The Impact of Dividend Policy on Firm Performance under High or Low Leverage; Evidence from Pakistan

Abstract

This study aims to find out the impact of dividend policy on firm performance under high or low debt for all the non-financial sector companies listed on Karachi Stock Exchange. This study has utilized the secondary data published by State Bank of Pakistan in the shape of Balance Sheet Analysis of non-financial sector for the period of 2006 to 2001 with the sample size consisting of 122 companies. Panel data models have been applied to examine the impact of dividend policy on firm performance in the presence of high or low leverage. Mainly it has focused on using two performance measures i.e. Tobin’s Q and Return on Equity both as dependent variables while the control variable includes the firm size and growth with debt as the moderating variable. Breusch and Pagan Lagrangian multiplier test for random effects suggested that OLS is better than fixed effect. It is found that the dividend payout ratio has got significant positive relationship with Tobin’s Q and ROA when there is both less and high debt. In addition, there is no moderating effect of debt on the relationship between dividend payout ratio and firm performance of all the non-financial firms listed in KSE.