International Journal of Management Research and Emerging Sciences

Vol 13, No 2, June 2023, PP. 41-58

Dividend Policy and Firm Performance with Moderating Effect of Ownership

Structure: Evidence from The Manufacturing Firms in Pakistan
Farah Naz*
Department of Accounting and Finance, Kinnaird College for Women University, Lahore
Shawana Abrish
Department of Accounting and Finance, Kinnaird College for Women University, Lahore
shawana.abrish@yahoo.com
Naila Sadiq
Department of Accounting and Finance, Kinnaird College for Women University, Lahore
naila.sadiq@kinnaird.edu.pk

*Corresponding: farah.naz@kinnaird.edu.pk

ARTICLE INFO ABSTRACT

Article History:
Received: 26 Oct, 2022
Revised: 22 Feb, 2023
Accepted: 02 Apr, 2023
Available Online: 07 Jun, 2023
DOI:
https://doi.org/10.56536/ijmres.v13i2.358
Keywords:
Return on assets, Return on
equity, Dividend pay-out ratio,
Dividend yield, Earnings per
share, Growth, Size, Managerial
ownership, Institutional
ownership.
JEL Classification:
H21, H71, E22
The objective of this paper is to check the impact of dividend policy and firm
performance with a moderating effect of ownership structure. Many studies
have been made to check the impact of dividend policy on firm performance
but there is not a single study that has been made yet to check the impact of
dividend policy and firm performance with moderating effect of ownership
structure. This research had been carried out on different non-financial sectors
of Pakistan covering the firms of automobile assembler and parts
manufacturing, cement and chemical manufacturing, fertilizer manufacturing,
pharmaceuticals, and textile manufacturing etc. The data used in carrying out
this research was taken from the companies that was paying dividends and were
listen in KSE-100 index of Pakistan Stock Exchange. Ownership data of the
firms were collected by the company’s pattern of shareholding which are
published or mentioned in the company’s annual report as per Securities and
Exchange Commission of Pakistan (SECP) requirements that can be taken from
the company’s website. The study shows significant positive relationship
between dividend policy and firm performance. The study also shows that there
is positive significant relationship between dividend policy and firm
performance with moderating effect of ownership structure. Dividend policy
can also have implications for a company's investment and growth prospects.
In general, firms that retain more of their earnings for reinvestment are likely
to have higher levels of capital expenditures and research and development
spending. However, dividend payments can also signal to investors that a
company has confidence in its future growth prospects.
© 2023 The authors, under a Creative Commons Attribution-Non-Commercial 4.0.

INTRODUCTION
The aim of this study is to check the impact of dividend policy on firm performance with a
moderating effect of ownership structure. Many analyses have been made to check the influence of
dividend policy on firm performance but there is not a single study that has been made yet to check
the influence of dividend policy and firm performance with moderating effect of ownership structure.
In capital market, dividend policy is becoming an issue-creating policy, hence becoming a great issue
in business filed now-a-days. Dividend policy is analyzed by many economists. (Black, 1976)
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specified that whenever we gaze at the picture of dividends, it seems as the puzzle that cannot be
solved.
Dividend policy has been influential in bringing great interest over the last ten years. It has been noted
that dividend policy has an influence on firm’s performance. The activities, which are mostly
predictable by investors related to various risks are investment activities. Pakistan is one of the
developing states, but it is not focusing on these developments. Risk in the investment is unpredictable
and it is only predictable to some limit. The dividend plans, especially corporate dividend plans vary
from companies to companies or even countries to countries. Company’s cost of investments is
directly affected by the dividend policy. Dividend ratios and plans vary in different economies. The
impact will be small if the change is rearrangements of dividends that is believed by the market Shah,
(Shah. A., Ali, M. D., & Khan, S. R. 2020). Information content effect is one of the reactions to the
information that is contained in dividend changes. Firm performance may be critical in this case.
Firm’s performance is used as dependent variable and is a different concept from organizational
effectiveness.
However, most of the international studies that are conducted to discover the relationship between
dividends policy and firm performance show positive association between both of them, only few in
Willett opposite to that conclusion. But in Pakistan, economy, privatization and globalization have
been massively changed over the last years by the induction of information technology. Various
number of companies have entered into the market, creating a competition among the rivals and to
survive this competition, corporations are trying to increase the value by increasing the firm
performance. Therefore, making Pakistani market much confused but still competitive. There are
various studies that are conducted on Pakistani market and on the firms listed in KSE to study the
impact of change of dividends policy on firm performance. The conclusion of the latest study
conducted on the firms listed in KSE by (Rizwan, Khan, Nadeem, & Abbas, 2016) showed that
dividend policy had no impact on ROE of the firm. Another research by (Tahir, Qayyam, Sohail, &
Mumtaz, 2016) identified a positive relationship between dividends policy and firm performance.
Aresearch on 51 companies listed in PSX were sampled for the time 2006 – 2015 conducted by
(Khadija, Sadia, Maria, Sadia, & Nabeel, 2017) and found that dividend policy is positively connected
to EPS, share price and ROE of the company.
In corporate policies, the most essential policy is the dividends pay-out policy. Dividends policy plays
a significant role in reducing the dispute of interest between the shareholders and managers because
shareholders are willing to get dividends, but managers desire to hold the earnings for the prospects
of the company. For the maintenance of higher control on the resources, managers are willing to retain
earnings. Ownership structure of the company can impact the dividend pay-out. It is argued by
(Carvalhal-da-Silva & Leal, 2004) that in determination of the market efficiency, ownership structure
plays a significant role, by providing information of two significant things. The equity distribution in
regards of vote and capital and identifying the owners of the equity is defined by ownership structure.
Thus, ownership structure is the distribution of equity with respect to the equity owners’ power of
voting and their identity. Firstly, ownership structure has shown a degree of diversifying the risk of
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shareholders. Furthermore, it will provide the informations regarding problems, such as agency
problems that are arising in the management of the firms.
Despite the significant research that has been conducted on the relationship between dividend policy
and firm performance, there is still a gap in the literature on the moderating effect of ownership
structure on this relationship. While (Rajverma, Misra, Mohapatra, and Chandra, 2019) have examined
the impact of ownership structure on dividend policy and firm performance, there is still a need for
more research that specifically focuses on the moderating effect of ownership structure. The ownership
structure of any firm is made from the collections of managers and owners (called managerial
ownership) and investors, financial institutions, mutual funds, insurance companies, modarabas and
joint stock companies (called instituional ownership). Agency theory is used to study the relationship
of ownership structure and firm’s performance. However, the leading foundation of this relationship
was stoned by (Berle & Mean, 1932) and their study was conducted in United States of America where
they oberved the opposite correlation between firm’s performance and diffuseness of shareholdings.
Policy of paying dividends is one of the most difficult topics in the finance field. Many researches are
made to check the influence of policy of paying dividends on firm’s performance. Some results show
positive effect while some show negative effect of policy of paying dividends on firm performance.
Many studies have been conducted regarding the dividends policy and firm performance, but no work
has been done on dividend policy and firm’s performance with moderating effect of ownership
structure in manufacturing firms. Therefore, this research is conducted to investigate the relationship
between dividends policy and firm’s performance with moderating effect of ownership structure in
manufacturing firms in Pakistan.
Shareholders are typically the most direct beneficiaries of a company's dividend policy, as they receive
a portion of the company's profits in the form of dividends. Shareholders may be particularly interested
in a company's dividend policy if they rely on income from their investments or if they prefer
companies that prioritize returning profits to investors (Widyasti, & Putri, 2021). The ownership
structure of the firm may affect the level of dividends paid out to shareholders, as large shareholders
may have greater influence over the dividend policy decisions. Also, Creditors and Management of a
company may also benefit from a well-designed dividend policy. Companies that pay consistent
dividends may be viewed as more financially stable and attractive to investors, which can help to
support the company's stock price and improve the company's access to capital.

LITERATURE REVIEW
Dividend’s policy has been an influential in bringing great attention over the last decade. It has
been noted that policy of paying dividends has an impact on firm performance. The activity which is
mostly predictable by investors, and is related to various risks, are investment activities. In business
field now-a-days, dividend policy has become a great issue. In capital market, dividend policy is
becoming an issue creating policy, dividend policy is analyzed by many economists.

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Dividend Policy and Firm Performance

In the theoretical principles, the association between policy of paying dividends and firm performance
can be described in two ways. First way is the dividend relevance theory and second way is the theory
of dividend irrelevance. The irrelevance theory of (Miller & Modigliani, 1961) forms the basic
principles of the theory of modern corporate finance. It is argued by (Miller & Modigliani, 1961) that
dividends policy is not relevant to the capital cost and the firm’s value in the place, where there are no
taxes and transaction cost. This implies that when the shares are sold and bought at a time, the pattern
of income is created by the investors, the return that is expected, convince the investors to hold the
shares of the firm and the firm sets its shares according to the newly issued shares and payments of
the dividends. The factors that are the assets of the firm, opportunities that gain in investing, net cash
flows that are expected in the future, capital cost, and the market value are not affected if the change
occurs in the pattern of dividend pay-out of the company. In this way, dividends policy is not related,
and any pattern of the pay-out can be chosen by the firm without having an effect on the value. It is
stated in MM theory that the fluctuation of the dividend pay-out will occur as a by-product of decisions
of finance of the firm and investments of the firm. It is argued by (Miller & Modigliani, 1961) that the
risk of the business and earnings power of the firm is determined by the value of the firm.

It is observed by (Foong et al., 2007) that despite the fact that it is not committed by the firms that the
dividends are declared by the firms on common stock; firms are not usually willing to the change the
policy of dividend rates yearly to meet the expectations of the stockholders, hence trying in building
up the good reputation of the firm in the eyes of the investors. It is signaled by the corporation that the
earnings of the corporations that are provided to the public. are stable. Earnings of future and potential
for dividends of future are affected by the investments that the firms made (Zakaria & Tan, 2007).
Hasan, et al. (2015) investigated the impact of dividend payout ratio on firm’s profitability. Two
sectors. Textile and Energy were selected for this research and study found out the negative impact of
dividend payout ratio on next years’ firm earnings. The positive impact of dividends policies on firm
performance is also discussed by (Khan, et al., 2019).

Dividend Policy and Ownership Structure

There are numerous arguments that are provided by the financial theory that indicate the importance
of an intelligent dividend policy, such as dividend policy that takes signaling dividend theory and the
differences in the taxation of gains in capital and dividend income into account. An argument is made
in the favor of payments of dividends, and is attracting attention since 1980s that agency problem
between the administrators and shareholders can be reduced through policy of paying dividends. For
several decades, in the field of finance and CG, policy of paying dividends has been of major focus
because of the agency problem that arises in the companies. In company’s financial policy, decisions
of paying dividends play an important role, and various stakeholders’ groups are affected by it who
are interested when the free cash flows are distributed.

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It is examined by (Thanatawee, 2014) that in Chinese firms there is an effect of ownership structure
on dividend policies. He stated that the firms with high concentration of ownership, whose ownership
is owned by large shareholders and government, has positive effect on DPR while the firms possessed
by IO negatively effects DPR. From above literature, it can be concluded that there can either be
positive or negative association between ownership structure and dividend policy that is measured by
DPR. IO came out to be negatively yet significantly associated with dividend policy. Different types
of behavior are shown by MO. It is shown in some researches that there exists positive association
between MO and dividend policies and in most of the studies there is a negative association between
MO and dividend policies of an organization.

Ownership Structure and Firm Performance

It was implied by (Berle & Gardiner, 1968) that firm performance was affected by the diffused
ownership. The relationship of owner and manager was led by (Jensen & Meckling, 1976) in their
originated study. However, different authors (Bethel & Liebeskind, 1993) and (Hoskisson, Johnson,
& Moesel, 1994) tried to study the different ways of self-interest approach of managers. A vital and
most current study to study the relationship between ownership structure and performance of the firm
was conducted by (Fazlzadeh et al., 2011). They studied the impact of IO and concentration of IO on
performance of the firm and deduced the negative relationship results. At one side, concentration of
IO showed negative impact on firm performance and on the other side, IO also showed a significant
negative impression on performance of the firm.

Khan, (2019) and Bataineh, (2020) also identified the positive impact of institutional structure on
dividend policy in Turkey and Jordan respectively. Riaz, S., Liu, Y., & Ahmad, M. I. (2016) examined
the corporate governance (Board size, meetings and independence) impact on dividend policy of
Pakistan’s four sectors i.e., Textile, banks, cement and sugar sector. Researchers find out the positive
impact of board size and board independence on the dividend policies of the firm. Whereas CEO
ownership had negative effect on the dividend payout ratio.

DATA AND METHODOLOGY

Sample

This research had been carried out on different non-financial sectors of Pakistan covering the
firms of automobile assembler and parts manufacturing, cement and chemical manufacturing, fertilizer
manufacturing, pharmaceuticals, and textile manufacturing etc. The data used in carrying out this
research has been taken from the companies that were paying dividends and were listed in KSE-100
index of PSX. Ownership data of the firms were collected by the company’s pattern of shareholding,
which are published or mentioned in the company’s annual report as per Securities and Exchange
Commission of Pakistan (SECP) requirements that can be taken from the company’s website.
The time period used for conducting this research is from 2010 to 2018. The companies who were
paying dividends consistently, or not paying for a year in between, were taken. In order to calculate
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various variables, parameters were selected, and their values were extracted from the unconsolidated
financial statements of the firms mentioned above. Following this procedure, the data collected was
of 73 firms from 2010 to 2018.

Research Method

Multiple regression analysis is done to study the impact of dividends policy on firm performance with
moderating impact of ownership structure. Firm performance is measured by ROE and ROA and
dividends policy is measured by DPR and DY. Then, there is explanation of those variables which are
to be controlled to check the effect of independent variable. To check the relationship of dividend
policy on firm performance using ownership structure as a moderator following equations are used:

Simple Equation
𝑃𝐸𝑅𝐹𝑖𝑡 = 𝛽1 𝐷𝑃𝑖𝑡 + 𝛽2 𝐸𝑃𝑆𝑖𝑡 + 𝛽3 𝑆𝐼𝑍𝐸𝑖𝑡 + 𝛽4 𝐺𝑅𝑂𝑊𝑇𝐻𝑖𝑡 + 𝜀𝑖𝑡
H01 = There is no impact of dividend policy on firm performance
Ha1 = There is positive impact of dividend policy on firm performance

Moderator equation

𝑃𝐸𝑅𝐹𝑖𝑡 = 𝛽1 𝐷𝑃𝑖𝑡 + 𝛽2 𝑂𝑆𝑖𝑡 + 𝛽3 𝑂𝑆𝑖𝑡 × 𝐷𝑃𝑖𝑡 + 𝛽4 𝐸𝑃𝑆𝑖𝑡 + 𝛽5 𝑆𝐼𝑍𝐸𝑖𝑡 + 𝛽4 𝐺𝑅𝑂𝑊𝑇𝐻𝑖𝑡 + 𝜀𝑖𝑡

H02 = Ownership structure does not moderate the relationship between dividend policy and firm
performance of dividend paying firms of Pakistan
Ha2 = Ownership structure moderately impacts the relationship between dividend policy and firm
performance of dividend paying firms of Pakistan

RESULT AND DISCUSSION

Table I of descriptive statistics shows the data after summarizing it through the number of
observations, minimum, maximum, mean and standard deviation. The table of descriptive statistics
shows 656 number of observations of dependent and independent variables. ROA and ROE are
dependent variables and mean value of ROA of firms paying dividends listed in KSE-100 index of
PSX is 10.8010% with minimum value OF -15.49% which means net income is less than their total
assets and the company is not producing profit and the maximum being 37.09% as the standard
deviation is 8.80213% which means that the data is clustered around the mean and the values are not
spread across the mean. Mean value of ROE of firms paying dividends listed in KSE-100 index of
PSX is 19.9457% with minimum value being -44.78% which means net income is less than
shareholder’s equity and the company is facing loss and the maximum being 84.67% as the standard
deviation is 21.67216% which means that the data is scattered across the mean.

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Table I: Descriptive Statistics

N Minimum Maximum Mean Std. Deviation

ROA 656 -15.49 37.09 10.8010 8.80213

ROE 656 -44.78 84.67 19.9457 21.67216
DPR 656 -2212.94 2243.38 17.9624 739.79723
DY 653 -4.36 23.36 5.8106 5.76803
EPS 656 -73.96 121.84 23.9396 32.77993
GROWTH 656 -49.25 77.72 14.2328 21.25722
SIZE 656 5.24 8.99 7.1158 0.62855
IOR 622 -47.07 81.38 15.7342 22.09050
MOR 622 -32.01 81.38 15.7853 21.94927

Mean value of DPR of firms paying dividends listed in KSE-100 index of PSX is 17.9624% with
minimum value being -2212.94% which means that the firms are paying less dividend to shareholders
in relative to the net income or net profit and the maximum being 2243.38% as the standard deviation
is 739.79723% which means that the data is widely spread across the bell curve. Then comes the
control variables in the table EPS, Growth and Size. The mean value of EPS of firms paying dividends
listed in KSE-100 index of PSX is 23.9396% with minimum value being -73.96% which means that
the company’s earnings (profit for the share) per total number of the share is less or low which means
firms are not producing profit and the maximum being 121.84% as the standard deviation is
32.77993% which means that the data is widely spread across the bell curve.
Average value of growth of firms paying dividends listed in KSE-100 index of PSX is 14.2328% with
minimum value being -49.25% which means that the firm’s asset is shrinking by each passing year
means the current assets is lower than the previous year and the maximum being 77.72% as the
standard deviation is 21.25722% which means that the data is scattered across the mean. Mean value
of firm size of firms paying dividends listed in KSE-100 index of PSX is 7.1158% with minimum
value being 5.24% which means that the firms size (assets) is getting larger by each passing year
means firm assets are getting larger and the maximum being 8.99% as the standard deviation is
0.62855% which means that the data is clustered around the mean and the values are not spread across
the mean.
Correlation Analysis
The Table II given above, gives the results of correlation analysis. Through this table relation among
different variables, it is come to know that the relation of similar variables is strong with themselves
which represents as 1.000 but they cannot be studies because of their same relationship and in this way
both variables have the same directions. The relationship between ROA and ROE is positively and
significantly correlated with coefficient value of 0.8577. The relationship of ROA with DPR, DY and
EPS has come out to significantly and moderately correlated with correlation coefficients of 0.3634,
0.4350 and 0.5764 respectively. The relationship of ROA with Growth and size is although positively

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significant, but weakly correlated with coefficient values of 0.0798 and 0.0972. The relationship of
ROA with IOR and MOR is negatively related, but significantly related with MOR with the value of
-0.1309.
Table II: Correlation Analysis
ROA ROE DPR DY EPS GROWTH SIZE IOR MOR
ROA 1.0000
ROE 0.8577* 1.0000
DPR 0.3634* 0.3171* 1.0000
DY 0.4350* 0.4219* 0.5757* 1.0000
EPS 0.5764* 0.5990* 0.1948* 0.2017* 1.0000
GROWTH 0.0798* 0.1529* -0.093* -0.0506 0.2017* 1.0000
SIZE 0.0972* 0.1680* 0.1430* 0.0020 0.1760* 0.0816 1.0000
IOR -0.0420 -0.0646 0.0019 0.0976* -0.097* -0.0290 0.0523 1.00000
MOR -0.130* -0.109* -0.095* 0.0338 -0.090* -0.0168 -0.199* -0.087* 1.0000
**Correlation is significant at the 0.01 level (2-tailed)
*Correlation is significant at the 0.05 level (2-tailed)
The relationship of ROE with DPR is positive and significant that is 0.3171 and it is moderately
correlated. The relationship of ROE with DY and EPS has come out to be positively significant and
moderately correlated with each other with correlational values of 0.4219 and 0.5990. Furthermore,
the relationship of ROE with Growth and size has come out to significantly related, but weakly
correlated with the values of 0.1529 and 0.1680 respectively. The relationship of ROE with IOR and
MOR is negatively related, but significantly related with MOR. The relationship of DPR with DY,
EPS and Size has come out to be positively and significantly related with the correlational values of
0.5757, 0.1948 and 0.1430 respectively. The relationship of DPR with Growth and MOR is negatively
yet significantly correlated with coefficient values of -0.0933 and -0.1094. The relationship of ROE
with IOR is insignificant with the value of 0.0019.
The relationship of DY with EPS and IOR is significantly related with the coefficients of 0.2017 and
0.0976. Growth is insignificantly related with DY whereas the relationship of DPR with Size and
MOR is insignificant with the coefficient values of 0.0020 and 0.0338 respectively. EPS has come
out to be significantly related with all the variables (Growth, Size, IOR and MOR) with the coefficient
values of 0.2017, 0.1760, -0.0977 and -0.0903 respectively. Whereas, growth is insignificantly related
with Size, IOR and MOR with the coefficient values of 0.0816, -0.0290 and -0.0168 respectively.
The relationship of Size with IOR is insignificantly related whereas with MOR, it is significantly
associated with the coefficient value of 0.1993. Lastly, IOR is negatively yet significantly related with
MOR with the coefficient value of -0.0871.

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Regression Analysis

There are two models of regression analysis, in first model presented in Table III a, there is
dependent variable ROA with independent variables DPR and DY and it is showing that there exists
no problem of auto correlation because Durbin-Watson value is 1.974 and if its value lies in between
1.5 - 2.5 it means the model is free from any auto correlation problem.

Table III a: Regression Results

Change Statistics
Adjusted Std. Error of the R2 F Sig. F Durbin
Model R R2 df1 df2
R2 Estimate change change change watson
1 0.303a .092 .089 .89538 .092 32.691 2 646 .000 1.974
Predictors: (Constant), DY2, DPR2
Dependent Variable: YHAT
Weighted Least Squares Regression - Weighted by WEIGHT
Table 3: Model summary b, c
Table III b: Regression Results

Change Statistics
Std. Error
Model R R2
Adjusted
of the R2 F Sig.F Durbin
R2 df1 df2 watson
Estimate change change change

2 0.274a 0.075 0.072 095947 0.75 26.246 2 646 0.000 1.982

a. Predictors: (Constant), DY2, DPR2
b. Dependent Variable: YHAT
c. Weighted Least Squares Regression - Weighted by WEIGHT
Table 4: Model summary b, c

In the next model presented in table III b, there is dependent variable ROE with independent variables
DPR and DY and it is showing that there exists no problem of auto correlation because Durbin-
Watson value is 1.982 and if its value lies in between 1.5 - 2.5, it means the model is free from any
auto correlation problem.
Moderation Analysis
From the Table IV panel A, it is concluded that ownership structure have both significant and
insignificant results. DPR and DY are significantly related with ROA at 1 percent level of signficance,
as their respective p values are less than 0.01. After when the moderation effect of IOR is taken into
an account, it doesn’t leave any significant impact on ROA, as their p values are greater than both 0.01
and 0.05 level of significance. In this case it can be said that there doesn’t exist mediation. Conversely,
when MOR, as a mediatior, is examined in this study, it has managed to strengthen the relationship at
5 percent of level of significance, as their p values are greater than 0.01 and less than 0.05. Lastly, the
collective effect of DY and MOR has reversed the mixed relationship into negative one (β = -0.0059).
The relationship between firm performance and ownership structure had investigated by various
researchers while significant relationship was found by some authors (Demsetz, 1983), (Demsetz &

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Lehn, 1985) and (Kole, 1996). It was proved by (Jensen & Meckling, 1976) literature that there exists
an association between ownership structure and dividend policy.

Table IVa: Moderator Tests

Dep Variable ROA ROE
Panel A Panel B
Variables Model 1 Model 2 Model 1 Model 2
(Dep: ROA)
DPR 0.0037** 0.0077**
IOR -0.0164 -0.0578
R2 0.075 0.075
DPR x IOR 0.0000 0.0001
R2 0.1390 0.1061
Delta R2 0.047 0.0311
DY 0.6346** 1.5547**
IOR -0.1437 -0.1437**
R2 0.075 0.075
DY x IOR 0.0041 0.0075
R2 0.2019 0.1898
Delta R2 0.1099 0.1148
DPR 0.0049** 0.0102**
MOR -0.0411** -0.0863*
R2 0.092 0.075
DPR x MOR 0.0000* -0.0077
R2 0.1479 0.1938
Delta R2 0.0559 0.1188
DY 0.7824** 1.7669**
MOR -0.0863 -0.0794
R2 0.092 0.075
DY x MOR -0.0059* -0.0001
R2 0.2175 0.1938
Delta R2 0.1255 0.1188
Table IV panel B shows in case of dependent variable ROE, THE independent variable DY and DPR
have come out to be significantly related (β = 0.0077, p value < 0.01) and (β = 1.5547, p value < 0.01).
So far, the impact of moderators, such as IOR and MOR are concerned, the numeric figures don’t
showcase any sign of mediation, as the p values of all interaction variables are insignificant, as their p
values are less than 0.01 and even 0.05 as well. However, if indendent effect is to be considered then
MOR came out to significantly related with firm’s ROE (β = -0.0863, p value < 0.05). It was stated
by (Rozeff, 1982) and (Jensen & Meckling, 1976) that there exists an association between the
dividends policy and MO. And this model also supports their study that there exists significant
relationship between dividends policy and firm’s performance, but when it comes to interacted
variable that has the coefficient value of β = -0.0077, shows that there exists partial mediation, as the
indirect impact came out to negative and insignificant.

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CONCLUSION AND POLICY IMPLICATION

The need to make this study is to check the influence of dividends policy and firm performance
using ownership structure as a moderator. The research is done on the data collected from non-
financial firms paying dividends listed in KSE-100 index of PSX. In this research, different tests are
performed on the data. The tests include, first of all, descriptive statistics that shows the data of all the
variables are normal. Correlation Matrix shows the association between dependent, independent,
control and moderator variables. Normality test shows that the data is normal and significant. Also, in
the dataset, there exists no multicollinearity, hence indicating the presence of homoscedasticity. For
moderator tests, Hayes Process on SPSS software is used to study the relationship of ownership
structure with dividends policy and firm performance.

There are two dependent variables that are ROA and ROE, independent variables include DY, DPR,
control variables size, growth and EPS and moderator variables institutional ownership ratio (IOR)
and managerial ownership ratio (MOR) of ownership structure are used in this study. In moderator
tests, MO as one of the variables of ownership structure has a significant positive association between
dividend policy and firm performance. It is preferable by the managers that the MO in an organization
increases, they would prefer to retain because through this act more benefits will be attainable by them
when they invest in the project and through this investment the managers would get cash and from this
cash they will purchase assets for their firm.

It is investigated by (Fenn & Liang, 2001) that there is an association between organization’s dividends
policy and incentives of managerial share. It is concluded by them that the firms who are paying high
dividends are tackling more agency problems and MO shares have significant and positive impact
with the firm who are paying high dividends, and on the other hand it is found that the firms who have
smaller MO have high free cash flows but the opportunities of these firms are less. IO is another
variable of ownership structure and has a significant positive association between dividends policy
and firm performance only when the impact is measured independently. When IO ratio increases, it
leads to increase in the payments of dividends. The reason behind this incentive is that when the
institutional investors have the directive role of any firm, they do not prefer to cause interference
during the administration of the directive role of the firm, the main concern of the institutional
investors is their investment, therefore, they mainly focus on recovering their investment in the form
of paying dividends. This leads to help them in controlling and reducing opportunistic management
behaviour. However, dividend payments can also signal to investors that a company has confidence
in its future growth prospects. The effect of dividend policy on investment and growth may be
influenced by the ownership structure of the firm, as large shareholders may prefer to see greater
investment in the business rather than dividend pay-outs.

51
Naz et al., IJMRES 13(2) 2023, 41-58

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Appendix A

Definition of Variables

Dividend Payout 𝑻𝒐𝒕𝒂𝒍 𝑫𝒊𝒗𝒊𝒅𝒆𝒏𝒅 𝑷𝒂𝒊𝒅

× 𝟏𝟎𝟎 (Sindhu,2016)
𝑵𝒆𝒕 𝑰𝒏𝒄𝒐𝒎𝒆
Ratio
Dividend Yield 𝑇𝑜𝑡𝑎𝑙 𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑 𝑃𝑎𝑖𝑑
× 100 (Sindhu,2016)
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑆ℎ𝑎𝑟𝑒 𝑃𝑟𝑖𝑐𝑒
𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒
Return on Assets × 100 (Yilmaz,2022)
𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠
𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒
Return on Equity × 100 (Ross,2002)
𝑆ℎ𝑎𝑟𝑒ℎ𝑜𝑙𝑑𝑒𝑟 ′ 𝑠 𝐸𝑞𝑢𝑖𝑡𝑦
𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒
Earnings per Share (Ross,2002)
𝑇𝑜𝑡𝑎𝑙 𝑁𝑢𝑚𝑏𝑒𝑟𝑠 𝑜𝑓 𝐶𝑎𝑝𝑖𝑡𝑎𝑙𝑠

Firm Size log(𝑇𝑜𝑡𝑎𝑙 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡𝑠) (Yilmaz,2022)

Firm Growth 𝐴𝑠𝑠𝑒𝑡𝑠 𝑜𝑓 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑌𝑒𝑎𝑟−𝐴𝑠𝑠𝑒𝑡𝑠 𝑜𝑓 𝑃𝑟𝑒𝑣𝑖𝑜𝑢𝑠 𝑌𝑒𝑎𝑟
× 100 (Wahla,2012)
𝐴𝑠𝑠𝑒𝑡𝑠 𝑜𝑓 𝑃𝑟𝑒𝑣𝑖𝑜𝑢𝑠 𝑌𝑒𝑎𝑟

Managerial 𝑁𝑜. 𝑜𝑓 𝑆ℎ𝑎𝑟𝑒𝑠 ℎ𝑒𝑙𝑑 𝑏𝑦 𝐶𝐸𝑂, 𝐷𝑖𝑟𝑒𝑐𝑡𝑜𝑟𝑠, 𝑀𝑎𝑛𝑎𝑔𝑒𝑟𝑠 𝑎𝑛𝑑 𝐸𝑥𝑒𝑐𝑢𝑡𝑖𝑣𝑒𝑠

Ownership × 100
𝑇𝑜𝑡𝑎𝑙 𝑛𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑠ℎ𝑎𝑟𝑒𝑠
(Wen, 2010)
Institutional 𝑁𝑜.𝑜𝑓 𝑆ℎ𝑎𝑟𝑒𝑠 ℎ𝑒𝑙𝑑 𝑏𝑦 𝐹𝑖𝑛𝑎𝑛𝑐𝑖𝑎𝑙 𝐼𝑛𝑠𝑡𝑖𝑡𝑢𝑡𝑖𝑜𝑛𝑠
× 100 (Wen,2010)
𝑇𝑜𝑡𝑎𝑙 𝑛𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑠ℎ𝑎𝑟𝑒𝑠
Ownership

58