This paper investigates the relationship between dividend payout ratio
and profitability of a firm. For this, two main sectors of Pakistan are
selected, energy and textile. The study covers a time span of 1996-2008. Firm
performance is measured by earning per share (EPS) and return on assets (ROA).
The results of logarithmic regression show that no matter what industry is,
there is a negative impact of dividend payout ratio on next year earnings of a
Jensen, M.C. and Meckling, W.H. (1976) Theory of the Firms: Managerial Behavior, Agency Costs and Ownership Structure. Journal of Financial Economics, 3, 305-360. http://dx.doi.org/10.1016/0304-405X(76)90026-X
Jensen, G., Solberg, D. and Zorn, T. (1992) Simultaneous Determination of Insider Ownership, Debt, and Dividend Policies. Journal of Financial and Quantitative Analysis, 27, 247-263. http://dx.doi.org/10.2307/2331370