DefinePK

Abstract

The dividend payment policy of the banking sector is slightly different from otherorganizations where dividends are paid and future investment needs are met by capturingmore deposits from outside lenders. Therefore, the risk is taken in the money of thelenders, while the dividends are distributed to the owners. The present study has achievedtwo main objectives with respect to the capital structure and dividend payments of thePakistani banks. The first objective illustrates that banks with higher financial leveragepay higher dividends than others. While the second objective envisages that banks thatare not able to obtain external public deposits and that have a greater portion ofinstitutional loans in their capital structure tend to pay less dividends. In order tounderstand these relations between the capital structure and the dividend payments of thebanks, the technique of panel data analysis was used. The annual data of thirty-one of thebanks listed in the charter of the state-owned bank of Pakistan who is continuouslypaying dividends for the nine-year period from 2008 to 2016 was used in our analysis.The results showed that greater financial leverage positively influences the distribution ofdividends. Meanwhile, institutional lending by banks to meet their short-term needsnegatively affects dividends. On the other hand, earnings per share and size alsosignificantly influence the distribution of dividends. This study will help policymakers andmanagers understand the relationship between capital structure and dividend policydecisions and discover the important determinants of the distribution of dividends frombanks.