growth Opportunities and other micro and Macro economies variables. On this premise, this study investigates factors affecting dividend policy of non-financial food firms listed in Pakistan Stock Exchange (PSE) by analyzing panel data of 20 non-financial firms for the period of 2011 to 2016. The results from fixed effect model estimation revealed (E-views) that the variables profitability, liquidity and leverage are positively and significantly related to the dividend payout, whereas business risk and growth opportunity are negatively and significantly related to the dividend payout. Therefore, it can be argued that increasing the profitability, liquidity and leverage of the firm ultimately they also increase the dividend payment to shareholder. The study provides valuable information to the Board of Directors for formulating and reviewing the dividend policy, taking into account the factors that have been shown to have a significant impact on the dividend payout. In particular, if the Board of Directors considers increasing the dividend payment to shareholders, the factors of profitability, leverage, liquidity, growth opportunity and business risk must be carefully considered.

Keywords: Dividend Payout, Profitability, Liquidity, Leverage, Fixed Effect Model

DOI: 10.7176/RJFA/10-5-02

Publication date:March 31^st 2019