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IMPACT OF DIVIDEND PAYOUT ON FIRM’S PERFORMANCE UNDER LOW GROWTH OPPORTUNITIES
Corresponding Author(s) : Muhammad Kashif Khurshid
Humanities & Social Sciences Reviews,
Vol. 9 No. 3 (2021): May
Abstract
Purpose of the study: The objective of the study was to investigate the relationship of the dividend payout on a firm's performance under low growth opportunities from the manufacturing sector of Pakistan.
Methodology: A sample of 251 firms out of 378 manufacturing firms listed at the Pakistan Stock Exchange (PSX), have been carefully chosen for the era of ten years from 2006 to 2015. The secondary data was obtained from the firm’s web financials and analysis of financial statements, published by the statistics department of the State Bank of Pakistan. For the persistence of investigation panel data (fixed effect) analyses were employed in this study.
Main Findings: The fallouts of the analysis revealed that the dividend payout ratio has an insignificant relationship with the firm's performance in the low growth perspectives of the study.
Applications of this study: The findings of the study are helpful for the financial managers of the firms facing low growth opportunities. Furthermore, the investors in capital markets can use the findings of this while investing.
The originality of this study: The study focussed on the role of low growth opportunities while studying the nexus of dividend pay-out and the firm’s financial performance which inherits the novelty and originality of the study.
Keywords
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- Agyei, S. K., & Marfo-Yiadom, E. (2011). Dividend policy and bank performance in Ghana. International Journal of Economics and Finance, 3(4), 202–207. https://doi.org/10.5539/ijef.v3n4p202 DOI: https://doi.org/10.5539/ijef.v3n4p202
- Al-Sa’eed, M. A. A. (2018). The impact of ownership structure and dividends on firm’s performance: evidence from manufacturing companies listed on the amman stock exchange. Australasian Accounting, Business and Finance Journal, 12(3), 107–126. https://doi.org/10.14453/aabfj.v12i3.7 DOI: https://doi.org/10.14453/aabfj.v12i3.7
- Baba, N. (2009). Increased presence of foreign investors and dividend policy of Japanese firms. Pacific-Basin Finance Journal, 17(2), 163–174. https://doi.org/10.1016/j.pacfin.2008.04.001 DOI: https://doi.org/10.1016/j.pacfin.2008.04.001
- Baker, M., & Wurgler, J. (2004). A catering theory of dividends. The Journal of Finance, 59(3), 1125–1165. https://doi.org/10.1111/j.1540-6261.2004.00658.x DOI: https://doi.org/10.1111/j.1540-6261.2004.00658.x
- Bhattacharya, S. (1979). Imperfect information, dividend policy, and “the bird in the hand†fallacy. Bell Journal of Economics, 10(1), 259–270. https://doi.org/10.2307/3003330 DOI: https://doi.org/10.2307/3003330
- Black, B., De Carvalho, A. G., Khanna, V., Kim, W., & Yurtoglu, B. (2014). Methods for multicountry studies of corporate governance: Evidence from the BRIKT countries. Journal of Econometrics, 183(2), 230–240. https://doi.org/10.1016/j.jeconom.2014.05.013 DOI: https://doi.org/10.1016/j.jeconom.2014.05.013
- Chaganti, R., & Damanpour, F. (1991). Institutional ownership, capital structure, and firm performance. Strategic Management Journal, 12(7), 479–491. https://doi.org/10.1002/smj.4250120702 DOI: https://doi.org/10.1002/smj.4250120702
- Chelimo, F. (2018). Effects of Regular Dividend Policy on a Firm’s Financial Performance: A Case of Serena Group of Hotels in Kenya. United States International University-Africa.
- Chen, Z., Cheung, Y.-L., Stouraitis, A., & Wong, A. W. S. (2005). Ownership concentration, firm performance, and dividend policy in Hong Kong. Pacific-Basin Finance Journal, 13(4), 431–449. https://doi.org/10.1016/j.pacfin.2004.12.001 DOI: https://doi.org/10.1016/j.pacfin.2004.12.001
- Cyril, U. M., Emeka, E. C., & Cheluchi, I. F. (2020). Effect of Dividend Policy on Financial Performance of Consumer Goods Manufacturing Firms in Nigeria. Science Journal of Business and Management, 8(1), 7. https://doi.org/10.11648/j.sjbm.20200801.12 DOI: https://doi.org/10.11648/j.sjbm.20200801.12
- De Jong, A. (1999). An empirical analysis of capital structure decisions in Dutch firms.
- Denis, D. J., & Osobov, I. (2008). Why do firms pay dividends? International evidence on the determinants of dividend policy. Journal of Financial Economics, 89(1), 62–82. https://doi.org/10.1016/j.jfineco.2007.06.006 DOI: https://doi.org/10.1016/j.jfineco.2007.06.006
- Easterbrook, F. H. (1984). Two agency-cost explanations of dividends. The American Economic Review, 74(4), 650–659.
- Farsio, F., Geary, A., & Moser, J. (2004). The relationship between dividends and earnings. Journal for Economic Educators, 4(4), 1–5.
- Ghemawat, P., & Caves, R. E. (1986). Capital commitment and profitability: an empirical investigation. Oxford Economic Papers, 38, 94–110. https://doi.org/10.1093/oxfordjournals.oep.a041770 DOI: https://doi.org/10.1093/oxfordjournals.oep.a041770
- Glen, J. D., Karmokolias, Y., Miller, R. R., & Shah, S. (1995). Dividend policy and behavior in emerging markets: To pay or not to pay. The World Bank.
- Gordon, M. J. (1963). Optimal Investment and Financing Policy. The Journal of Finance, 18(2), 264. https://doi.org/10.2307/2977907 DOI: https://doi.org/10.2307/2977907
- Ijaiya, M. A., Sanni, M., Amujo, E. T., & Suleiman, H. B. (2014). Dividend policy and financial performance: a survey of selected quoted firms in Nigeria. Centrepoint Journal, 17(1), 19–32.
- Jensen, M. C. (2009). Agency costs of free cash flow, corporate finance, and takeovers. Corporate Bankruptcy, 76(2), 11–16. https://doi.org/10.1017/CBO9780511609435.005 DOI: https://doi.org/10.1017/CBO9780511609435.005
- Kadim, A., Sunardi, N., & Husain, T. (2020). The modeling firm’s value based on financial ratios, intellectual capital and dividend policy A. Kadim. 6, 859–870. https://doi.org/10.5267/j.ac.2020.5.008 DOI: https://doi.org/10.5267/j.ac.2020.5.008
- Kadioglu, E., & Yilmaz, E. A. (2017). Is the free cash flow hypothesis valid in Turkey? Borsa Istanbul Review, 17(2), 111–116. https://doi.org/10.1016/j.bir.2016.12.001 DOI: https://doi.org/10.1016/j.bir.2016.12.001
- Kurniawati, T., & Khair, A. (2020). The Impact of Capital Structure, Debt Policy, and Dividend Policy on Firm Value of Companies Listed on the LQ-45 Index. 124, 145–153. https://doi.org/10.2991/aebmr.k.200305.063 DOI: https://doi.org/10.2991/aebmr.k.200305.063
- Lin, T. J., Chen, Y. P., & Tsai, H. F. (2017). The relationship among information asymmetry, dividend policy and ownership structure. Finance Research Letters, 20, 1–12. https://doi.org/10.1016/j.frl.2016.06.008 DOI: https://doi.org/10.1016/j.frl.2016.06.008
- Lintner, J. (1962). Dividends, earnings, leverage, stock prices and the supply of capital to corporations. The Review of Economics and Statistics, 44(3), 243–269. https://doi.org/10.2307/1926397 DOI: https://doi.org/10.2307/1926397
- Litzenberger, R. H., & Ramaswamy, K. (1979). The effect of personal taxes and dividends on capital asset prices: Theory and empirical evidence. Journal of Financial Economics, 7(2), 163–195. https://doi.org/10.1016/0304-405X(79)90012-6 DOI: https://doi.org/10.1016/0304-405X(79)90012-6
- M’rabet, R., & Boujjat, W. (2016). The Relationship Between Dividend Payments And Firm Performance: A Study Of Listed Companies In Morocco. European Scientific Journal, ESJ, 12(4), 469. https://doi.org/10.190 44/esj.2016.v12n4p469 DOI: https://doi.org/10.19044/esj.2016.v12n4p469
- Mamaro, L. P., & Tjano, R. (2019). The relationship between dividend payout and financial performance: evidence from Top40 JSE firms. The Journal of Accounting and Management, 9(2).
- Miller, M. H., & Modigliani, F. (1961). Dividend policy, growth, and the valuation of shares. The Journal of Business, 34(4), 411–433. https://doi.org/10.1086/294442 DOI: https://doi.org/10.1086/294442
- Modigliani, F., & Miller, M. H. (1958). The cost of capital, corporation finance and the theory of investment. The American Economic Review, 48(3), 261–297.
- Mohsin Hafeez, M., Shahbaz, S., Iftikhar, I., & Butt, H. A. (2018). Impact of Dividend Policy on Firm Performance: (Evidence from the Manufacturing firms in Pakistan). International Journal of Advance Study and Research Work, 1(4), 1–5. https://doi.org/10.5281/zenodo.1312180
- Muchira, K. J. (2013). Dividend payout and financial performance of manufacturing firms listed at the nairobi securities exchange. Kenyatta University.
- Nangih, Efeeloo, & Onuora. (2020). Journal of accounting , business and social sciences Volume 3 number 2 June 2020 ISSN 2672-4235 ( JABSS ). Journal of Accounting, Business and Social Sciences, 3(2), 36–53.
- Olufade, S. (2018). Impact of dividend policy on firm performance in the food and beverage industry: Comparison between Nigeria and Finland.
- Ouma, O. P., & Murekefu, T. M. (2012). The relationship between dividend payout and firm performance: a study of listed companies in Kenya. European Scientific Journal, 8 (9).
- Qureshi, M. A., Sheikh, N. A., & Khan, A. A. (2015). A revisit of pecking order theory versus trade-off theory: Evidence from Pakistan. Pakistan Journal of Commerce and Social Sciences (PJCSS), 9(2), 344–356.
- Rafindadi, A. A., & Bello, A. (2019). Is Dividend Payment of any Influence to Corporate Performance in Nigeria? Empirical Evidence from Panel Cointegration. International Journal of Economics and Financial Issues, 9(2), 48.
- Reddy, K., Locke, S., Scrimgeour, F., & Gunasekarage, A. (2008). Corporate governance practices of small cap companies and their financial performance: an empirical study in New Zealand. International Journal of Business Governance and Ethics, 4(1), 51–78. https://doi.org/10.1504/IJBGE.2008.017891 DOI: https://doi.org/10.1504/IJBGE.2008.017891
- Ruan, W., Tian, G., & Ma, S. (2011). Managerial ownership, capital structure and firm value: evidence from china’s civilian-run firms. Australasian Accounting, Business and Finance Journal, 5(3), 73–92.
- Santos, J. B., & Brito, L. A. L. (2012). Toward a subjective measurement model for firm performance. BAR-Brazilian Administration Review, 9(SPE), 95–117. https://doi.org/10.1590/S1807-76922012000500007 DOI: https://doi.org/10.1590/S1807-76922012000500007
- Santosa, P. W., Aprilia, O., & Tambunan, M. E. (2020). The Intervening Effect of the Dividend Policy on Financial Performance and Firm Value in Large Indonesian Firms. International Journal of Financial Research, 11(4), 408–420. https://doi.org/10.5430/ijfr.v11n4p408 DOI: https://doi.org/10.5430/ijfr.v11n4p408
- Senevirathna, L. D. N. (2019). Impact of dividend policy on firm performance evidence from listed companies in colombo stock exchange. GSJ, 7(10).
- Turais, M. (2020). International Journal of Research in Commerce and Management Studies. International Journal of Research in Commerce and Management Studies, 2(2), 216–233.
- Ugwu, C. C., Onyeka, V. N., & Okwa, I. E. (2020). Dividend Policy and Corporate Financial Performance: Evidence from Selected Listed Consumer Goods Firms in Nigeria. Journal of Economics and Business, 3(3). https://doi.org/10.31014/aior.1992.03.03.262 DOI: https://doi.org/10.31014/aior.1992.03.03.262
- Yao, D., Yang, H., & Wang, R. (2011). Optimal dividend and capital injection problem in the dual model with proportional and fixed transaction costs. European Journal of Operational Research, 211(3), 568–576. https://doi.org/10.1016/j.ejor.2011.01.015 DOI: https://doi.org/10.1016/j.ejor.2011.01.015
- Zahid, M. (2020). The Impact of Capital Structure and Dividend Policy on Firm Performance: A Cross Cultural Study. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.3638251 DOI: https://doi.org/10.2139/ssrn.3638251
- Zhou, X. (2001). Understanding the determinants of managerial ownership and the link between ownership and performance: Comment. Journal of Financial Economics, 62(3), 559–571. https://doi.org/10.1016/S0304-405X(01)00085-X DOI: https://doi.org/10.1016/S0304-405X(01)00085-X
References
Agyei, S. K., & Marfo-Yiadom, E. (2011). Dividend policy and bank performance in Ghana. International Journal of Economics and Finance, 3(4), 202–207. https://doi.org/10.5539/ijef.v3n4p202 DOI: https://doi.org/10.5539/ijef.v3n4p202
Al-Sa’eed, M. A. A. (2018). The impact of ownership structure and dividends on firm’s performance: evidence from manufacturing companies listed on the amman stock exchange. Australasian Accounting, Business and Finance Journal, 12(3), 107–126. https://doi.org/10.14453/aabfj.v12i3.7 DOI: https://doi.org/10.14453/aabfj.v12i3.7
Baba, N. (2009). Increased presence of foreign investors and dividend policy of Japanese firms. Pacific-Basin Finance Journal, 17(2), 163–174. https://doi.org/10.1016/j.pacfin.2008.04.001 DOI: https://doi.org/10.1016/j.pacfin.2008.04.001
Baker, M., & Wurgler, J. (2004). A catering theory of dividends. The Journal of Finance, 59(3), 1125–1165. https://doi.org/10.1111/j.1540-6261.2004.00658.x DOI: https://doi.org/10.1111/j.1540-6261.2004.00658.x
Bhattacharya, S. (1979). Imperfect information, dividend policy, and “the bird in the hand†fallacy. Bell Journal of Economics, 10(1), 259–270. https://doi.org/10.2307/3003330 DOI: https://doi.org/10.2307/3003330
Black, B., De Carvalho, A. G., Khanna, V., Kim, W., & Yurtoglu, B. (2014). Methods for multicountry studies of corporate governance: Evidence from the BRIKT countries. Journal of Econometrics, 183(2), 230–240. https://doi.org/10.1016/j.jeconom.2014.05.013 DOI: https://doi.org/10.1016/j.jeconom.2014.05.013
Chaganti, R., & Damanpour, F. (1991). Institutional ownership, capital structure, and firm performance. Strategic Management Journal, 12(7), 479–491. https://doi.org/10.1002/smj.4250120702 DOI: https://doi.org/10.1002/smj.4250120702
Chelimo, F. (2018). Effects of Regular Dividend Policy on a Firm’s Financial Performance: A Case of Serena Group of Hotels in Kenya. United States International University-Africa.
Chen, Z., Cheung, Y.-L., Stouraitis, A., & Wong, A. W. S. (2005). Ownership concentration, firm performance, and dividend policy in Hong Kong. Pacific-Basin Finance Journal, 13(4), 431–449. https://doi.org/10.1016/j.pacfin.2004.12.001 DOI: https://doi.org/10.1016/j.pacfin.2004.12.001
Cyril, U. M., Emeka, E. C., & Cheluchi, I. F. (2020). Effect of Dividend Policy on Financial Performance of Consumer Goods Manufacturing Firms in Nigeria. Science Journal of Business and Management, 8(1), 7. https://doi.org/10.11648/j.sjbm.20200801.12 DOI: https://doi.org/10.11648/j.sjbm.20200801.12
De Jong, A. (1999). An empirical analysis of capital structure decisions in Dutch firms.
Denis, D. J., & Osobov, I. (2008). Why do firms pay dividends? International evidence on the determinants of dividend policy. Journal of Financial Economics, 89(1), 62–82. https://doi.org/10.1016/j.jfineco.2007.06.006 DOI: https://doi.org/10.1016/j.jfineco.2007.06.006
Easterbrook, F. H. (1984). Two agency-cost explanations of dividends. The American Economic Review, 74(4), 650–659.
Farsio, F., Geary, A., & Moser, J. (2004). The relationship between dividends and earnings. Journal for Economic Educators, 4(4), 1–5.
Ghemawat, P., & Caves, R. E. (1986). Capital commitment and profitability: an empirical investigation. Oxford Economic Papers, 38, 94–110. https://doi.org/10.1093/oxfordjournals.oep.a041770 DOI: https://doi.org/10.1093/oxfordjournals.oep.a041770
Glen, J. D., Karmokolias, Y., Miller, R. R., & Shah, S. (1995). Dividend policy and behavior in emerging markets: To pay or not to pay. The World Bank.
Gordon, M. J. (1963). Optimal Investment and Financing Policy. The Journal of Finance, 18(2), 264. https://doi.org/10.2307/2977907 DOI: https://doi.org/10.2307/2977907
Ijaiya, M. A., Sanni, M., Amujo, E. T., & Suleiman, H. B. (2014). Dividend policy and financial performance: a survey of selected quoted firms in Nigeria. Centrepoint Journal, 17(1), 19–32.
Jensen, M. C. (2009). Agency costs of free cash flow, corporate finance, and takeovers. Corporate Bankruptcy, 76(2), 11–16. https://doi.org/10.1017/CBO9780511609435.005 DOI: https://doi.org/10.1017/CBO9780511609435.005
Kadim, A., Sunardi, N., & Husain, T. (2020). The modeling firm’s value based on financial ratios, intellectual capital and dividend policy A. Kadim. 6, 859–870. https://doi.org/10.5267/j.ac.2020.5.008 DOI: https://doi.org/10.5267/j.ac.2020.5.008
Kadioglu, E., & Yilmaz, E. A. (2017). Is the free cash flow hypothesis valid in Turkey? Borsa Istanbul Review, 17(2), 111–116. https://doi.org/10.1016/j.bir.2016.12.001 DOI: https://doi.org/10.1016/j.bir.2016.12.001
Kurniawati, T., & Khair, A. (2020). The Impact of Capital Structure, Debt Policy, and Dividend Policy on Firm Value of Companies Listed on the LQ-45 Index. 124, 145–153. https://doi.org/10.2991/aebmr.k.200305.063 DOI: https://doi.org/10.2991/aebmr.k.200305.063
Lin, T. J., Chen, Y. P., & Tsai, H. F. (2017). The relationship among information asymmetry, dividend policy and ownership structure. Finance Research Letters, 20, 1–12. https://doi.org/10.1016/j.frl.2016.06.008 DOI: https://doi.org/10.1016/j.frl.2016.06.008
Lintner, J. (1962). Dividends, earnings, leverage, stock prices and the supply of capital to corporations. The Review of Economics and Statistics, 44(3), 243–269. https://doi.org/10.2307/1926397 DOI: https://doi.org/10.2307/1926397
Litzenberger, R. H., & Ramaswamy, K. (1979). The effect of personal taxes and dividends on capital asset prices: Theory and empirical evidence. Journal of Financial Economics, 7(2), 163–195. https://doi.org/10.1016/0304-405X(79)90012-6 DOI: https://doi.org/10.1016/0304-405X(79)90012-6
M’rabet, R., & Boujjat, W. (2016). The Relationship Between Dividend Payments And Firm Performance: A Study Of Listed Companies In Morocco. European Scientific Journal, ESJ, 12(4), 469. https://doi.org/10.190 44/esj.2016.v12n4p469 DOI: https://doi.org/10.19044/esj.2016.v12n4p469
Mamaro, L. P., & Tjano, R. (2019). The relationship between dividend payout and financial performance: evidence from Top40 JSE firms. The Journal of Accounting and Management, 9(2).
Miller, M. H., & Modigliani, F. (1961). Dividend policy, growth, and the valuation of shares. The Journal of Business, 34(4), 411–433. https://doi.org/10.1086/294442 DOI: https://doi.org/10.1086/294442
Modigliani, F., & Miller, M. H. (1958). The cost of capital, corporation finance and the theory of investment. The American Economic Review, 48(3), 261–297.
Mohsin Hafeez, M., Shahbaz, S., Iftikhar, I., & Butt, H. A. (2018). Impact of Dividend Policy on Firm Performance: (Evidence from the Manufacturing firms in Pakistan). International Journal of Advance Study and Research Work, 1(4), 1–5. https://doi.org/10.5281/zenodo.1312180
Muchira, K. J. (2013). Dividend payout and financial performance of manufacturing firms listed at the nairobi securities exchange. Kenyatta University.
Nangih, Efeeloo, & Onuora. (2020). Journal of accounting , business and social sciences Volume 3 number 2 June 2020 ISSN 2672-4235 ( JABSS ). Journal of Accounting, Business and Social Sciences, 3(2), 36–53.
Olufade, S. (2018). Impact of dividend policy on firm performance in the food and beverage industry: Comparison between Nigeria and Finland.
Ouma, O. P., & Murekefu, T. M. (2012). The relationship between dividend payout and firm performance: a study of listed companies in Kenya. European Scientific Journal, 8 (9).
Qureshi, M. A., Sheikh, N. A., & Khan, A. A. (2015). A revisit of pecking order theory versus trade-off theory: Evidence from Pakistan. Pakistan Journal of Commerce and Social Sciences (PJCSS), 9(2), 344–356.
Rafindadi, A. A., & Bello, A. (2019). Is Dividend Payment of any Influence to Corporate Performance in Nigeria? Empirical Evidence from Panel Cointegration. International Journal of Economics and Financial Issues, 9(2), 48.
Reddy, K., Locke, S., Scrimgeour, F., & Gunasekarage, A. (2008). Corporate governance practices of small cap companies and their financial performance: an empirical study in New Zealand. International Journal of Business Governance and Ethics, 4(1), 51–78. https://doi.org/10.1504/IJBGE.2008.017891 DOI: https://doi.org/10.1504/IJBGE.2008.017891
Ruan, W., Tian, G., & Ma, S. (2011). Managerial ownership, capital structure and firm value: evidence from china’s civilian-run firms. Australasian Accounting, Business and Finance Journal, 5(3), 73–92.
Santos, J. B., & Brito, L. A. L. (2012). Toward a subjective measurement model for firm performance. BAR-Brazilian Administration Review, 9(SPE), 95–117. https://doi.org/10.1590/S1807-76922012000500007 DOI: https://doi.org/10.1590/S1807-76922012000500007
Santosa, P. W., Aprilia, O., & Tambunan, M. E. (2020). The Intervening Effect of the Dividend Policy on Financial Performance and Firm Value in Large Indonesian Firms. International Journal of Financial Research, 11(4), 408–420. https://doi.org/10.5430/ijfr.v11n4p408 DOI: https://doi.org/10.5430/ijfr.v11n4p408
Senevirathna, L. D. N. (2019). Impact of dividend policy on firm performance evidence from listed companies in colombo stock exchange. GSJ, 7(10).
Turais, M. (2020). International Journal of Research in Commerce and Management Studies. International Journal of Research in Commerce and Management Studies, 2(2), 216–233.
Ugwu, C. C., Onyeka, V. N., & Okwa, I. E. (2020). Dividend Policy and Corporate Financial Performance: Evidence from Selected Listed Consumer Goods Firms in Nigeria. Journal of Economics and Business, 3(3). https://doi.org/10.31014/aior.1992.03.03.262 DOI: https://doi.org/10.31014/aior.1992.03.03.262
Yao, D., Yang, H., & Wang, R. (2011). Optimal dividend and capital injection problem in the dual model with proportional and fixed transaction costs. European Journal of Operational Research, 211(3), 568–576. https://doi.org/10.1016/j.ejor.2011.01.015 DOI: https://doi.org/10.1016/j.ejor.2011.01.015
Zahid, M. (2020). The Impact of Capital Structure and Dividend Policy on Firm Performance: A Cross Cultural Study. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.3638251 DOI: https://doi.org/10.2139/ssrn.3638251
Zhou, X. (2001). Understanding the determinants of managerial ownership and the link between ownership and performance: Comment. Journal of Financial Economics, 62(3), 559–571. https://doi.org/10.1016/S0304-405X(01)00085-X DOI: https://doi.org/10.1016/S0304-405X(01)00085-X