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THE IMPACT OF DIVIDEND ON INVESTMENT DECISION IN

TEXTILE SECTOR

Thesis Submitted to
The Superior College, Lahore

In Partial fulfillment of the

Requirement for the Degree of

BBA(Hons.)

By
Faisal Anwar
Roll No. 12282
Session: 2011 - 2015

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THE IMPACT OF DIVIDEND ON INVESTMENT DECISION IN

TEXTILE SECTOR

Thesis Submitted to
The Superior College, Lahore

In Partial fulfillment of the

Requirement for the Degree of

BBA(Hons.)
By
Faisal Anwar
Roll No. 12282
Session: 2011 - 2015

Approved By:

Prof. M. Haris Masroor

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Abbreviation List:

LLC t* Levin, Lin & Chu Test*

Max Maximum
Min Minimum
Std. Dev Standard Deviation
Var. Dif Variable Difference
C Constant
DPR Dividend Payout Ratio
DCR Dividend Coverage Ratio
DYR Dividend Yield Ratio
ROI Return On Investment
DPS Dividend Per Share
EPS Earnings Per Share
CRE Crescent Textile Mills Ltd.
SHM Shams Textile Mills Ltd.
KTML Kohinoor Textile Mills Ltd.
Prob. Probability
FCF Free Cash Flow Theory
Div. Dividend
Inv. Investment
Des Sta. Descriptive Statistics
CCI Corporate Capital Investment
IOS Investment Opportunity Set
POT Pecking Order Theory
DTE Dividend Tax Effect
DPP Dividend Payout Policy

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Abstract:

This research is investigating the impact of dividend on investment decision in textile sector. A
company stance on whether it will pay out profits as dividends or keep them as retained earnings.
If the company decides to issue the dividends , the policy is outline whether or not the dividends
is to be issued on an ongoing basis or if the dividend payout is in an infrequent way. Profitability
has always been considered as a primary indicator of dividend policy. Whenever the company
contain more profit then it make policy to payout dividends to shareholder or keep the profit as
retained earnings. To find out the impact of dividend on investment decision, data is collected
from annual reports of textile companies operating in pakistan. I used secondary data of three
textile companies operating in Pakistan. In my research, I used two variables in which one is
dependent variable (dividend) and second is independent variable (investment). After calculating
the ratios regarding two variables, I used E-View software for applying different tests. The
purpose of applying different tests is to find that either these two variables have significance
relationship between each other or not. I apply descriptive statistics test in E-View software to
findout the relationship. After that I apply unit root test and at the last Housman test is applied to
check the significance value. At the end it is conclude that there is a significance relationship
exists between two variables.

Key Words: Dividend, Investment

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DEDICATION

Firstly, I am very grateful to ALLAH ALMIGHTY who strengthens me enough to complet the
study. Without ALLAH ALMIGHTY’s support nothing can be completed.

Secondly, I am very thankful to Sir Haris Masroor, who have guided and supported me very
well so that I am able to complete my thesis. Additional thanks to the faculty of Management
Sciences department of Superior University Lahore, for their feedback and support during entire
my BBA(Hons.) course.

Then I would like to thank my Parents and family members for their praying and support to me
throughout my study life and also for the complition of this work.

At the last, I would like to thank my friends who support me, guide me and helped me
throughout the couse of BBA(Hons.), whenever I demanded for their help.

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Acknowledgments

First and foremost I thank the Almighty Allah for granting me the strength, health, courage and
inspiration to enriching my knowledge. I thank the lecturing staff of Superior University Lahore,
who provided me the backround skills and knowledge to undertake and complete this study over
four years. I thank my parents who support me and fulfill my all needs during my study. I also
thank my colleagues for supporting me and share their experience throughtout this course.

A special thanks to my supervisor Prof. Haris Masroor for his guidance, insight and
encouragement in writing and completion of this thesis. Your invaluable support and patience
throughout this journey has been unreal and is appriciated from the bottom of my heart.

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Table Of Contents

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INTRODUCTION& BACKGROUND:

The propose research is related with finance which is very important part of any business.
Finance is important to an organisation as the firm has to know how it balances the profit with
costs. Finance is the allocation of assets and liabilities over time under conditions of certainty
and uncertainty. A key point in finance is the time value of money, which states that a unit of
currency today is worth more than the same unit of currency tomorrow. Finance aims to price
assets based on their risk level, and expected rate of return. Finance department play an
important role in any business as it prepare and create financial accounts. Finance department
keep and maintain financial records. This department analyse current financial performance in
the business and also pay the wages and salaries to the employees according to their work &
performance in the company.

The purpose of research is to saw the impact of dividend on investment decision. The progress of
the company depend on the investment as much the honour invest in the business, the business
gives profit to the honour. If the honour has not much money for invest in the company, he takes
money from shareholders & the honour gives some part of profit to shareholders in the form of
dividend. A dividend is the payment which is given by the corporation to the shareholders. When
a company earns profit then it can either reinvest it in the business or distribute the profit in
shareholders according to a specific percentage. Distribution to shareholders can be in cash or if
the corporation has the plan of reinvest the profit in the company then the profit can’t distributed
in the shareholders. Therefore the dividend has a positive impact on the business investment
decision. Dividend is independent variable & investment decision is dependent variable.

Marika Santoro & D. Wei (2008) examines the impact of progressive dividend taxation on
investment decisions. Their purpose of the study is to examine the implications of progressive
dividend taxation on investment and other aggregate variables. They use some variables in this
study as progressive dividend Taxation, dynamic investment decisions and dividend taxation.
Their findings in the study are the magnitude of distortion critically depends upon the
progressivity of the tax system. It is also find that the progressivity of such a tax system is too
small for the distortion caused by dividend taxation to be quantitatively important for investment

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decisions & progressive dividend taxation matters for dynamic investment decisions at the
theoretical level.

Kari, Karikallio and Pirttilä (2009) examine the impact of dividend taxation on dividends and
investment. They use some variables in the study as corporate income taxation, dividends,
investment & tax reform. Their findings in the study are that the dividend distribution declined
somewhat after the reform. Since there were large anticipatory increases in dividend distributions
before the reform, this drop can also be a reaction to these earlier, abnormally large dividend
distributions.

Frank, Singh and Yue Wang (2011) examine the effect of dividend taxation on corporate
investment. They use some variables in the study as corporate investment, dividend taxation,
personal income tax, cash-richness, financing margin and marginal source of funds. Their
findings in the study are the impact of major dividend tax changes in the U.S. since 1980 on
corporate investment. We also find that dividend taxation has a significant impact on firm-level
investment, and the effect crucially depends on the firm's financing margin, which can be proxies
by the firm's cash-richness. A dividend tax cut tends to stimulate cash-poor firms' investment.
However, such stimulating effect weakens for firms that are richer in cash. The most cash-rich
firms in our sample actually decrease their investment following a dividend tax cut.

It is important for all sectors but most important for textile sector. The textile sector is growing
rapidly to meet the need of people of all ages. Textile products play an important role in meeting
man’s basic needs. Take the example of clothing which we wear. Cloths are the basic need of
human being. Textiles are also important in all aspects of our lives from birth to death. If there is
put a better investment in the textile sector then it is very beneficial for the economy. If the
economic condition is better then also the foreign investors will focuses towards the country.

I am working on the textile sector in my research. The contribution of textile sector in GDP of
Pakistan is 8.5%.

The deficiency in the study is that all the research is done in foreign countries where different
rules & regulations exists also modern techniques of research are used. May all that knowledge
can’t applicable in Pakistan because in Pakistan different rules and regulations of research exist
as compare to other countries. The writers also give the reference of existing theories & not give

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the reference of modern theories. The authors can’t use the graphs for better understanding about
the relationship between the variables. There is no use of modern techniques of research & old
methods of research are used.

Purpose Statement:

The propose study play an important role in the economy of any country especially the
underdeveloped countries like Pakistan because it will investigated about the factors that
affect the investment decision because the investment decision in any field increase the
growth of the country because textile is the back bone of any country. The purpose of this
study is to determine the impact of dividend on investment decision. In this study there are
two variables dividend &investment decision are used. I will study on these two variables
that how much these factors influence the investment decision and it is necessary for the
textile structure of Pakistan. If we will improve the investment decision, we can leads in
textile sector which is back bone of every country. Quantitative study will be used to
determine the relationship between dependent variable “dividend” and the independent
variable “investment” in corporate structure. I will study on these two variables that how
much dividend impact on investment decision.

Significance:

 The purpose of study is to examine the impact of dividend on investment decision in

textile sector. The study generates the conclusion which is helpful for policy makers.
The study recommends that the policy of regular dividend payout should not be
changed because it has a negative effect on investors. The impact of dividend policy
on the investment decision in the company considered to be very important not only
for investors but also for the policy makers. The conclusion will show all the
drawbacks in the textile sector. The policy makers will make the policy according to
the conclusion which is beneficial for the company. The policy makers implement
their policy on large scale. Through this the research will be accurate.
 The conclusion of study will helpful for the managers for making good decisions.
This is because that the propose study will examine the impact of dividend on
investment decision & when the managers came to know about the impact of

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dividend on investment decision through the conclusion of my research then they can
improve their decision making about the investment in textile sector. Normally the
managers can’t much focus on this type of impacts but when the managers focused on
the impact of one thing to the other thing then they can improve their decision
making. The manager’s decision has importance in the company or any other sector.
So the manager’s good decision can be helpful for achieving the goals of the
company.
 My study will helpful for others that no one can do the research before on this topic in
Pakistan. This is because that Pakistan is developing country where no much
resources of research are available & also old methods of research are used. This type
of research will conduct in foreign countries where all the resources of research are
available & also modern techniques of research are used as compare to Pakistan. My
study is also the source of awareness for others that they can motivate & do the more
search on the topic of “impact of dividend on investment decision in textile sector”
and do more research than me and get more accurate results as compare to my results.
My study is also helpful for students as it can open their minds and they came to
know about the purpose of my research. This is very beneficial for them as it can help
them in future because in future they may start their own businesses and at that time
they better understand about the impacts of one thing to the other. It is also an
opportunity for them to explore their skills & do the better research than me.

Research Question & Hypothesis:

What is the impact of dividend on investment decision in textile sector?

Hypothesis:

H1: There is relationship between dividend and investment.

H0: There is no relationship between dividend and investment.

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Theoretical Model:

Dividend Investment

There is no mediating is present between two variables. One is independent variables which is
investment& second is dependent variable which is dividend.

Research Objectives:

 To examine the impact of dividend on investment decision.

Literature Review:

P. Douglas McCann, October 1987, Investment Earnings and the Initial Divident Decision,
Rodney L. White Center For Financial Research. This study focuses on firms initial divident
decision in light of their earnings and growth, if the initial divident can be explained in terms of
any of these models as “Residual Model”, “Signaling Model”, “Agency cost Model”,
“Segmentented Market Model”. Empirical results suggest that the initial dividend decision is not
adequately modeled by theories. The introduction of differential taxation between dividend, tax
at a higher rate and capital gain, taxed at a lower rate. Along with the assumption of a fix
investment plan leads to a strong conclusion that firms should not pay the dividends. In this case
the investor prefer to firm purchase treasury stock with any fund rather than payout dividend. In
this article the research question is made on the importance of dividend which is asked from
investors as the major part of question is “do shareholders benefit more from reinvestment of
earnings or from a divident?” Important variables used in this article are Investment Earnings,
Initial Divident Decision, Residual Model, Signaling Model, Agency cost Model and
Segmentented Market Model. In this article the close ended questions asked and data is in the
number form so the data is quantitative data and research paradigm is interpretivism is used
because asked the first time research question, not verify the existing theory. An analysis of the
relationship between the accounting and market volume data and the security betas should
suggest the source of reduced systematic risk found in this study. While the segmented market

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model is consistent with the observed data, a more general model which simply argues these
firms are operating with capital rationing prior to the initial dividend should be examined. The
result shows that if the dividend serves to provide access to the capital market the change in the
risk of security return would reflect a change in the market for the share as opposed to its
earnings volatility. Writer defines different theories which are represented by different writers
and also they focus on the relationship between the variables very clearly. Writer also focuses on
different models for verifying the relationship between variables. There is no weakness in this
article because the writer gives the reference of latest theories and not verifies the existing
theory.

Bhavish Jugurnath, Mark Stewart and Robert Brooks, Dividend taxation and Corporate
investment, RMIT University, School of Economics and Finance, Melbourne 3000, Australia.
The aim of this study is to examine and provide empirical evidence of the effects of the US TRA
and the Australian dividend imputation on corporate investment. The remainder of the paper is
organised as follows. Section two provides a review of the theoretical and empirical literature
related to dividend taxation and investment and subsequently develops the research hypotheses.
Section three presents the empirical research design of the study. Section four reports the
empirical results. Finally, section five provides the overall conclusions of the study. The aim of
this study is to add to the previous American and Australian literature by testing simultaneously
the effect of the Australian dividend imputation and the American TRA on corporate investment.
H1: As part of the tax reform that permitted the introduction of imputation, Australia also
introduced a capital gains tax. Prior to these changes Australia operated under a classical taxation
regime. H1A: If the positive effects of dividend imputation exceeded the negative effects of the
new capital gains tax, then the net effect of the tax reform on corporate capital Investment would
be positive. H1B: If the negative effects of the new capital gains tax exceeded the positive effects
of dividend imputation, then the net effect of the tax reform on corporate capital investment
would be negative. H2: The introduction of the TRA in 1986 in US had a negative impact on
corporate capital investment. Important variables used in this article are “Corporate investment”,
“Dividend imputation”, “Tax Reform Act”. In this article the data is in the number form so the
data is quantitative data and research paradigm is interpretivism is used because asked the
research questions for first time and the writer not verify the existing theory. The results of the

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article provide evidence that the introduction of the TRA had a negative impact on corporate
investment. Furthermore, this paper provides evidence that individual taxes play a significant
role in corporate investment decisions in both the US and Australia. Based on these results it can
be inferred that both the 1986 TRA and the dividend imputation do have an effect on corporate
capital investment. Furthermore dividend imputation as introduced in Australia is an effective
way to reduce the distortions caused by the traditional system of taxation. As Compared with the
TRA, dividend imputation has been better able to positively stimulate corporate capital
investment. TRA effect on corporate investment is more pronounced in the US for firms having a
net operating loss. Individual tax rates play a role in corporate investment decisions in both the
US and Australia. Writer defines different theories which are represented by different writers.
The writer also focuses on empirical model and includes different variables in the model for
verifying the relationship. There is no weakness in this article because the writer gives the
reference of latest theories and not verifies the existing theory.

Maria I. Marika Santoro (Congressional Budget Office Washington, DC) & Chao D. Wei
(George Washington University Washington, DC), April 2008, The Impact of Progressive
Dividend Taxation on Investment Decisions, Georgetown University and George Washington
University. The purpose of the quantitative evaluation is to examine the implications of
progressive dividend taxation on investment and other aggregate variables. The clientele effect
implies that shareholders in high-income tax brackets may choose to reduce holding of shares
that pay high dividends. In our model, the representative household holds one unit of shares for
all periods. As a result, it cannot reduce its tax burden by selling its shares. We share the main
theme of this literature, namely, that dividend taxation a¤ects investor behavior. However, this
literature focuses on the change in shareholding, which might allow individuals to minimize their
dividend tax burden. In our model, we do not analyze this type of shareholding behavior. In this
article the research question is made on flat rate taxes as the question which is asked is “how flat
dividend taxes affect decisions by firms? & Does the progressivity of dividend taxes per se
matter for dynamic corporate investment decisions?” Important variables used in this article are
“progressive dividend Taxation”, “dynamic investment decisions”, “dividend taxation”. In this
article the data is in the number form so the data is quantitative data and research paradigm is
interpretivism is used because asked the first time research questions not verify the existing

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theory. Findings in the article are that the magnitude of distortion critically depends upon the
progressivity of the tax system. It is also find that the progressivity of such a tax system is too
small for the distortion caused by dividend taxation to be quantitatively important for investment
decisions & progressive dividend taxation matters for dynamic investment decisions at the
theoretical level. We also find that, theoretically, progressive dividend taxation distorts dynamic
investment decisions by creating a wedge between the marginal cost and benefit of investment.
The wedge is introduced by the variations in the marginal tax rate caused by dynamic evolutions
of taxable income over the business cycle. This type of distortion is not present if dividend taxes
are proportional. The writer defines different types of theories for identifying the relationship
between variables. The writer also use diagrams for showing the types of relationship between
different variables. There is no weakness in this article because the writer gives the reference of
latest theories and not verifies the existing theory.

Richard W. P. Holt (University of Edinburgh), July 2000, Investment And Dividends Under
Irreversibility And Financial Constraints, Department of Economics. The firm’s objective is to
maximize the discounted value of a stream of dividend payments by judicious control of
dividend and investment policies. The purpose of this article is to identify the rationale for and
determinants of dividends, rather than the dynamic interaction with investment activity, the
modelling framework for dividend policy has not generally embraced the intertemporal
optimising framework of the investment literature. In this article the research question is made
on internal funds as the question is whether the results continue to hold on relaxing the restriction
that the firm has access only to internal funds and faces liquidation if these fall too low? Clearly
if external finance were available at no premium, the firm’s problem would return to that of the
canonical irreversible investment model. Important variables used in this article are
“Investment”, “dividend policy”, “irreversibility”, “financial constraints”. In this article the open
ended questions asked to the respondents and data is in the words form so the data is qualititative
data and research paradigm is positivism is used because it verifies the existing theory. The
results suggest a number of directions for future work. First is empirical work on investment
should proceed by allowing and controlling for both irreversibility and financial constraints and
existing results should be reassessed. Second, the generalizations could be examined more
formally using numerical methods. Third the nature and consequences of the constraint

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complementarily effect for lenders and borrowers decisions could be examined using an
asymmetric information approach to obtain a different perspective. The main lesson to draw
from this paper concerns the nature of the interdependency of investment and dividend policy
under irreversibility and financial constraints. Complementarily of these constraints have
important consequences for empirical work. Research finds that firms’ investment and dividend
policies are distorted by irreversibility and finance constraints. Whereas the existing literature
examines these features separately, this paper considers their interaction. There is no strength of
this article because the writer does not give the reference of latest articles & verify the existing
theories. There is weakness in the articles because the writer verifies the existing theories & not
gives the reference of modern theories.

Ronald W. Masulis (Cox School of Business) & Brett Trueman (School of Business), Corporate
Investment and Dividend Decisions under Differential Personal Taxation, Southern Methodist
University. The purpose of the study is implications of differential personal taxation for
corporate investment and dividend decisions. The personal tax advantage of dividend deferral
causes shareholders to generally prefer greater investment in real assets under internal as
opposed to external financing. Furthermore, dividend deferral is shown to be costly at the
corporate level, causing shareholders in different tax brackets at times to disagree over optimal
investment and dividend policies under internal financing. It also explores the relation between
cash dividend payouts and firm investment in real assets, given a personal tax disadvantage to
dividends, an issue that has received scant attention in the finance literature. In this article the
research question is made on firm’s decision on investment as the question is that how these
preferences over the firm's decisions change when investment in both real as well as financial
assets is allowed? Important variables used in this article are “Corporate Investment”, “Dividend
Decisions” and “Personal Taxation”. In this article the open ended questions asked to the
respondents and data is in the words form so the data is qualititative data and research paradigm
is positivism is used because it verifies the existing theory. Findings of article are that investment
decisions are dependent on the source of funds with the optimal investment level generally
higher under internal financing. Further, in contrast to previous research, unlimited deferral of
dividends is recognized to be costly since it requires a firm either to invest in projects with
decreasing marginal rates of return or in securities that require the payment of either an explicit

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tax on shares (in the form of double taxation of dividends) or an implicit tax on municipal bonds
(in the form of a lower rate of return). It is also shown that, while shareholders unanimously
agree that externally-financed investments should be made as long as they increase the firm's net
market value, they may not agree on the firm's investment criterion under internal financing.
Whether or not they agree depends on the dispersion of shareholder tax brackets in the firm.
There is strength in the article because the writer gives the reference of different theories
represented by different writers & also he gives the reference of latest theories but not verifying
the existing theories. There is no weakness in the article because the writer doesn’t give the
reference of existing theories but give the reference of modern theories.

Miller & Modigliani (1961), Dividend And Investment Decisions: A Test of Separation
Principle, Applied Financial Economics (Sanju et al., 2011). The aim of the study is came to
know about investment decisions of a firm are separable from its dividend decisions i.e.
investment decisions of a firm should not be influenced by its dividend decisions, although
dividend decisions may or may not be influenced by its investment decisions. Firms therefore try
to use the internal funds to meet their financial requirements; this results in a situation in which
investment and dividend decisions compete for the funds available with the firm i.e. increased
investments would reduce the funds available with the firm for dividend payments and vice-
versa. The null hypothesis in both the sets of statistics is that there is no co integration i.e.
H0:Pi= 1 for all _. The alternative hypothesis is, however, different for the two sets of statistics.
In case of panel co integration statistics, the alternative hypothesis is that there is co integration
between the variables for all members in the panel, i.e. H1:Pi=P< 1 for all i. Here, a common
value is assumed for all Pi’s such that Pi=P. In group mean panel co integration statistics, the
alternative hypothesis is H1: Pi< 1 for all i. important variables used in this article are
“dividend”, “Investment”, “separation principle”. In this article the data is in the number form so
the data is quantitative data and research paradigm is interpretive is used because asked the first
time research questions not verify the existing theory. Separation principle asserts that
investment and dividend decisions of a firm are separable i.e. these decisions are made
independent of each other. However, the empirical examination of the validity of separation
principle has yielded mixed evidence, with some studies providing evidence in support of
separation principle, and some providing contradictory evidence. The results of error correction

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model indicate that there is bi-directional long-run causality between investment and dividend,
for each of the chosen sectors. This finding reveals that investment and dividend decisions of
firms are interdependent. Separation principle, therefore, does not hold in the Indian market.
There is strength in the article because the writer gives the reference of different theories
represented by different writers & also he gives the reference of latest theories but not verifying
the existing theories. There is no weakness in the article because the writer doesn’t give the
reference of existing theories but give the reference of modern theories.

Seppo Kari, Hanna Karikallio and JukkaPirttilä (Government Institute for Economic
Research),2009, The Impact of Dividend Taxation on Dividends and Investment: New Evidence
Based on a Natural experiment, University of Tampere and Labour Institute for Economic
Research. The purpose of study is large register-based panel data set, where the vast majority of
firms are small and medium-sized enterprises, to examine the responses to the Finnish dividend
tax increase of 2005. This reform creates a useful opportunity to measure enterprise behavior,
since it involves exogenous variation in the tax treatment of different types of firms. Our aim is
to estimate the causal effects of a dividend tax increase on dividend distributions and investment.
Since the tax treatment differs depending on the stock market status of firms, we examine listed
and non-listed firms separately. In this article the research question is made on dividend taxation
affects & investment behavior as the question is that “how dividend taxation affects dividend
distributions and investment behavior?” Important variables used in this article are “corporate
income taxation”, “dividends”, “investment” & “tax reform”. In this article the data is in the
number form so the data is quantitative data and research paradigm is interpretivism is used
because asked the first time research questions not verify the existing theory. Our results indicate
that dividend distribution declined somewhat after the reform. Since there were large
anticipatory increases in dividend distributions before the reform, this drop can also be a reaction
to these earlier, abnormally large dividend distributions. Since dividends can be altered due to
intertemporal tax planning also under the new view, the drop in dividend distribution is
compatible both with the old and the new view of dividend taxation.There is no strength of this
article because the writer does not give the reference of latest articles & verify the existing
theories. There is weakness in the articles because the writer verifies the existing theories & not
gives the reference of modern theories.

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Murray Z. Frank, Rajdeep Singh and Tracy Yue Wang, November, 2012, the Effect of Dividend
Taxation on Corporate Investment: Old Debate, New Evidence, Carlson School of Management,
University of Minnesota. The purpose of the study is that future policy making on dividend
taxation and the empirical assessment of the policy impact should take into serious consideration
the heterogeneity in firms' cash positions. Dividend tax increases may generate little impact on
aggregate investment in the short run. We also study about the impact of personal-level dividend
taxation on corporate investment. Our study also suggests that future policy making on dividend
taxation and the empirical assessment of the policy impact should take into serious consideration
the heterogeneity in firms' cash positions. Dividend tax increases may generate little impact on
aggregate investment in the short run. But it may have a negative impact on the long-run
economic growth by disproportionately harming startup _rms and fast-growing young firms that
are likely to be cash-poor. In this article the research question is made on personal-level taxes &
corporate investment as the questions are that “Do personal-level taxes affect corporate
investment” & “Is It Really a Dividend Tax Effect”? Important variables used in this article are
“corporate investment”, “dividend taxation”, “personal income tax”, “cash-richness”, “financing
margin” and “marginal source of funds”. In this article the data is in the words form so the data is
qualitative data and research paradigm is positivism is used because the writer verifies the
existing theory. In this paper we find the impact of major dividend tax changes in the U.S. since
1980 on corporate investment. We also find that dividend taxation has a significant impact on
firm-level investment, and the effect crucially depends on the firm's financing margin, which can
be proxies by the firm's cash-richness. A dividend tax cut tends to stimulate cash-poor firms'
investment. However, such stimulating effect weakens for firms that are richer in cash. The most
cash-rich firms in our sample actually decrease their investment following a dividend tax cut.
Our study also concludes that dividend tax policy and the empirical assessment of the policy can
be misleading if it ignores the cross-sectional heterogeneity in firms' cash positions. This is
because the effect of a dividend tax change on the aggregate investment depends on the cross-
sectional distribution in firms' cash-richness. There is no strength of this article because the
writer does not give the reference of latest articles & verify the existing theories. There is a
weakness in the articles because the writer verifies the existing theories & not gives the reference
of modern theories.

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Adrian Blundell-Wignall and Caroline Roulet, 2013, long term investment, the cost of capital
and the dividend and buyback puzzle, Deputy Director of the Directorate of Financial and
Enterprise Affairs, Volume 2013 – Issue 1. The purpose of this paper is to study that that interest
rates are at extremely low levels to support banks, and the search for yield has pushed the
liquidity driven speculative bubble from real estate, derivatives and structured products markets
into the corporate debt market. Equities have rallied strongly too. This asset cycle is certainly
helping banks reduce hidden losses on illiquid securities and could also help reduce the cost of
equity. The aim of this study is to explore this puzzle in more detail. It does so by using
microeconomic data on cash flow, capital expenditure, dividends, and buyback decisions of
thousands of observations from non-financial companies included in the MSCI global stock
index. The aim is to identify the main factors that have contributed to impact the long term
investment strategy or dividend payment policy of firms. A hypothesis is developed in this
article which is that the high level of uncertainty, the low cost of corporate debt and the high cost
of equity funding is favoring dividends and buybacks at the expense of investment. Important
variables used in this article are “long-term investment”, “Interest rates”, “de-equalization and
cost of capital”, “dividend and buybacks” & “monetary policy”. In this article the data is in the
number form as well as in numbers form so the data is mix method data and research paradigm is
pragmatism used because the writer uses the graphs of different countries to explain the
relationship between the variables & also gives the data in tables form. The conclusion of the
article is a panel model using more than 4,000 global companies and shows that the Capex
decision in general depend on the cost of equity, the accelerator and uncertainty, whereas
buybacks are driven mainly by the gap between the cost of equity and debt. Right now the
incentive structure implied by very low interest rates, which may be sustained for a long time,
together with tax incentives, works directly against long-term investment. In an environment of
weak sales growth and high uncertainty, companies are keeping their capital expenditure
contained, and they are taking advantage of cheap corporate borrowing rates to issue debt and
build up cash flow. This cash flow is used for paying dividends and carrying out buybacks of
shares. Weak investment reduces future potential growth, and this in turn creates inflation and
growth bottlenecks. The best way to improve long-term investment, are policies that return
interest rates to normal levels, and reduce the distorted incentives for buybacks and low
investment. There is strength in the article because the writer gives the reference of different

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theories represented by different writers & also he using the graphs of different countries for the
better understanding of the variables relationship. There is no weakness in this article because
the writer not verifying the existing theories but he gives the reference of modern theories.

Ravichandran Subramaniam, S. Susela Devi2 and MaranMarimuthu, (18 July, 2011), Investment
opportunity set and dividend policy in Malaysia, Sunway University College, No 5, Jalan
University, Bandar Sunway, 46150, Petaling Jaya, Selangor DarulEhsan, Malaysia. African
Journal of Business Management Vol. 5(24). The purpose of the paper is to study the
relationship between Investment Opportunity Set (IOS) and dividend policy and if ownership
structure moderates this relationship in an emerging economy context. The contracting theory
based on Jensen’s free cash flow (FCF) theory is empirically examined using a series of firm
characteristics including size, return on assets, board size, board composition, duality and debt to
assets. The results suggest that in the Malaysian context, there is a strong support on the negative
significant association between growth opportunities and dividend payout in the context of non-
government linked companies (non-GLCs). Hence the theory backs the fact that high growth
firms make lesser dividend payments. A hypothesis is developed in this article which suggests
that high growth firms pay lower dividends and low growth firms pay higher dividends.
Important variables used in this article are “Dividend policy”, “investment opportunity set”,
“government ownership”, “family ownership”, “contracting theory”, “free cash flow theory”. In
this article the data is in the number form so the data is quantitative data and research paradigm
is interpretivism is used because the writer not verifies the existing theories but give the
reference of modern theories. The findings of the study focus on ownership structures and
document the consistent strong support on the negative significant association between growth
opportunities and dividend payout for non government linked companies. The contracting theory
based on Jensen’s FCF theory is not applicable for government linked and family controlled
firms. Furthermore, this study found that, on the interaction between IOS and FLYC, the
negative relationship between high growth firms and dividend payout is weaker for family
controlled firms. There is strength in the article because the writer gives the reference of different
theories represented by different writers & also he gives the reference of latest theories but not
verifying the existing theories. There is no weakness in the article because the writer doesn’t give
the reference of existing theories but give the reference of modern theories.

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Jimmy Torrez, (2006), The Effect of Dividend Tax Policy on Corporate Investment, Centro de
InvestigacionesComerciales e IniciativasAcadémicas Puerto Rico, Forum Empresarial, vol. 11,
núm.1. The purpose of the study is to develop a model that examines the effect the tax cut will
have on corporate investment. The model finds that the dividend rate tax cut will increase the
corporate cost of capital and lower investment. Therefore, any increase in the value of the stock
market from this act will simply be a response to an increase in after tax returns and not from an
increase in production. In this article the research question is made on dividend tax policy & its
affect investment as the question is that “does the dividend tax policy not affect on investment”?
Important variables used in this article are “Corporate Investment”, “Tax Policy”, “Dividends”,
“Pecking Order Theory”. In this article the data is in the words form so the data is qualitative
data and research paradigm is positivism is used because the writer verifies the existing theory.
The findings of the article are that it presents some ‘’stylized facts’’ from the literature in support
of these conclusions. The prediction that a decrease in the dividend tax rate will have a positive
effect on dividends is strongly supported by the evidence. The effect that will have on investment
is less clear. There is no strength of this article because the writer does not give the reference of
latest articles & verify the existing theories. There is a weakness in the articles because the writer
verifies the existing theories & not gives the reference of modern theories.

Paul Simshauser and Angela Catt, (June 2011), Dividend policy, energy utilities and the
investment megacycle,Level 22, 101 Miller Street, North Sydney, NSW, 2060. The purpose of
the article is to focused on the dividend policy of energy utilities. In Australia, merchant utilities
currently target dividend payout ratios of about 60% of earnings, while regulated utility ratios are
about 80%. Almost 60 years of financial economic research is yet to formally identify dividend
policy optimality. That a spectrum of dividend policies exists, ranging from low to high payout
ratios, provides the obvious evidence. Nonetheless, we believe a set of guiding parameters exists
given the asset stock, taxation system, industry structure and investment outlook facing energy
utilities in Australia. Hypothesis is developed in this article which is that firms raised dividends
experienced a demonstrable reductionin their WACC, from an average 13.2% prior to the
dividend increase to 12.2% over the three years following the dividend increase. Important
variables used in this article are “Dividend Policy”, “Electric Utilities”. In this article the data is

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in the number form so the data is quantitative data and research paradigm is interpretivism is
used because asked the first time research questions not verify the existing theory. The findings
of the article are retaining as much flexibility in dealing to those commitments seems extremely
important in determining forward dividend policy. The costs of moderating dividend growth
would seem to be trivial, and will generate benefits in terms of greater balance sheet flexibility
and reduced equity raising costs. Our analysis of capital markets highlighted a rapid deceleration
of bank debt availability, and while conditions have improved from cyclical lows, they remain
subdued which places a heightened load on equity raisings to finance growth. While dividend
policy is most typically based on past conditions, it must be biased towards future conditions
when setting the payment rate. The investment community both understands and expects this.
Research tells us dividends should be sticky to suit the firm’s clientele and any franking credits
should be distributed as fast as possible given their time value. An industry maturity cycle exists,
which reinforces lower dividends during expansionary phases and raising dividends when
growth prospects moderate. There is strength in the article because the writer gives the reference
of different theories represented by different writers & also he gives the reference of latest
theories but not verifying the existing theories. There is no weakness in the article because the
writer doesn’t give the reference of existing theories but give the reference of modern theories.

LaarniBulan (International Business School Brandeis University)&Narayanan Subramanian

(Cornerstone Research Boston, MA), (2008), A Closer Look at Dividend Omissions: Payout
Policy, Investment and Financial Flexibility,Dan Tortorice and seminarparticipants from
Brandeis University. The purpose to study the article is that the firms use the dividend omission
strategically to improve their financial flexibility, allowing them to pursue valuable investment
opportunities. The remaining firms continue to be financially constrained and under-perform
their peers after the omission. We adopt a comprehensive approach to studying dividend
omissions to better understand the motivation behind this important policy decision. We find that
poor operating performance, poor financial flexibility, high investment and increased risk are
factors that affect the likelihood of a dividend omission. In this article the research question is
made on dividend omission as the question is that “what firms do with the cash they save from
the dividend omission? & “whether a dividend cut or a dividend omission is the optimal policy

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response”? Important variables used in this article are “Dividend Omissions”, “Payout Policy”,
“Investment and Financial Flexibility”. In this article the data is in the words form so the data is
qualitative data and research paradigm is positivism is used because the writer verifying the
existing theory. In this paper, we find & take a closer look at dividend omissions to better
understand the motivations behind this important policy decision. We also find that poor
operating performance, poor financial flexibility, high investment and increased risk are factors
that affect the likelihood of a dividend omission. Our analysis suggests these dividend resumes
use the dividend omission strategically to improve their financial flexibility, allowing them to
pursue valuable investment opportunities. The remaining firms continue to be financially
constrained after the omission and under-perform their peers. Our findings suggest high quality
managers recognize the urgency of taking the bitter medicine, i.e. the dividend omission, in order
to heal their firm of its operating and financial malaise. Our findings also highlight the
importance of financial flexibility in firm policies. Recently, several studies have emphasized the
role of financial flexibility in being able to reconcile theory with evidence. There is no strength
of this article because the writer does not give the reference of latest articles & verify the existing
theories. There is a weakness in the articles because the writer verifies the existing theories & not
gives the reference of modern theories.

Hananeh Shahteimoori Ardestani, SitiZaleha Abdul Rasid, Rohaida Basiruddin Mohammad

ghorban Mehri, (2013), Dividend Payout Policy, Investment Opportunity Set and Corporate
Financing in the Industrial Products Sector of Malaysia, Journal of Applied Finance & Banking,
vol. 3. There are a few studies on dividend payout policy of Malaysian firms that almost none of
them have focused on specific sectors of the listed companies in the Kuala Lumpur stock
exchange. As long as firms in the emerging markets act differently in terms of setting dividend
payout policy, further research in this context could be useful. This study aims to fill this gap by
providing evidence from the emerging market of Malaysia to compare and prove the similarities
and differences between the available literature and findings of this research. The purpose of this
paper is to investigate the impact of investment opportunity set and corporate financing on
dividend payout policy of firms in the industrial products sector of Malaysia. H1: firms make
changes to the dividend payout policies rather cautiously since managers are reluctant to cut

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dividends when the corporate earnings decline. H2: There is negative relationship between
investment opportunity set and dividend payout policy. Important variables used in this article
are “Dividends”, “Investment opportunity set”, “Corporate finance”, “Emerging markets”. In this
article the data is in the numbers form so the data is quantitative data and research paradigm is
interpretivism is used because research questions ask for first time & not verify the existing
theory. The conclusion of the article is that it shows the importance of dividend payout policy in
the fast growing market of Malaysia. The sample covered 62 dividend paying companies in the
industrial products sector for the time period from 2006 to 2008. Investment opportunity set as
one of the major determinants of dividend payout has significantly positive relationship with
payout policy. Although all the companies had positive investment opportunities, they all opted
to payout dividends. The general perception is that as investment opportunities rise, the firms
usually cut off payouts in order to keep the financial resources available for reinvestment. The
result of this study implies that proper operations and good governance of these companies have
provided them with the possibility of investing in new projects while at the same time disbursing
the remaining free cash flows to the investors. There is strength in the article because the writer
gives the reference of different theories represented by different writers & also he gives the
reference of latest theories but not verifying the existing theories. There is no weakness in the
article because the writer doesn’t give the reference of existing theories but give the reference of
modern theories.

Hideaki Kiyoshi Kato, Uri Loewenstein, WenyuhTsay, (2002), Dividend policy, cash flow, and
investment in Japan, Graduate School of Business Sciences, University of Tsukuba, 3-29-1,
Otsuka, Bunkyo, Tokyo 112-0012, Japan. Announcements of dividend changes are usually
associated with significant excess returns consistent in various ways with these nonmutually
exclusive hypotheses. The purpose of this study is to test these hypotheses in Japan. Moreover,
this research also provides general evidence about the relation between firms’ cash flows and
dividend changes. That is, how dividends are financed and whether the careful management of
dividends is regarded as important by corporate Japan. Finally, it makes a contribution to the
investment literature by
Studying the general investment behavior of Japanese firms.H1: This is suggests that
management uses dividends to convey inside information about the firm’s cash flow not

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available to other market participants. H2: This implies that dividends are paid out to
stockholders in order to prevent managers from building unnecessary empires in their own
narrow interests. H3: It is consistent with positive stock price reaction to an announcement of a
dividend increase and a negative reaction to a dividend cut. Important variables used in this
article are “Dividend”, “Invesment decision” & “Free cash flow”. In this article the data is in the
number form so the data is quantitative data and research paradigm is interpretivism is used
because the researcher not verifies the existing theory. The findings of the article show that
dividend announcing firms and the general population of firms exhibit different patterns of
investment behavior. It seems that the investment activities of dividend announcing firms are in
line with the description of the pecking order theory. The findings of this study are generally
supportive of the cash flow information hypothesis. Although dividend announcements do not
appear to be associated with active signaling, the announcements of dividend changes do convey
information about the announcing firm’s cash flow from operations. Furthermore, dividend
changes are not only associated with earnings prospects in the near future but also reflect past
and current earnings performance. There is strength in the article because the writer gives the
reference of different theories represented by different writers & also he gives the reference of
latest theories but not verifying the existing theories. There is no weakness in the article because
the writer doesn’t give the reference of existing theories but give the reference of modern
theories.

Methodology:

Research Approach/ Paradigm:

In the Positivism assumes that true knowledge that is based on experience of senses and that can
be obtained by observation and experiment. There are two concepts are followed that are the
majority is always right and the other is they reduce the variables just focus on important
variables. Positivistic thinkers adopt scientific methods as a mean to generate knowledge.
Positivism is called “scientific Method” Empirical science post positivism and quantitative
research in positivism the research method is used which is known as deduction approach.
Deduction approach follow theory verification, experiment on the problem & observation.

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Interpretivism is also called Constructivism, Social Constructivism and Qualitative Research.

Assumption identifies in this paradigm that individuals seek to understand the world in which
they live and work. They develop subjective meanings of their experience These meanings are
varied and multiple, leading the researcher to look for to of researcher then is to rely as much as
possible on the participant’s view of the situation being studied. The questions become broad and
general so that the participants can construct the meaning of a situation, a meaning typically
forged in discussions or interaction with other people. The process of induction is to develop the
theory. Induction process follow data collection & develop theory.

The final paradigm is typically assonated with mixed method research. In this paradigm the
researcher is free to use quantitative and qualitative and there adopt both qualitative and
quantitative method and which they feel appropriate method that can be qualitative or
quantitative assumptions, methods, techniques and procedure of research to meet their basic
needs. In pragmatism, the researcher focused on the consequences of the research the primary
importance on the questions asked that rather than method and multiple methods of data
collection and inform the problem under study. They are problem centered& use both positivism
approach &interpretivism approach for the solution of problem.

I used quantitative research approach in which I made the close ended questions and fill the
questionnaire from the respondents and data will be in the form of numbers. Research paradigm
positivism will be used in our research. There are two concepts are follow that are the majority is
always right and the other is they reduce the variables just focus on important variables. Theory
verification in the positivism paradigm means just verify of existing theory not make of the new
theory.

Population & Sampling:

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My target populations from whom I collect the data are the managers of textile sector in
Pakistan. There is a huge population in Pakistan which is very difficult to target. There are some
problems to collect the data from all the managers which are privacy of the organizations, rules
& regulations in the company also no one give much time for our research because they also
have some responsibilities in the company. Due to these problems, I will conduct the data only
from Lahore city. There is also a huge population in Lahore city so I collect the data from the
managers only which is my sample of research. I choose 20 textile industries in Lahore city for
the purpose of data collection & I collect the data only from the managers of each textile
industry. I will collect the data by using Probability sampling Techniques in which I will use
Systematic sampling technique define the proper criteria that only textile managers will be my
respondents.

Sampling Techniques:

Probability sampling technique will be used in my research because I am doing quantitative

research. On the qualitative research only non-probability sampling technique is applicable. In
the quantitative research the probability sampling technique is applicable.

Systematic random sampling technique is used in the research for the collection of data. This
technique refers the procedure in which the initial sampling point is selected at random and then
the cases are selected at regular intervals. In this technique, we define proper criteria, must
follow those criteria & not move from those criteria for the collection of data. I define the criteria
that only managers of textile sector are our respondents. As we select the population of textile
industry managers so I must collect the data from them.

Data collection method:

An interview is a conversation between two or more people where questions are asked by the
interviewer to elicit facts or statements from the interviewee. Interviews are a standard part of

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journalism and media reporting, but are also employed in many other situations, including
qualitative research.

Advantages Disadvantages
Can be a new experience, a break in the daily Time and cost
routine.
Most people would rather talk than write. Confidentiality
Allows greater flexibility in wording, sequence Researcher may unintentionally influence
and direction. respondent answers
Easier to explore highly complex or abstract Researcher may consciously or unconsciously
topics. misinterpret or distort respondent responses.
Nature of the material may require a more
personal touch (e.g., terminating an employee)

A questionnaire is a research instrument consisting of a series of questions and other prompts

for the purpose of gathering information from respondents, although they are often designed
for statistical analysis of the responses. The questionnaire is most frequently a very concise,
preplanned set of questions designed to yield specific information to meet a particular need
for research information about a pertinent topic. The research information is attained from
respondents normally from a related interest area. A questionnaire is a written or printed
form used in gathering information on some subject or subjects consisting of a list of
questions to be submitted to one or more persons.

Advantages Disadvantages
Practical Is argued to be inadequate to understand
some forms of information - i.e. changes of
emotions, behavior, feelings etc.

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Large amounts of information can be Lacks validity

collected from a large number of people in a
short period of time and in a relatively cost
effective way

Can be analyzed more 'scientifically' and The respondent may be forgetful or not
objectively than other forms of research thinking within the full context of the
situation
When data has been quantified, it can be People may read differently into each
used to compare and contrast other research question and therefore reply based on their
and may be used to measure change own interpretation of the question - i.e. what
is 'good' to someone may be 'poor' to
someone else, therefore there is a level of
subjectivity that is not acknowledged.
Positivists believe that quantitative data can
be used to create new theories and / or test
existing hypotheses

I will collect the data through quantitative research strategy that involves the collection of data
from pre-determined sample. I will use the questionnaire for the collection of data which is filled
by the each manager of textile sector. Questions in the questionnaire contain very simple
wording which is understood by everyone & each respondent can fill the questionnaire easily.
The questionnaire start with a good introduction & the nature of the question will be define that
what kind of question will be asked. The wording is used in the questions & close ended
questions are asked. All the questions will be organized with the proper guidance. The
questionnaire will be ended with a courteous note.

Key variables are used in the research:

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Dividend imputation is a corporate tax system in which some or all of the tax paid by a company
may be attributed, or imputed, to the shareholders by way of a tax credit to reduce the income tax
payable on a distribution.

Tax reform act means many laws have passed through the United States Congress regarding the
taxation of American individuals and companies. Below is a list of tax reform bills by year.

Personal income tax is a government levy imposed on individuals or entities that varies with the
income or profits of the taxpayer. Details vary widely by jurisdiction. Many jurisdictions refer to
income tax on business entities as company’s tax or corporation tax.

Dividends is a sum of money paid regularly (typically annually) by a company to its

shareholders out of its profits.

Emerging market is a nation with social or business activity in the process of rapid growth and
industrialization. The economies of China and India are considered to be the largest. According
to The Economist many people find the term outdated, but no new term has yet to gain much
traction.

Validity & Reliability:

Validity is that are we measuring the right things. It means that a specific tool is necessary for
the accomplish of a task. It is checking that either we are using the right tool / instrument in our
research or not.

I will use predictive validity in my instrument. I will make the questions which have the ability
to predict the future & measure the future action. I will make the questions on the impact of
dividend on investment decision. Investment decision making has a great importance in all times
for a business. There is a positive impact of dividend in business as a business honor gives a
specific amount of money to its shareholders in his profit. I will make the questionnaire for
measuring that either dividend always plays a positive role in textile Industry or not.

Reliability is that checks the results of the instrument again & again in different time period and
if there is no big difference in the answers of the instrument then it is reliable.

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I will use test re-test reliability in my instrument which refers to the collection of data from the
respondent in different time periods. In this technique the respondent will be same; instrument
willbe same but time period is different. The benefit of this technique is that sometime the
respondent is not in a well mood & he doesn’t give a good response. Due to this a variation will
occur in the results. So, after sometime to check the reliability of results I will collect the data
again from the same respondent, use the same instrument. This is because after sometime a
change will occur in the human behavior and he may give a good response.

Data Analysis Techniques:

I will use SPSS software for the analysis of data in my research. I will enter all the data which I
collect from the respondent in the software & then run different tests on the data.

I will use Descriptive Statistics for data analysis. Descriptive statistics are used to describe the
single variable in the study. We enter only the single variable in this test and after that describe
that variable.

I will also use Inferential Statistics for the analysis of data in my research. This test is used to
find out the relationship between two or more than two variables. I will also use this test to find
out the relationship between the variables. In this test, first of all enter two or more than two
variables and apply the inferential statistics to find out the relationship between those variables.

Limitation and Delimitation:

This study will on the impact of dividend on investment decision in textile sector. This study is
conducted in foreign countries which are developing countries as compare to Pakistan. So that I
will do the research on my topic in Pakistan. Pakistan is a very big country. I can’t collect data

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from every person of the Pakistan, so I collect the data from only Lahore city. The data will be
conducted from the managers of textile industries in Pakistan. I choose 20 textile industries in
Lahore city & I collect of data from the manager of each industry. Limited time is required for
my research which is also the limitation of my study.

Ethical Considerations:

The participation in this study would be completely voluntary, which may end at any time within
the survey by the refusal of the participant.

 The purpose of data collection is clearly mentioned in the questionnaire.

 It is mentioned that the data is used only for the purpose of research.
 Information provided by the respondents is kept confidential.
 There is no miss use of data will be done in any case.
 It is helpful for other people.
 Data should be collected in an ethical manner.

Results And Analysis:

Pool Unit Root Test:

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Series Method Statistics Cross Section

Levin, Lin & Chu t* -0.165

DPR
3
3.787
ADF - Fisher Chi-
square

Levin, Lin & Chu t* -7.21

DCR
3
15.03
ADF – Fisher Chi-
square

Levin, Lin & Chu t* -1.61

DYR
3

ADF – Fisher Chi- 3.53

square

Levin, Lin & Chu t* -3.35

ROI
3
ADF – Fisher Chi-
8.90
square
Interpretation:

Levin, Lin & Chu test (LLC) and ADF – Fisher Chi-square has been applied to check the
hypothesis that whether data is stationary over the certain time period or not. LLC test is

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considered more complex as compare to other tests. Individual unit root test have partial powers.
The test has the power to reject the null hypothesis in unit root.

ADF – Fisher Chi-square starts with the same basic model. Certainly the basic motive of this test
to evaluate the stationarity of the given data in the form of unit root test.

Unit root test has been applied in this panel analysis to check the stationarity of the data. Unit
root test investigate, whether the time series are stationary or not over a certain time period.
Results of unit root tests are present in the above table. All unit root tests strongly reject the null
hypothesis of unit root for all the panels include in the study which indicate that all the time
series is stationary include in this study.

Descriptive Statistics:

Variables Mean Median Maximum Minimum Std. Observation Cross

Dev Section

DPR 2.58 3.70 26.18 -28.00 16.95 15 3

DCR 4.75 4.47 17.00 -23.00 10.13 15 3

DYR 4.37 4.70 8.55 -0.34 2.45 15 3

ROI 13.54 7.50 78.14 -5.52 21.23 15 3

Interpretation:

Descriptive statistics has been applied to check the values of mean, median and standard
deviation of the specific variables mention in the above table. The variables are DPR, DCR,
DYR and ROI. The mean value of DPR is 2.58%. Median value is 3.70%. Maximum value is

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26.18%. Minimum value is -28.00% and std. deviation value is 16.95%. This means that DPR
data is 16.95% deviate from actual data. The mean value of DCR is 4.75%, median value is
4.47%, maximum value is 17.00%, minimum value is -23.00% and std. deviation value is
10.13%. This means that DCR data is 10.13% deviate from actual data. The mean value of DYR
is 4.37%, median value is 4.70%, maximum value is 8.55%, minimum value is -0.34% and std.
deviation value is 2.45%. This means that DYR data is 2.45% deviate from actual data. The
mean value of ROI is 13.54%, median value is 7.50%, maximum value is 78.14%, minimum
value is -5.52% and std. deviation value is 21.23%. This means that ROI data is 21.23% deviate
from actual data.

Fixed Effect:

Dependent Variable = DPR

Variable Co-efficient T-Statistics Probability

Constant 6.03 1.12 0.28

ROI? -0.25 -1.09 0.29

R-square 0.22

Adjusted R-square 0.01

F-statistics 1.06

Random Effects:

Dependent Variable = DPR

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Variable Co-efficient T-Statistics Probability

Constant 6.92 1.32 0.20

ROI? -0.32 -1.51 0.15

R-square 0.16

Adjusted R-square 0.09

F-statistics 1.09

Fixed and Random effect:

Above table shows the fixed effect which shows the relationship between dependent variable and
independent variable. Fixed effect table shows the fix effect of ROI. ROI’s co-efficient value is -
0.25 which shows the negative relationship between dependent variable. However t-statistics
shows the individual significance. Sign of co-efficient shows the negative relationship between
dependent variable. Constants co-efficient value is 6.03. R-square’s co-efficient value is 0.22.
Adjusted R-square’s value is 0.01. F-statistics coefficient value is 1.06. Constant t-statistics value
is 1.12 and ROI’s t-statistics value is -1.09. Negative sign of co-efficient shows the negative
relationship between dependent variable.

Above table shows the random effect which shows the relationship between dependent variable
and independent variable. Random effect table shows the random effect or ROI. ROI’s co-
efficient value is -0.32 which shows the negative relationship between dependent variable. T-
statistics shows the individual significance. Constant’s co-efficient value is 6.92. R-square’s co-
efficient value is 0.16. Adjusted R-square’s co-efficient value is 0.09. F-statistics co-efficient
value is 1.09. constant t-statistics value is 1.32 and ROI’s t-statistics value is -1.51.

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Correlation Random Effects-Hausman Test:

Cross-section random effects test comparison:

Variable Fixed Random Var. Diff Probability

ROI -0.25 -0.32 0.0093 0.50

Cross-section random effects test equation:

Dependent variable = DPR

Variable Co-efficient T-Statistics Probability

Constant 6.03 1.12 0.28

ROI? -0.25 -1.09 0.29

R-square 0.22

Adjusted R-square 0.01

F-statistics 1.06

Interpretation:

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It is difficult to find the accurate and authentic results after applying fixed and random effects.
Housman test is the best way to find out the accurate results of fixed and random effect.
Whenever the researchers need to find the accurate results then they select Housman test to find
out results. Housman test is used to find random effect modeling assumptions that the
explanatory variables are orthogonal with the unit effects. Constant co-efficient value is 6.03.
ROI’s co-efficient value is -0.25. R-square’s co-efficient value is 0.22. Adjusted R-square’s co-
efficient value is 0.01. F-statistics co-efficient value is 1.06. Constant t-statistics value is 1.12
and ROI’s t-statistics value is -1.09.

Discussion And Conclusion:

The primary purpose of the present study is to investigating the impact of dividend on
investment decision in textile sector of Pakistan. Based on the preceding discussion of the
dividend payments relative to investments and the importance of dividends like dividend
represents the return to shareholders who put his money at risk in the corporation. Perhaps
corporation pay dividends to reward existing shareholders. Further the aim of paying the
dividends was the attraction of new shareholders to encourage others to buy new issues at higher
price. Investor pays attention towards the dividend because it is the only return against his
investment. Corporations pay dividends to show the confidence that it has investment
opportunities. That’s why we conduct this study and For this purpose data is collected from the
annual reports of three textile companies which are currently operating in Pakistan. I used two
variables in my research in which one is dependent variable (dividend) and second is
independent variable (investment). I used E-Views software for applying different test to see that
either two variables have significance relationship between each other or not. The results show
that both the variables have significance relationship. I apply pool unit root test in E-View
software for check the stationarity of data. The results show that data is stationary. I apply
descriptive statistics test to show the descriptive summary of the variables and the values of
mean, median, maximum, minimum and std. deviation etc. after that I apply estimate test to
show the fix and random effect between variables. The value of R-square shows that dividend
have 22% impact on investment decision. At the last I apply Housman test to check the
significance relationship between the variables. The result shows that there is a significance
relationship exists between dependent and independent variables.

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Recommendation:

Further research of the field may be conducted with respect to changing business environment.
Altering taxation schemes will immediately causes some changes in the behavior of
management, which in its turn directly affects the firm value. We may bind political, fiscal and
legislative changes to the performance of the company. This way will better understand the
insight of this connection. Including wider range of variables (return on equity, return on capital,
return on assets) lessened the possibility of omitted variables problem. Unfortunately, we have
had no such data at our disposal at the time of research.

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