Sectorial analysis on dividend policy across non-financial Pakistani listed firms

Abstract

In corporate finance, dividend policy is considered as one of the most challenging area of strategic financial decision. The earlier studies on dividend policy have primarily focused on dividend policy theories, firm, and country level factors which influence the dividend policy of firms. The development of sectors is an important factor to economic development of any country. As such, in-depth analysis on the impact of sector-level factors, sectors different behavior and different political regimes on dividend policy of firms is vital. Moreover, in the horizon of sector level variables, political risk, stock market development, debt market development, and different political regimes, the dividend policy remained less investigated, particularly unique and comprehensive studies in the emerging market. This study contributes to prevailing body of literature by exploring these unique issues in the perspective of emerging economy from three distinctive ways. Firstly, this study investigated the impact of firm, sector, and country level variables on dividend policy across Pakistani non-financial listed firms. Secondly, keeping in view the significance of sectors and political regimes, this study examined the significant determinants of dividend policy across sectors and different political regimes. Thirdly, this study explored the relative importance of each level factor that best explain the nested effect of higher-level factors on the lower-level factors. This study adopts the census sampling and performed analysis of 134 non-financial listed firms on Pakistan Stock Exchange (PSX) during the 18-year period of 2000-2017 covering two political regimes; from 2000 to 2008 as dictatorship period and from 2009 to 2017 as democratic period. This study employed two estimators namely pooled ordinary least square (OLS) and fixed effect model to investigate the significant determinants of dividend policy. To examine the relative importance of each level factor, this study used artificial nested testing procedure and nested model statistics. The results demonstrated that the sector level variables such as industry concentration, munificence, and dynamism as well as country level variables such as political risk, stock market development, and debt market development play important roles in dividend policy. In addition, findings revealed that significant determinants of dividend policy vary across the overall sample, sectors, and political regimes. Furthermore, sector level and country level variables characteristics explained about 3% and 4% variations in dividend policy of non-financial listed firms. The findings of the study also offer policy direction and practical implications to the investors, managers, and researchers. The focus of investors and managers should be on the significant determinants identified by this study when making investment decision. Future researchers should focus on propensity to pay dividend, and qualitative studies to produce comprehensive understanding of dividend policy. Future research should also focus on triangulation approach to investigate the significant determinants of dividend policy.