DIVIDEND POLICY AND ITS IMPACT ON A FIRM

FINANCIAL PERFORMANCE

By

MUHAMMAD ANEES KHAN

This research is submitted to Abdul Wali Khan University Mardan in the partial
fulfillment of the requirements for the degree of

BS (BANKING & FINANCE)

INSTITUTE OF BUSINESS STUDIES AND LEADERSHIP (IBL)

FACULTY OF BUSINESS AND ECONOMICS

ABDUL WALI KHAN UNIVERSITY MARDAN

SESSION (2015 – 19)

1
 Approval Sheet

DIVIDEND POLICY AND ITS IMPACT ON A FIRM

FINANCIAL PERFORMANCE
By
MUHAMMAD ANEES KHAN

Approved by

______________________
Dr. Faizan Malik Supervisor
Institute of Business Studies and Leadership

________________________
Mr. Sheraz Feroz Internship Coordinator
Institute of Business Studies and Leadership

________________________
Mr. Asaf Khan Program Coordinator
Institute of Business Studies and Leadership

________________________
Prof. Dr. Qadar Bakhsh Baloch Director IBL
Institute of Business Studies and Leadership

________________________
External Examiner

INSTITUTE OF BUSINESS STUDIES & LEADERSHIP

FACULTY OF BUSINESS AND ECONOMICS
ABDULWALI KHAN UNIVERSITY MARDAN
SESSION (2015 – 19)

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Contents

CHAPTER ONE ......................................................................................................................................... 5

INTRODUCTION ................................................................................................................................... 5
Background of the study ..................................................................................................................... 6
Problem Statement ............................................................................................................................. 8
Research Question .............................................................................................................................. 8
Research Objective ............................................................................................................................. 8
Scope of the Study .............................................................................................................................. 8
CHAPTER TWO ........................................................................................................................................ 9
INTRODUCTION ................................................................................................................................... 9
LITERATURE REVIEW ........................................................................................................................... 9
Modigliani and miller irrelevance theory............................................................................................ 9
Bird and Hand theory .......................................................................................................................... 9
Tax preference theory....................................................................................................................... 10
Per Cent Retention theory ................................................................................................................ 10
Agency cost theory ........................................................................................................................... 10
Signaling theory ................................................................................................................................ 10
DEPENDENT VARIABLE ...................................................................................................................... 10
Return on Assets ............................................................................................................................... 10
INDEPENDENT VARAIBLE .................................................................................................................. 11
Dividend Yield ................................................................................................................................... 11
Dividend Payout ................................................................................................................................ 11
Financial Leverage............................................................................................................................. 11
Size of the Firm ................................................................................................................................. 12
RESEARCH FRAMEWORK .................................................................................................................. 12
CHAPTER THREE .................................................................................................................................... 13
INTRODUCTION ................................................................................................................................. 13
Research Design ................................................................................................................................ 13
Population of the study .................................................................................................................... 13
Sample of the study .......................................................................................................................... 13
Data collection .................................................................................................................................. 13
Diagnostic tests ................................................................................................................................. 14
Data Analysis ..................................................................................................................................... 14
Model Specification .......................................................................................................................... 14

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 Test of Significance ........................................................................................................................... 14
CHAPTER FOUR ..................................................................................................................................... 15
INTRODUCTION ................................................................................................................................. 15
Results ............................................................................................................................................... 15
Descriptive Statistics ......................................................................................................................... 15
Correlation Matrix............................................................................................................................. 16
DIGNOSTIC TEST ................................................................................................................................ 17
Multicollinearity ................................................................................................................................ 17
VIF (VARIANCE INFLATION FACTOR) ................................................................................................. 17
Heteroskedasticity ............................................................................................................................ 17
Regression Analysis ........................................................................................................................... 18
Regression Coefficient ...................................................................................................................... 19
CHAPTER FIVE ....................................................................................................................................... 21
SUMMARY, CONCLUSIONS AND RECOMMENDATIONS ................................................................... 21
INTRODUCTION ................................................................................................................................. 21
Summary of Findings......................................................................................................................... 21
Conclusion ......................................................................................................................................... 21
Recommendation.............................................................................................................................. 22
Limitation of the study ...................................................................................................................... 22
Suggestions for further study ........................................................................................................... 22
References ........................................................................................................................................ 22

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 CHAPTER ONE
INTRODUCTION
This chapter contain the research topic and discuss the background of the study, problem
statements and significance of the study.

Dividend policy is the company’s management verdict on how it will distribute its earnings.
The division of earnings is in the form of dividends and to retain the remaining earnings for
future investment opportunities.

Dividend is the basic right of equity shareholders to get dividend from the earnings of a
company.

The rules and regulation set by the company management when they are making dividend
verdict.

Dividend policy may be defined as the distribution of the firm’s net income between the
stockholders of the firm and retain for future investment opportunities.

The decision of a company’s management is to retain a percentage of company net earnings

for the company’s future opportunities and distribute the remaining amount to the shareholders
of the company.

Dividend can be introduced as the amount that a shareholder receives from the company, out
of its company net earnings, on his shareholdings in the company. In other words, dividend is
the portion of the company net income which is distributed to its stockholders. Dividend is a
payment made to the shareholders of the company for their investment in the company.

When the company decided to pay dividend in the form of cash is called cash dividend. The
companies must have enough cash in their account when they want to declare the dividend.

If the companies issue additional shares to its existing shareholders and not paying dividends
to their shareholders cause of lacking cash in their account.

Additional shares will increase the number of outstanding shares of the company. And the
bonus shares are divided properly to the existing shareholders.

Following are the advantages of Bonus shares

1) Tax benefit 2) Higher future earnings: 3) Future dividends may increase

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If the company pay special dividend in the case of abnormal earnings of the company, is called
special dividend.

An extra dividend is a dividend paid out of its the regular dividends by the company.

When the company pay dividend to its stockholders annually. Or the company declare the
dividend annually is called annual dividend.

The dividend which is paid regularly on time. The dividend may be paid monthly,
semiannually, or annually.

When the company promises to made payment of dividend at some future date. Instead of
paying dividend now is called future dividend.

Background of the study

The dividend policy plays a crucial role in today business. The dividend policy of a company
reflects how good its financial management. The future aspects, growth of the company,
diversification, mergers are affected by dividing policies and for a healthy capital market, both
dividends and retained earnings are crucial factors. A will define dividend distribution policy
will reflect the company’s position in the capital market and indirectly improving up its
corporate image. In other words, present and future performance of the company can be
indicated by how good the dividend policy is. To abolish ambiguity and poor assessment made
by investors, it is compulsory for a company to have an effective dividend policy.

Putting too much earnings into dividend payment can decreasing the retain earnings which
causes to decreases the investment opportunities which may directly causes to generate
negative income. Moreover, it is very difficult to form a well define dividend policy due to
legal obstacles or due to law change by the government time to time. Which will directly cause
the company to go for an external finance for their business operations and this will charge
high cost of debt.

The residual theory of dividend policy holds that the firm will only pay dividend from residual
earnings, that is dividends should be paid only if funds remain after the optimum level of capital
expenditures is incurred i.e. all suitable investment opportunities have been financed.
With a residual dividend policy, the primary focus of the firm is on investments and hence
dividend policy is a passive decision variable. The value of a firm is a direct function of its
investment decisions thus making dividend policy irrelevant.

6
Under certain assumptions dividend irrelevancy theory states that given the investment verdict
of the firm dividend payout policy has no impact on shareholders wealth.( Miller &
Modigliani) argue that the value of the company is determine through earning power of the
company assets or the company investment policy, Company dividend payout and retained
earnings does not affect this value. But what had Miller and Modigliani been determined has
been challenged over time and several studies after that had discovered that dividend payment
is one of important signals to the performance of firm.

The Bird in the Hand Theory: This theory states that inventors will always prefer present
dividend compared to future dividend even if the company offer high dividend in the future.
So, this theory based on what is available today is favorable than what may be available in the
future. Hence the dividend policy is applicable and affect the share price of the company.

Tax preference theory predicted that high dividend paid out ratio, greater the rates of returns
which eventually decreases the value of the company and vice versa, (B. Graham and D.L.
Dodd)

Per Cent Retention Theory : Clarkson and Eliot (1969) argued that it is immensely expensive
to pay dividends to the shareholders of the company because of the given taxation and
transaction costs which is not afforded by shareholders as well as by companies and hence the
firm can follow a policy of 100 per cent retention.
Thus, companies can now avail new investment opportunities that would be beneficial to
shareholders too.

Signaling Theory: This theory emphasizes on dividend announcement. When the company
increases the dividend, according to this theory sends a positive signal to the investors and
predict that the future earnings of the company will be high. And if the company decreases its
dividend payout or did not pay dividend causes to send a negative signal to the investors and
predict that the future net earnings of the company will be low.

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Problem Statement
This study is to investigate the determinants of dividend on a firm performance. The Return on
Asset, is used as a dependent variable, will be examined for the impact with the following
independent variables, dividend yield, Dividend paid out ratio, Financial leverage is proxied as
the debt to equity ratio.

Research Question
What is the significant relationship between firm performance and dividend policy?

What are the significant determinants of dividend policy that effect the financial performance?

Research Objective
To examine the significant relationship between firm performance and dividend policy.

To examine the significant determinants of dividend policy that effect the financial
performance.

Scope of the Study

This research will be beneficial to the management of the firms. Which will improve the
dividend policies on the market prices of their company’s share which will in turn effect the
financial performance of the firm. This also help the potential investors to make informed
investment decision as they invest in companies that practice dividend policies that maximize
their wealth.

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 CHAPTER TWO
INTRODUCTION
This chapter is based on literature relating to dividend policy and future financial performance.
It asserts on previous studies done by various authors in relation to dividend policy and firm
performance.

LITERATURE REVIEW
In a simple explanation dividend policy is the process to distribute net earnings of the company
between shareholders of the company according to their share in the company and retain the
amount for company future investment opportunities. It is very difficult verdict to find out how
much net earnings distributed among the investors and the rest for the reinvestment. These two
can affect the stock price, investors, company’s opportunity in generating income, level of
confidence.

There may several reasons that can be used by the mangers in companies “to pay dividend or
not to pay dividend” to the investors. Increasing dividend can affect the company positively in
the eye of the investors but at the same time managers need to investigate their financial
performance and economic environment as well.

Modigliani and miller irrelevance theory

Under certain assumptions dividend irrelevancy theory states that given the investment verdict
of the firm dividend payout policy has no impact on shareholders wealth.( Miller &
Modigliani) argue that the value of the company is determine through earning power of the
company assets or the company investment policy, Company dividend payout and retained
earnings does not affect this value.

But the argument of MM theory has been challenged over time and many studies after that had
revealed that dividend payment is one of important signals to the performance of firm.
Bhattacharyas (1979)

Bird and Hand theory

Bird in hand theory suggests that there is a link between value of the firm and dividend paid
out. It concludes that capital gains are riskier than the dividends. And Investors will always
favor dividends against the capital gains (Amidu, 2007). Companies should launch a dividend
paid out ratio and offer a high dividend yield to maximize stock price,

9
Hence the Bird and Hand theory is recommended what is available at present is favorable to
what may be available in the future”. Investors will prefer the present dividend than the future.
Hence dividend policy is relevant and does affect the share price of a firm. (John Lintner 1962
and Myron Gordon, 1963)

Tax preference theory

Tax preferences theory can be defined as high dividend payout ratio decreases firm value.
Because on dividends there are higher tax rate than the capital gains. Investors require higher
rates of return as dividend yields increase.

Per Cent Retention theory

Clarkson and Eliot (1969) theory state that on dividends tax and transaction costs are
immensely expensive for the investors and for the firms. Therefore, the firm should set and
will follow a policy of 100% retention. Through which the firm can avail investment
opportunities in the future.

Agency cost theory

In the present corporate world, principle relationship exists between the organization's
investors (head) and supervisors (specialists). The administrators are constantly expected to
act to the greatest advantage of the investors. The hypothesis proposed that installment of
profits can be utilized to relieve this office costs in two different ways. Right off the bat, by
paying profits the firm will likewise have the chance to get to extra assets from the capital
market. This will make it feasible for the new speculators, partners and the overall population
to examine the financials of the firm, consequently diminishing the office cost. Also, paying
profits will decline the measure of abundance finance available to directors which may not be
used to the greatest advantage of the proprietors of the business (investors).

Signaling theory
According to this theory, When the firm increases the level of dividends causes to a positive
signal to the investors and the general public and predicted that the future earnings of the firm
will be high. And if the firm reduces its dividends or even did not pay dividends causes to send
a negative signal which causes to stop investors to invest in that firm.

DEPENDENT VARIABLE
Return on Assets
Return on assets can be calculated by dividing net income with total assets.

=Net Income /Total Assets

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Return on assets measure the firm ability to utilize its to create profits by comparing profits
with assets that generates profits.

INDEPENDENT VARAIBLE
Dividend Yield
Dividend yield shows the connection between the dividend per common share and the market
price per common share.

= Annual Dividends Per Share/ Market Price Per Common Share

The yield depends on the firm’s dividend policy and the market price. If the firm did not
distribute the dividend among the investors and successfully invest the money, The price
should rise. If the firm holds the dividend at low amounts to allow for reinvestment of profits
the dividend yield is likely to be low. Investors that want current income prefer a high dividend
yield.

Dividend yield will also how much money or cash flow of company for each dollar invested
by shareholders

H1: There is no significant relationship between DY of the firm and firm performance.

Dividend Payout
The Dividend payout measure the portion of current earnings per common share being paid out
in dividends. Dividend payout ratio as follows.

Dividend payout=Dividend per Common share/ Earning per share

No rule is existing for a correct dividend payout ratio. Some investors prefer high dividend
while some prefer low dividend payout ratio and reinvest the firm earnings for the high capital
gains.

H2: There is a positive relationship between the dividend payout ratio and ROA.

Financial Leverage
Financial leverage is term used to refer to the level to which the firm uses borrowed fund to
finance their operations specifically investments. When the firm has a high debt ratio, it
determined that it will incur high expenses on interest as the cost of capital which reduces the
revenues which directly causes to low the dividend payments. The lower the ratio the better
firm’s debt position.

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 Debt to Equity Ratio=Total liabilities / Total Equity

Debt ratio also determine how well creditors are protected in the case of insolvency.

H3: FL and shareholders wealth are not statistically significantly correlated.

Size of the Firm

Size of the firm is taken as the size of its assets reported on Balance sheet. In financial
accounting assets are economic sources. An asset may be physical, such as land machinery
building, inventory, and finished goods. Assets may also intangible such as patents and
trademarks.

Assets are dividing into two major groups: Current assets are in the form of cash and cash
equivalents, account receivable, inventory etc. Noncurrent or long-term assets take longer than
a year such as land, building, machinery, etc.

Firm’s size is measured by the natural logarithm of the book value of the firms Total Assets

H4: There is positive relationship between firm performance and size of the firm.

RESEARCH FRAMEWORK
Dependent Variable Independent Variable

Financial Performance Dividend Policy

ROA  Dividend yield
 Dividend payout
 Financial Leverage
 Size of the firm

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 CHAPTER THREE

INTRODUCTION
This chapter sets to describe the research design, population, the basis of sample selection, type

of secondary data used, sources of data, the techniques of analysis used and the data analysis.

Research Design
Research design gives a generalize plan and procedure of the study. Which help the researcher
to solve the research questions? This study used a descriptive research approach. Descriptive
study was deemed suitable for this study. And used correlation research design. Where a
correlation is a procedure to determine whether there is relationship exist between the variables
or not.

Population of the study

The population of interest in this study is selected all the firms of Pak cement industry listed
on Pakistan stock exchange between 2014 to 2018. As at December of 2018 there were 18
listed companies in the cement industry.

Sample of the study

This study selected top 10 companies from Pak cement industry listed on Pakistan Stock
Exchange used as a sample for this study.

Data collection
The study used secondary data which is collected using data collection form. The secondary
data was taking out from the Annual Statement of Financial Position and income Statement of
individual firm listed at Pakistan Stock Exchange. The take out data was on, Total Assets Net
Income, Annual Dividends Per Share, Market Price Per Common Share, Dividend per
Common share, Earning per share , and Total liabilities and Total Equity. The research used
past five years data from 2014 to 2018.x

The data is obtained from the website of different companies as well as Pakistan Stock
Exchange for the period of five years.

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Diagnostic tests
Several Diagnostic tests is will be used among them multicollinearity, Heteroskedasticity and
normality tests. Multicollinearity will be determining through correlation, Variance inflation
factor and Tolerance level. Heteroskedasticity test will be determine through white test while
normality will be testing through Summary statistics.

Data Analysis
The collection data was entered into the excel work sheet and all suitable calculation was done
to obtain the desired results. EViews was used for the descriptive data. Descriptive was used
to summarize the data. STATA version 13 was used to calculate Correlation which was used
to measure the relationship between variables. Regression was used to hypothesize the
direction of the relationship.

Model Specification
The regression model is formed as

ROA=β0+ β1(DPR)+ β2(DY)+ β3(FL)+ β4(FSIZE) Where

ROA = Return on Assets determine using the ratio of net income to total assets

DPR= Dividend Payout Ratio determine using the ratio of total dividend to earnings

DY= Dividend Yield determine using the ratio of annual dividends per share to market price
per common share

FL= Financial Leverage determine using debt to equity ratio.

FSIZE= Firms size is measured by the natural logarithm of the book value of the firms Total Assets

Test of Significance
The F and t test statistics is used to test the significance of the whole equation and the individual
significance of the study variables. The significance test was carried out 95% of confidence
level.

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 CHAPTER FOUR
INTRODUCTION
This chapter contain the results and findings of the study. The outcomes of the research are in
the form of summary tables. In addition, a regression analysis is used to analyze the data to
answer the research objective and to establish the strength of the association between the
variables under consideration, correlation analysis is performed. And include the
multicollinearity and heteroskedasticity test.

Results
The regression analysis was conducted with explanatory variables. Test of significance was
used to for all variables and this study used t-test at the 95% level of significance.

Any p-value that is greater than 0.05 is considered to have a significant association with
dependent variable and vice versa.

R square measure the portion of variability of dependent variable explained by its explanatory
variables.

Descriptive Statistics
The below table summarize the descriptive statistics of the different variables used by this
study. It presented variables of top ten cement companies listed on Pakistan Stock Exchange
from 2014 to 2018.

Descriptive statistics of dependent variable and independent variables

ROA DY DPR LNTA D_E

Mean 13.58540 3.639600 30.61900 7.860529 82.53080
Median 10.36500 3.275000 28.54000 7.480830 56.84500
Maximum 33.09000 10.58000 80.85000 9.989518 212.4700
Minimum -6.240000 0.000000 0.000000 6.586209 0.000000

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 Std. Dev. 10.09543 3.300984 25.59316 1.013991 73.56353
Skewness 0.638861 0.491514 0.310900 0.996433 0.857260
Kurtosis 2.632560 2.041934 2.098082 2.729653 2.342162

Probability 0.158621 0.140472 0.286477 0.014800 0.029812

Sum 679.2700 181.9800 1530.950 393.0264 4126.540

Sum Sq. Dev. 4993.963 533.9284 32095.47 50.38072 265168.0

Observations 50 50 50 50 50

Source: Calculation based on Annual reports of the firms.

Notes: STD – Standard deviation; ROA – Return on assets; DY – Dividend yield; DPR –
Dividend payout ratio; LNTA – Log of Total assets; D_E – Debt to equity ratio.

The table above expose that the average ROA for the top ten cement companies is 13.58540
while the minimum ROA is -6.240000 and with the maximum of 33. 09000.It further include
dividend yield with the mean of 3.639600, and maximum and minimum values are 10.58000
and 0.00000. The mean of dividend payout ratio is 30.61900 and had maximum and minimum
values 80.85000 and 0.00000 respectively. Log of total assets with the mean of 7.860529 and
having maximum and minimum are 9.989518 and 6. 586209.The average of debt to equity
ratio is 82.53080. The maximum and minimum of D_E are 212.4700 and 0.00000
correspondingly. The skewness and kurtosis values lie between 0 and 2 which means that the
data is normally distributed.

Correlation Matrix
| ROA DY DPR lnTA

-------------+------------------------------------

ROA | 1.0000

DY | 0.3797 1.0000

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 DPR | 0.2981 0.9063 1.0000

lnTA | -0.1114 -0.6029 -0.5906 1.0000

The above findings indicate that there is positive association between, dividend yield, dividend
payout ratio and return on assets of top ten cement companies listed on Pakistan Stock
Exchange. And the table also show that there is negative association among log of total assets
and Return on assets.

DIGNOSTIC TEST
Multicollinearity
VIF (VARIANCE INFLATION FACTOR)
When the VIF value is less than 10 or equal to 10. This indicate that there is no multicollinearity
in the data.

Variable | VIF 1/VIF

-------------+----------------------

DY | 5.83 0.171656

DPR | 5.69 0.175611

lnTA | 1.60 0.625538

-------------+----------------------

Mean VIF | 4.37

Here we can see that, the VIF values for all variables is less than 10. Which describe that, there
is no multicollinearity problem in the data.

Heteroskedasticity
As we know that assumption of the CLRM stated that “the disturbance should have constant
variance independent of i.
Var (ui)=var
It means that disturbance is homoscedastic (Homos means equal and Kedastic means spread
and econometrics spread means variance). So homoscedastic means equal variance.

17
And heteroskedasticity (Heteros means unequal and kedastic means spread) So
heteroskedasticity means unequal variance
Deducting Heteroskedasticity
Significance level for the heteroskedasticity is greater than 0.05.

The Breusch–Pagan LM test

Source | SS df MS Number of obs = 50

-------------+------------------------------ F (4, 45) = 2.43
Model | 35890.8695 4 8972.71738 Prob > F = 0.0611
Residual | 165987.188 45 3688.60417 R-squared = 0.1778
-------------+------------------------------ Adj R-squared = 0.1047
Total | 201878.057 49 4119.96035 Root MSE = 60.734

------------------------------------------------------------------------------
e2 | Coef. Std. Err. t P>|t| [95% Conf. Interval]
-------------+----------------------------------------------------------------
DY | 9.561519 6.439048 1.48 0.145 -3.40739 22.53043
DPR | .0999334 .814879 0.12 0.903 -1.541317 1.741184
D_E | -8.536237 12.71059 -0.67 0.505 -34.13667 17.0642
lnTA | 21.5097 11.07289 1.94 0.058 -.7922379 43.81164
_cons | -154.3738 100.0989 -1.54 0.130 -355.9834 47.23576
Here we can see that the P-value is 0.06110000, Which is greater than 0.05.
It means problem of heteroskedasticity does not exist in this data.

Regression Analysis
Analysis of Variance

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 a) Dependent variable ROA
b) Independent variables; DY, DPR, D_E, lnTA

R-squared
R-squared measure the proportion of variability of the values of the dependent variable (ROA)
explained by its linear relation with the explanatory variables (DY, DPR, D_E, lnTA) . Define
by the ratio of the explain variation to the total variation.
0.7064 means that dependent variable ROA is 70.64% explained by independent variables
(DY, DPR, D_E, lnTA) .
Research Results

The above table show regression model is significant and fit to explain the association between
selected research variables. This is done through p-value which is less than significant value of
o.o5.

Regression Coefficient

ROA | Coef. Std. Err. t P>|t| [95% Conf. Interval]

DY | 1.769671 .6607635 2.68 0.010 .4388249 3.100517

DPR | -.0037305 .0842887 -0.04 0.965 -.1734967 .1660356

DE | .0274555 .0087182 3.15 0.003 .0098962 .0450149

lnTA | -2.686156 1.216699 -2.21 0.032 -5.136713 -.2355979

_cons | 23.95824 10.46801 2.29 0.027 2.87458 45.04189

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ROA= 23.95824 + 1.769671(DY) + (-.0037305) (DPR) + 0274555(DE) + (-2.686156) (lnTA)

The coefficients result on above table indicate positive correlation dividend yield, debt to
equity ratio and financial performance of top ten listed cement companies. The table also
indicate that there is negative association between dividend payout ratio, ln total assets and
financial performance of top ten listed cement companies.

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 CHAPTER FIVE
SUMMARY, CONCLUSIONS AND RECOMMENDATIONS

INTRODUCTION
This contains summary of the study, conclusion based on key findings and recommendation
for further study. This chapter also include limitation of the study.

Summary of Findings
The aim of the study is to establish the effect of dividend policy on a firm performance of top
ten companies in cement industry listed on Pakistan Stock Exchange. The study used ROA as
a dependent variable and used DY, D/E, lnTA, DPR as an explanatory variable. Study adopted
descriptive statistics and targeted top ten companies in cement industry listed on PSX. The
study collected secondary data for the period of five years, From 2014 to 2018.

Descriptive statistics result show that average ROA for the top ten cement companies was
13.58540 while the mean of DY was 3.639600, D/E had a mean of 82.53080, the average value
of lnTA was 7.860529 and 30.61900 is the mean value of DPR.

Correlation results show that there is positive association between, dividend yield, dividend
payout ratio and return on assets of top ten cement companies listed on Pakistan Stock
Exchange. And the table also show that there is negative association among log of total assets
and Return on assets.

The model summary results indicate that dependent variable ROA is 70.64% explained by
independent variables (DY, DPR, D_E, lnTA).

The regression model was also significant as the p-value is 0.0000, which is less than 0.05.

The coefficient results indicate positive correlation dividend yield, debt to equity ratio and
financial performance of top ten listed cement companies. The table also indicate that there is
negative association between dividend payout ratio, ln total assets and financial performance
of top ten listed cement companies.

Conclusion
The study concludes that top ten companies in cement industry, financial performance is
affected directly and significantly by the firm’s dividend yield. Based on the research results

21
that the dividend yields significantly and negatively effect performance of the firm. The
research findings also show that debt to equity ratio also directly affect the firm performance.

The results also revealed that the dividend payout ratio and lnTA has indirectly and negative
relation with the firm financial performance.

Dividend payout ratio and lnTA has a negative but significant relation with financial
performance.

Recommendation
The research conclude that the dividend payout has significantly affects performance of top
ten cement companies listed on PSX. The study recommends that the firms management
should come up with an optimal dividend policy.

The research also shows that the firm’s size and Financial leverage significantly and
indirectly affect the firm performance. The study recommends that management of cement
industry should hold optimal level of debt.

Limitation of the study

This study focused on top ten cement companies listed on PSX that may only be applied for
the sample firms. And 70% financial performance explain by its explanatory variables, its
means that there are some other factors which explain financial performance and the
researcher did not used in this study.

Suggestions for further study

The study results show that performance of the firm 70% explain by its explanatory variables.
This is clear indication that financial performance of top ten listed companies may affect
through several other factors which are financial or non-financial. The study therefore
recommends an additional research on the others qualitative or quotative that may affect the
financial performance of top ten cement companies.

References
Miller, Merton H., and Modigliani, Franco. "Dividend Policy, Growth and the Valuation of
Shares: Journal of Business 34, No. 4, October 1961, p. 411-433

22
Bhattacharya, S. "Imperfect information, Dividend policy, and 'the bird in the hand fallacy,"
Bell Journal of Economics 10, 1979, p. 259-270
Gordon Myron J., "Optimal Investment and Financing Policy: Journal of Finance, May 1963,
p. 264-272 24
Lintner, John, "Dividends Leverage, Stock Prices, and the Supply of Capital of
Corporations", Review of Economics and Statistics, August 1962, p. 243-269
Jensen Michael. C., and William Meckling, 'Theory of the Firm: Managerial Behavior,
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