Content Details | NUML Online Research Repository

Title IMPACT OF OWNERSHIP STRUCTURE AND FREE CASH FLOW ON DIVIDEND POLICY: A CROSS COUNTRY ANALYSIS OF EMERGING COUNTRIES' MANUFACTURING FIRMS

Author(s) ABID ALI

Abstract The purpose of the study is to investigate the relationship of the ownership structure and free cash flows on firm’s dividend policy. The corporate ownership structure represents the pattern of shareholding exercised by the stakeholders in firm while free cash flows are the corporation’s cash that can be distributed to creditors or stockholders which is not applied as working capital or for investments in fixed assets and dividend policy is the ratio of distributed earnings with respect to total earnings. Business entities possess different mixes of shareholdings in their ownership structure. Some business firms are management oriented while some are institution oriented regarding ownership structure. Firms mostly go for that proportion of shareholding that optimizes the firm’s performance as well as payouts. Perfect and balanced mix of ownership structure and free cash flows impact the dividend policy of the firms. This study is conducted to examine the impact of ownership structure and free cash flows on the dividend policy of listed manufacturing firms from non-financial sector in Pakistan, Bangladesh and India. In this study the geographical dimensions with comparative aspects are established. For this purpose 210 manufacturing firms listed at Pakistan Stock Exchange, Dhaka Stock Exchange and National Stock Exchange of India have been selected for the period of ten years from 2006 to 2015. The 70 firms out of 378 listed manufacturing firms are selected in Pakistan Stock Exchange perspective. The 70 firms out of 200 listed manufacturing firms are selected in Dhaka Stock Exchange perspective. The 70 firms out of 651 listed manufacturing firms are selected in National Stock Exchange of India perspective. The data is obtained from the firm’s web financials and financial statements analysis published by the statistics department of central banks. For the purpose of analysis, descriptive, correlation and panel data-based analysis is used in this research. The four panel data (fixed effect) models have been used to investigate the impact of corporate ownership structure and free cash flows on dividend policy of the firms. The country wise mechanism is employed to create different dimensions for the study. In these models two proxies are used to measure the corporate ownership structure i.e. managerial ownership and institutional ownership while single 5 proxy is used for free cash flows i.e. operating profit after tax and depreciation as independent variables. In these panel data (fixed effect) models dividend payout is used as dependent variables to quantify the dividend policy of the firms. The results of the analysis showed that corporate ownership and free cash flows have significant impact on the firm’s dividend policy in overall perspective of the study. The institutional ownership and free cash flows has positive and significant impact on firm’s dividend policy in overall & Pakistan Stock Exchange perspective. The managerial ownership has positive and significant impact on firm’s dividend policy while institutional ownership negative & insignificant impact on dividend policy in Dhaka Stock Exchange perspective. The only free cash flows have positive and significant impact on firm’s dividend policy in National Stock Exchange of India perspective. The free cash flows have significant relationship with firm’s dividend policy in all perspectives of study. The firms are institution oriented in Pakistan Stock Exchange while management oriented in Dhaka Stock Exchange perspective. The results of the study for paying dividends showed that most of the firms are in agreement with the bird in the hand theory, catering theory of dividend and theory of free cash flows as well as agency theory and thus it is the one explanation used in paying of dividends in developing countries. The results also showed that dividends act as a signaling mechanism to investors. The free cash flows enable firms to provide signaling effect for investors that cause the relationship among the incorporated variables.

Type Thesis/Dissertation MS

Faculty Management Sciences

Department Management Sciences

Language English

Publication Date 2019-05-03

Subject Finance

Publisher NUML

Contributor(s)

Format APA

Identifier

Source

Relation

Coverage

Rights