THE JOINT-DETERMINANTS OF LEVERAGE AND DIVIDEND POLICY: A BALANCED PANEL STUDY OF NON FINANCIAL FIRMS OF INDIA AND PAKISTAN.

Abstract

This study aims to identify the joint determinants of leverage and dividend policy of non-financial firms in Pakistan and India. For analysis purpose, the data is gathered from the annual reports of companies from India and Pakistan during years 2010-2014. Multiple regression analysis is used on reduced form equations to see the impact of variables on dividend policy and leverage of the firms. Literature from finance indicates that liquidity, profitability, tangible assets, institutional ownership of firm and firm size, all affect the decisions regarding leverage and dividend payment. Regression results are used to see the effect of these variables and compare them with theories from finance. The results indicate that only size of the firm positively impacts the decision to take additional debt, while all other variables have negative effect on debt policy. From second regression, both profitability and liquidity negatively impact dividend policy while remaining variables impact it positively. Additionally, only liquidity of a firm jointly determines both leverage and dividend policy.