Financial Ratios As A Basis of Distribution of Dividend: Analytical Review of Financial Institutions

Abstract

The research examines the determinants of Dividend Policy in banking sector in Karachi Pakistan. The dividends are the financial information shared to external stakeholders and investors interested in investment in business shares. The distribution of dividends based on organizational profitability, earning on shares, return on assets, return on equity. This research evaluates the dividend payout ratio affected by factors based on financial ratios. The researcher selected the profitability, debt management, and liquidity ratios to evaluate the dividend payout ratio. The constructs selected are return on equity, return on assets, current ratio, and debt to equity ratio and earnings per share. The research conducted in Post-Positivism research paradigm with panel data analysis and pure quantitative research performed with econometric analysis. The panel data collected from the 13 listed banks and 16 years data 2001 to 2016 was collected and analysis performed with the use of Eviews. The results reveal that data contains the unit root and researcher change the data to conduct analysis on first differences. The Haussmann test results shows data possesses random effect and chi square is significant, and these financial ratios affected the dividend payout ratio. The fixed model applied to evaluate the impact in long term and ratios Return on Equity, Earning per share and current ratio are the significant predictor, and return on assets is not significant determinant in dividends. The research is useful for organization to understand the dividend policy and for investors as well for purpose of investment to have understood of financial performance analysis of organizations.