Impact of Firm Size on Dividend Payout

This paper analyzes the effect of firm size on dividend payout ratio of non financial firms of KSE-100 index of Karachi, Pakistan. Along with the firm size other variables were also considered to try to understand the behavior of dividend payout of non financial firms. The analysis is done on the original model of Ramachandran (2010). The analysis has been made from a sample of a total of 76 companies from the KSE 100 Index covering ten years time frame from 2000-2009. Variables included in the study are profit after tax, previous year dividend payout ratio, free cash flow, capital expenditure, short term liability to total asset and long term liability to total asset including the firm size. Multiple Regression Technique (OLS Method) is used to analyze the data. Our results accept our hypothesis that firm size, profitability, capital expenditure and long term liability have a considerable effect, but on the other hand short term liability and free cash flow and short term liability does not have a considerable effect on payout ratio of non financial firms, have as considerable effect on payout ratio.CHAPTER 1: INTRODUCTION 1.1 Overview The objective of this thesis is to study the effect of firm size on payout ratio. Dividend has always been considered as an important aspect for valuation of a firm’s stock price. Many models such as dividend growth model and many more have been developed to try to calculate a fair price for the stock on the basis of its expected dividend. Why most investors want stocks which have high dividends or dividend yield? There are many reasons for the answer of above question, but some of them are covered here such as stocks which provide dividends provide a stream of cash flow which is used as a return on investment and could also be used to cover stock loses in case the prices of a stock goes down. Furthermore capital gain could also be achieved if an unexpected higher dividend result is announced.