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Investors’ Power and the Dividend Cost Minimization Model: Which One Better Explains the Dividend Policy in Pakistan?

Abdullah, Fahad, Shah, Attaullah, Iqbal, Abdullah, Gohar, Raheel (2011) Investors’ Power and the Dividend Cost Minimization Model: Which One Better Explains the Dividend Policy in Pakistan? African Journal of Business Management, 5 (26). pp. 10747-10759. ISSN 1993-8233. (doi:10.5897/AJBM11.450) (The full text of this publication is not currently available from this repository. You may be able to access a copy if URLs are provided) (KAR id:34895)

The full text of this publication is not currently available from this repository. You may be able to access a copy if URLs are provided.
Official URL
http://dx.doi.org/10.5897/AJBM11.450

Abstract

This paper posits that the relevance and indeed the assumptions of the dividends cost minimization model are restricted to those countries where shareholders rights are well protected. Alternatively, we propose an “investor power” hypothesis, which is closely akin to the La Porta et al. (2000) “outcome hypothesis”. Our hypothesis states that the determining factor of dividends payout in a weak legal system is not the minimization of agency costs, instead it is the presence of certain powerful outside investors who can force firms to pay dividends. Using two variants of the dividends cost minimization model and a modified version of the dividends partial adjustment model on a data set for 183 Pakistani listed firms, our results partially support the investor power hypothesis. Results of the mean-comparison tests as well as the regression models show that dividend-payout ratio decreases with the ownership percentage of individual shareholders and the incumbent managers. Our empirical results indicate that there is only weak evidence that institutional investors can force managers to pay dividends. Among the other variables, dividend payout ratio increases with the size of a firm and ownership percentage of associated companies, and decreases with financial leverage, coefficient of variation of net income, and growth opportunities.

Item Type: Article
DOI/Identification number: 10.5897/AJBM11.450
Uncontrolled keywords: Ownership structure, dividend policy, investors’ power, cost minimization model of dividend, managerial ownership, institutional ownership, Karachi Stock Exchange
Subjects: H Social Sciences
H Social Sciences > H Social Sciences (General)
Divisions: Divisions > Kent Business School - Division > Department of Accounting and Finance
Depositing User: Abdullah Iqbal
Date Deposited: 02 Aug 2013 14:42 UTC
Last Modified: 16 Nov 2021 10:12 UTC
Resource URI: https://kar.kent.ac.uk/id/eprint/34895 (The current URI for this page, for reference purposes)
Iqbal, Abdullah: https://orcid.org/0000-0002-3013-1007
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