Analyzing the Determinants of Dividend Policy: A Comprehensive Study on Ownership Structure and Cash Flow Characteristics in the Banking Sector of Pakistan

Abstract

This study comprehensively examines dividend policy and its determinants by synthesizing key research findings across various economic contexts. It explores influential studies, including Lintner's (1956) model, which emphasizes the role of existing dividend rates, earnings changes, investment decisions, financing choices, and tax implications in shaping dividend policy. Ghosh’s research on India’s economy highlights the influence of past dividend policies, future growth prospects, leverage, and profitability on corporate dividend behavior. Additionally, Hines and Hubbard’s study investigates the impact of tax policies on dividend repatriation by U.S. multinational firms, demonstrating the role of taxation in shaping corporate dividend decisions. A focused analysis of the banking sector in Pakistan introduces a joint model that assesses the combined effects of ownership structure and cash flow characteristics on dividend behavior. This model incorporates key factors such as managerial ownership, individual ownership, cash flow sensitivity, firm size, leverage, and profitability to determine their impact on dividend payouts. The study also utilizes descriptive analysis to examine trends in dividend payouts and intensity, revealing fluctuations influenced by shifting financial conditions over time. By integrating findings from diverse economic and institutional settings, this study provides valuable insights into the complexity of dividend policy decisions. The results underscore the importance of both firm-specific and macroeconomic factors in determining dividend strategies. Policymakers, investors, and corporate managers can leverage these insights to formulate optimal dividend policies that balance shareholder interests, corporate financial stability, and market conditions.