QUESTION???

What are the determinants of dividend policy in Pakistan??

Following are important determinants that may influence the dividend payout policies in
Pakistan .
1. Profitability is the backbone of every business whether it is small or big. All the
operational activities depend upon profit which company generates. In case of
low profitability, firms cannot perform actively. It has a significant effect on the
dividend payout decisions. When company earns well, it can decide to offer
higher dividend to shareholders who are the actual owners of the company.
Firms having high profitability with stable earnings can afford larger free cash
flows thus pay out larger dividends. So ​"the firms with larger investment
opportunities can easily influence and play important role to determinant of
dividend payout policies in Pakistan".
2. The ownership structure has the major impact to determine the dividend payout
policy in Pakistan, which is positively associated with the growth of dividends.
When legal environment does not provide sufficient protection for outside
Investors, entrepreneurs and original owners are forced to maintain large
positions in their companies which resulted in concentration of firm ownership.
The countries like Pakistan with poor investor protection corporate ownership
have significant impact on dividend policy. Ownership concentration appeared to
be more important tool to resolve agency conflict between controlling and
minority shareholders when investor protection is weak. However high
relationship of ownership of major shareholders can create the block of holders
which may be easily influence the dividend payout policy in Pakist,anwhich
means the firms with high inside ownership or major inside shareholding pay
dividend to reduce the cost associated with agency conflict. ​"The firms with the
major inside share holdings pay more dividends to its shareholders in Pakistan".
3. It is one of the important factors being considered in dividend payout decisions
because dividend payment generates cash outflow. Greater liquidity shows that
company has good cash flows and most probably it can announce higher
dividends. When company goes through the development process; mostly it
becomes hard to offer dividends. Most often, companies with greater size tend to
offer more dividends because of the strong liquidity position. The market liquidity
of the firms has a positive influence which confirms that ​"firms with higher market
liquidity pay more dividends".
4. The size is the highly significant which shows that companies with big size and
good cash flows offer higher dividends than the companies of small size. As
Najjar (2009) investigated in Jordan and concluded that in developing countries
 firm size affects the dividend payout decisions. Another research conducted by
Perretti, Allen and Weeks (2013) and concluded that the firm size partially
explains the dividend policies.​"the large-sized firms smoothly pays dividends to
its shareholder".
5. Growth signaling theory elaborates that it is easy for higher growth firms to pay
smooth dividends instead of the companies still investing on the growth
opportunities. Nissim and Ziv (2001) conducted research to analyse the change
in dividend and afterwards change in profitability/growth. He concluded that the
dividend changes are positively related with changes in the profitability. ​"This
leads the firms to distribute more as dividend among its shareholders".
6. Debt always has a high risk because after all it has to be returned back. Now it
depends upon management; how to utilize it. ​"Companies which use high debt in
their capital structure tend to pay less dividends while the firms with low debt are
tend to pay higher dividends. It is because of firms with high leverage need to
protect their creditors and other cash out-flows". Literature also shows that there
is a significant relationship between leverage and dividend payout ratio. John and
Muthusamy (2010) found that companies tend to pay more dividends with high
leverage. Furthermore, Essa (2012) also found that there is a negative
relationship between dividend and debt ratio.
7. Earning per share is one of the important measures of the firm’s profitability. ​"It is
being taken because dividends are paid out of the net earnings". So, first from
the total earnings, interest, tax and depreciation is subtracted then net earnings
are fivided over number of shares to find out EPS.
Sector wise determinants of dividend policy in Pakistan:
Generally liquidity, earning per share, leverage, firm size and profitability effect
positively dividend payout ratio in the nonfinancial companies enlisted in the Karachi
stock exchange (KSE) But when we analyse the relationship between the variables
sector wise, it is found that some of the variables have significant affect while the others
have insignificant like in Energy sector Profitability, firm size and liquidity; In Cement
sector Firm size, Earning per share, leverage and profitability; In Sugar sector leverage
and liquidity; In Oil sector firm size, leverage, profitability, and liquidity do not have
significant correlation with dividend payout ratio.

● QUESTION?????

Do the firms listed in Karachi Stock Exchange follow the stable dividend payout
policies?
A business with a stable dividend policy pays out a steady dividend every given period,
regardless of the volatility. It indicates the level of risk associated with the price changes
of a security. Shareholders can be certain that they will receive a dividend payment at
least once a year. By observing the practical implications of Lintner‟s, Fama and Babiak
work on dividend policy we found that ​"Pakistani listed non-financial firms rely on both
current earning per share and past dividend per share to set their dividend payments,
but the dividend tends to be more sensitive to current earnings than prior dividends".
The listed non-
financial firms having the high speed of adjustment and low target payout ratio show the
instability in smoothing their dividend payments, it means listed firms of Karachi Stock
Exchange do not smooth in paying their dividends.

● QUESTION???

How dividend policy is related to share price volatility in Pakistan???

Share price volatility is how rapidly or severely the price of an investment/stock may
change. Dividend payout ratio and price volatility is significantly positively related. The
size and debt are negatively related with share price volatility. Corporate structure of
firms in Pakistan is different with other developed countries. This study proposed that
dividend yield is better and more important determinant factor in determining share
price.

● QUESTION???
How dividend policy effects shareholders wealth and firm performance in Pakistan??

Dividend policy is positively linked with earning per share and share price. Moreover,
dividend policy is also significantly positively associated with return on equity. Dividend
policy has positively significant impact on shareholders’ wealth and firm performance.
This statement supports dividend relevance theory, signaling effect theory, bird in hand
theory and clientele-effect theory. It commends the implementation of stable, effective,
managed and target-oriented dividend policy by firm’s financial managers along with
effective supervisory framework governed by capital market regulatory bodies to uplift
firms’ performance and shareholders wealth in Pakistan. Furthermore, appropriate firm
disclosure with respect to dividend payout and dividend per share is needed to guard
the potential investors in making the right investment choices in listed firms.

● QUESTION???
Can dividend decision affect stock price???

Companies that reward shareholders with consistent and sometimes increasing

dividends each year are perceived as financially stable, and financially stable
companies make for good investments. The consistent dividend histories of companies
,make these more attractive to investors. As more investors buy in to take advantage of
this benefit of stock ownership, the stock price naturally increases, thereby reinforcing
the belief that the stock is strong. If a company announces a higher-than-normal
dividend, public sentiment tends to soar. Conversely, when a company that traditionally
pays dividends issues a lower-than-normal dividend or no dividend at all, it may be
interpreted as a sign that the company has fallen on hard times.
The Effect of Dividend Declaration on Stock Price
Before a dividend is distributed, the issuing company must first declare the dividend
amount and the date when it will be paid. It also announces the last date when shares
can be purchased to receive the dividend, called the ex-dividend date. This date is
generally one business days before the date of record, which is the date when the
company reviews its list of shareholders. The declaration of a dividend naturally
encourages investors to purchase stock. Because investors know that they will receive
a dividend if they purchase the stock before the ex-dividend date, they are willing to pay
a premium. This causes the price of a stock to increase in the days leading up to the
ex-dividend date. In general, the increase is about equal to the amount of the dividend,
but the actual price change is based on market activity and not determined by any
governing entity.

On the ex-date, investors may drive down the stock price by the amount of the dividend
to account for the fact that new investors are not eligible to receive dividends and are
therefore unwilling to pay a premium. However, if the market is particularly optimistic
about the stock leading up to the ex-dividend date, the price increase this creates may
be larger than the actual dividend amount, resulting in a net increase despite the
automatic reduction. If the dividend is small, the reduction may even go unnoticed due
to the back and forth of normal trading. Many people invest in certain stocks at certain
times solely to collect dividend payments. Some investors purchase shares just before
the ex-dividend date and then sell them again right after the date of record—a tactic that
can result in a tidy profit if it is done correctly. Dividend Yield, Earnings per Share,
Return on Equity and Profit after Tax are positively related to stock prices while
Retention Ratio have negative relation with Stock Prices and significantly explains the
variations in the stock market prices. These results further elaborates dividend policy is
important as it provides signal about the success of the company.
● ​QUESTION???
What should be the dividend policy during covid-19?

Contrary to the folklore that near-future dividends are smoother than earnings or share
prices, the opposite is true in disaster states. It appears that firms do not fulfill their role
as liquidity intermediaries for their shareholders in precisely those states, in which
predictable cash payments would be valued most highly. This is consistent with the
apparent puzzle that near-maturity dividend futures have provided investors with
“anomalously” high returns in the past years. In light of the recent Corona disaster,
these risk premia are consistent with compensation for negative co-skewness and
exposure to. disaster risk. Policy setters who consider banning dividends in a crisis
should take into account the potential effect this is likely to have on firms’ future cost of
capital.