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Pay or not to Pay Dividends: Company Policy and Investor Expectations

Author

Listed:
  • Khan, Kanwal Iqbal
  • Ghafoor, Muhammad Mudassar
  • Sheeraz, Muhammad
  • Mahmood, Shahid
Abstract
This paper attempts to understand the linkage of dividend decisions and investors’ perceptions within the context of the Pakistani corporate sector. It is intended to proffer new evidence for designing dividend policies that satisfies investors’ perceptions. Data are collected from individual investors by using questionnaires to obtain opinions about essential factors, patterns, processes and preferences for cash dividends. Results indicate that stability in the rate of dividend, compatibility with the inflation rate and continuity of dividend payment are the top ranking factors for investors. Stock dividends are preferred by Pakistani investors if their company is not paying cash dividends, and share buy-back decisions are taken negatively. The theoretical explanation for preferring dividends indicates that Pakistani investors support dividend signaling theory, agency cost, clientele effect, asymmetric information effect, tax effect and rational expectation models. That is why it exhibits a positive relation between dividends and investors’ perception. The contributions and recommendations for further studies are also addressed.

Suggested Citation

  • Khan, Kanwal Iqbal & Ghafoor, Muhammad Mudassar & Sheeraz, Muhammad & Mahmood, Shahid, 2018. "Pay or not to Pay Dividends: Company Policy and Investor Expectations," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 7(1), pages 137-157.
    • Handle: RePEc:zbw:espost:200090
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    References listed on IDEAS

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    Cited by:

    1. Richard Arhinful & Leviticus Mensah & Halkawt Ismail Mohammed Amin & Hayford Asare Obeng, 2024. "The influence of cost of debt, cost of equity and weighted average cost of capital on dividend policy decision: evidence from non-financial companies listed on the Frankfurt Stock Exchange," Future Business Journal, Springer, vol. 10(1), pages 1-24, December.

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    More about this item

    Keywords

    Dividend; Dividend Policy; Investor; Investor Perception; Investor expections; Dividend theories;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets

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