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ABSTRACT: This study tends to evaluate the effect of growth opportunities on dividend payout in the
presence of insider ownership concentration with a sample of 100 non-financial companies listed at
Pakistans KSE 100 index. The period selected for the study is of five years from 2007 to 2011 and
technique selected for the purpose is OLS (Ordinary Least Square) regression. Insider ownership and
growth opportunities; both are relevant in making decisions about dividend disbursements. Insiders
exercise their power to control the various policy decisions of firms including dividends. Results have
shown that high insider ownership leads to cuts in dividend payout in the Pakistani listed companies.
Moreover, if there is a growth opportunity, insiders prefer these investment opportunities over paying
dividends to minority shareholders.
Keywords: Growth Opportunities, Insider Ownership Concentration, Dividend policy and Pakistan.
1. INTRODUCTION:
Dividends are specifically described as distribution of firms
earnings among its equity holders in accordance with their
proportion of corporate shareholdings. Dividend payout
policy persisted as one of the most significant and addressed
topics in the field of managerial finance. Numerous
researchers have debated that dividend announcements are
conceived as good signals to financial growth and admired
by investors and analysts, however, on the other hand, quits
in dividend payout gives a bad signal to financial growth and
can cause financial distress. Bundle of theories have been
presented so far about dividend policy. The pioneer study of
Miller & Modigliani [1] mentioned that in the perfect state
of capital market, the value of the firms remain unaffected
by the corporate dividend decisions, thus neglecting the
general belief that firms value can be increased by payment
of dividends. On the contrary, Lintner [2] and Gordon [3]
indicated that in the world of imperfect capital market,
regular dividend payments increase the firms value because
most managers perceive that reduction in dividends gives
negative impact about the firm in the market. So in the light
of diverging views of theorists about dividend policy, the
dividend looks to be a Puzzle whose pieces have no
possibility of fitting together [4].
Ownership structure has a decisive role in heading the
dividend policy of a company. The ownership structure is
defined as the allocation of equity/shares with respect to
voting power which can be seen in the pattern of
shareholdings of a company. These structures identify the
equity owners of a company with regard to their voting
rights and controlling power. Ownership structure can be of
different types that are important in ascertaining the
corporate performance and managerial activities. For
instance, when ownership is not highly dispersed then there
will be a single group or family with voting and controlling
power to stress the management performance [5] and this
single group will be known as company block-holder who
holds major shareholding percentage in a firm.
The ownership structure, when associated with dividend
payout policy, is backed by Agency theory. Agency
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Sci.Int.(Lahore),26(4),1723-1730,2014
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Sci.Int.(Lahore),26(4),1723-1730,2014
.
Variables
Formula
Symbol
Dividend payout
DPO
Insider ownership
INSD
Growth
Profitability
% of shares held by managers, directors, executives and their spouse and minor
children
Percentage increase in total assets as compared to previous year.
Net income/total shareholders equity
Leverage
Size
LEVR
SIZE
Table 1
Model 1
Independent variable
INSD
ROE
-.669
.408
(-6.240)***
(4.406)***
Control variables
Constant
LEVR
-4.047
-.338
T- statistics
(-.121)*
(-2.574)*
R2
= 43.4 %
Adjusted R2 = 42.3 %
F
= 41.948*** (P < 0.001)
*** Significant at level (P < 0.001) ** significant at level (P < 0.010) * significant at level (P < 0.05)
Coefficients
GRWT
ROE
SIZE
5.439
(1.689)
Sci.Int.(Lahore),26(4),1723-1730,2014
Table 2
Dependent Variable: Dividend
Independent variable
Constant
GRWT
Coefficie -78.555
-.289
nts
T(-2.316)*
(-2.779)**
statistics
R2
= .350 %
Adjusted R2 = .338 %
F
= 29.570*** (P < 0.001)
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Model 2
Control variables
ROE
LEVR
.609
-.655
(6.340)**
*
(-5.240)***
SIZE
12.148
(3.661)***
*** Significant at level (P < 0.001) ** significant at level (P < 0.010) * significant at level (P < 0.05)
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invest from high cost financing. For this reason, these firms
retained profit for future investment projects.
Constant
-10.368
Table 3:
Model 3
Independent variables
INSD
GRWT
-.671
-.282
ROE
.451
(-.315)***
(-6.365)***
(4.885)***
Control variables
LEVR
SIZE
-.263
6.308
Coefficients
T- statistics
(-2.938)**
(-1.996)*
(1.984)*
R2
= .455%
Adjusted R2 = .443%
F
= 36.46*** (P < 0.001)
*** Significant at level (P < 0.001) ** significant at level (P < 0.010) * significant at level (P < 0.05)
Sci.Int.(Lahore),26(4),1723-1730,2014
6.
LIMITATIONS
The results can further be clarified and justified by extending
the sample size and time period of the current study. There is
need of an exceptional work related to legal environment
available for the protection of shareholders rights. This study
can be extended further by including other forms of
ownership structure to value the growth opportunities
available to the firms.
[14]
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