The paper is co-authored by Naimat Ullah Khan with B.M. Burton and D.M.

Power. 23 company executives from diverse industries with a wide range of

educational backgrounds and experiences, who were supposed to be
adequately knowledgeable about the dividend policies of their respective
companies, have been sampled for the study. The methodology used was
semi-structured interview.
The paper examines the Pakistani executives from different industries about
the dividend policies of their firms, their determinants and important factors
which are considered at the time of formulating dividend policy and cash
payouts. It attempts to look into the peculiarities associated with Pakistani
market which differentiate it from other markets.
Dividend policy is one of the most heavily researched areas of the corporate
finance. Many researchers have placed it in the top 10 most perplexing
issues in the ambit of corporate finance owing to its intriguing nature.
Extensive studies have been carried out in attempt to find out why
companies pay cash dividends which are taxed heavily than capital gains.
The most notable among them is Linters(1956) work.
The responses of the participants have converged on some major
determinants of dividend policy which are enumerated below:

All the participants unanimously asserted that dividend

policy/decisions was of significant importance to their firms which

defies the Irrelevance theory of Miller and Modigliani (1961).

All the interviewees opined that earnings of current year were the main
determinant of dividends. Some supported the importance of last
years dividend, though less emphatically and mainly for comparison

purposes.
Liquidity of the firm also chips in determination of dividends. Opinions
were, however, on the mode of dividend (cash payouts or bonus
shares) in case of liquidity issues.

Responses about tax regime were ambivalent; some asserted its

importance while others showed indifference.

Participants pointed out that role of third parties primarily lending

institutions have to be factored in while deciding about dividends.

Refuting the propositions of Irrelevance theory of MM that dividends
stand separated from the firms investment decisions, majority of the
interviewees supported their interdependency because the firm has to
consider future expansion. Views, however, differed in cases where

investments were financed from sources other than residual cash.

Responses of the participants showed that Pakistani firms do not have
any particular or fixed payout ratio, rather it is revised and decided

each year with the fluctuations in the earnings corresponding year.

Apart from these major factors participants pointed out other factors
like political stability and institutional regulations of regulators like SBP
and SECP might influence firms dividend policy.

The fact is evident from the views of participants that current years
earnings play decisive role in determination of cash payouts. The findings
suggest that dividends have certain peculiar aspects in Pakistan, thus the
generalization of findings of one market in another may not prove
plausible.