Financial Liberalization, Institutional Development and Payout Policy Changes: The Case of Pakistani Economic Reforms of 1990s

This study investigates the impact of financial reforms of 1990's on dividend policy along with exploring its determinants for three hundreds and seventy four publically listed firms on Karachi Stock Exchange (KSE) from 1988 to 2008. To assess the impact of financial reforms on dividend policy and pointing out its determinants, the Generalized Methods of Moments (GMM) econometric technique is used. Empirical results based on the data suggest a positive impact of profitability on current year's dividend payout. Last years' dividend per share was found to be the strongest positive predictor of dividend payments. Liquidity, historical reserves and size are the other strongest and most influential positive predictors of dividend behaviour. Furthermore, firms with higher debt to equity ratio and larger reserves in the current year together with more growth opportunities pay lesser dividends. Tax payments were found to have a negative relationship with dividend payout. Based on an index for financial reforms, the results reveal a strong positive impact of the reform process on dividend payments.