Abstract
This study tests Jensen’s free cash flow theory which states that managers overinvest retained earnings in negative NPV projects. A data set of 238 firms listed on the Pakistan Stock Exchange for the period 1999 to 2016 is used. The results of the panel regression model show a significant positive association of the earnings response coefficient and dividend payout ratio, which supports the free cash flow theory in listed Pakistani firms. Moreover, the imposition of the capital gains tax and the financial crisis has further strengthened the positive relationship between ERC and dividend payout ratio.
Keywords
Free cash flow, Dividend payout, Capital gains tax, Pakistani firms.
DOI
https://doi.org/10.54784/1990-6587.1024
Creative Commons License
This work is licensed under a Creative Commons Attribution 4.0 International License.
Recommended Citation
Ullah, H., & Ihsan, A. (2019). Earnings response coefficient as a determinant of dividend policy: Testing free cash flow theory on non-financial dividend paying firms in the Pakistan Stock Exchange. Business Review, 14(1), 53-67. Retrieved from https://doi.org/10.54784/1990-6587.1024
Submitted
December 11, 2020
Published
January 01, 2019
Included in
Finance Commons, Management Sciences and Quantitative Methods Commons, Marketing Commons
Publication Stage
Published
