Do Mature Companies Pay More Dividends? Evidence from Pakistani Stock Market

Dividend policy is among the most important unresolved issues in modern corporate finance. Several researches have tried to solve the dividend puzzle yet, the results are inconclusive as to what determines the optimal dividend policy. Present study has analyzed the impact of firm’s age on its dividend policy. Using the financial data of 120 companies listed at Karachi Stock Exchange (KSE), Pakistan during 2002 to 2007, this study has explored the non-linear relationship of company’s age with dividend policy. A cubic form of model has been designed by using age, age-square and age-cube as independent variables while controlling for leverage and profitability. The estimated results are consistent with maturity hypothesis and free cash flow hypothesis. The study also supports the impact of trade cycle on dividend policy of listed companies of Pakistan. The results are robust to the alternative proxy of dividend policy i.e. dividend intensity.