Managerial views about dividend policy in Pakistan

Abstract

PurposeVery little is known about the influences on dividend decisions in Pakistan, despite the importance of the market in the region and the nation's non‐standard tax system. This study therefore aims to provide detailed evidence regarding this issue by examining the views of those charged with the decisions in practice.Design/methodology/approachThe study reports the findings from interviews with 23 Pakistani company officials about influences on their firms' dividend policies. A semi‐structured interview document was used to guide the discussions. The interviewees chosen ensure that a wide spread of professional and industrial backgrounds were covered in the study.FindingsThe results suggest that, despite differences in environmental idiosyncrasies, the dividend decision‐making process in Pakistani companies is similar in many important respects to that in the USA and other developed markets. However, unlike in earlier studies, the interviewees suggested that past dividends do not influence current dividend levels in Pakistan and respondents were not reluctant to announce news of a dividend cut; instead, firms focus only on current earnings and company liquidity when deciding on a disbursement level.Originality/valueThe study suggests that views about dividends in Pakistan differ from those reported in other markets in a number of important respects. Some, but not all of this evidence relates to the Pakistan taxation system, where until very recently share dividends (as with all capital gains) were tax exempt.

Corporate dividend policy in practice: the views of Nigerian financial managers

“…In the same manner, interviewee C10, from the construction and real estate sector, opined that "the variable targeted when setting the amount of dividends to pay is the dividend per share dependent on the level of current earnings". This evidence of decline in the importance of target payout ratio in determining dividend payout is consistent with the recent findings reported by Brav et al (2005) for US firms, Chazi et al (2011) for UAE firms and Khan et al (2011) for Pakistani firms. However, some interviewees from financial firms did not appear to share these perceptions and believed that the target payout ratio was the starting point for their firm's dividend decisions.…”

“…By implication, this perception is consistent with the notion that firms pay dividends from earnings and reinforces the conclusion of Benartzi et al (1997) who documented a strong concurrent link between current earnings and dividend changes in their empirical analysis of changes in dividends in the US. The evidence that current earnings is the most important factor in crafting a firm's dividend policy is consistent with evidence of Lintner (1956), Baker and Smith (2006) and Khan et al (2011) where current earnings was found to be the most important determinant of payout levels. The views of the respondents also supports (although less strongly) the explicit implications of the Lintner's (1956) theoretical model of dividend policy which states that the current dividend levels are based on both the current earnings and the pattern of past dividends.…”

“…The semi-structured interview document was piloted on both academics and practitioners, which provided further insight into the appropriateness of the research questions as well as the feasibility of the planned research timeline. The interview guide was designed based on the constructs from previous empirical literature review, including studies by Brav et al, (2005), McCluskey et al, (2007), Baker et al, (2008), Chazi et al, (2011) and Khan et al, (2011). A semi-structured interview is preferred to both the structured and unstructured interviews in this study due to its flexible nature, openness to changes, relatively high face validity and some measure of comparability (Bryman and Bell, 2007;Cameron and Price, 2009;Sekaran and Bougie, 2009).…”

“…The authors also documented that management perceptions of the factors that influence dividend policy differ between financial and non-financial firms. More recently, survey evidence from the United Arab Emirates (Chazi et al, 2011) and Pakistan (Khan et al, 2011) suggests that managers from developing countries hold similar views.…”

Islamic Calendar Anomalies: Evidence from Pakistan

“…In the year 2008, a cap was also implemented in order to secure the investors against the higher variations in the share prices. The rising trend was later observed at the end of 2009 (Khan, Burton, & Power, 2011). The KSE has seen volatility over the past decades mainly due to economic and political instability ).…”