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Product market competition is believed to have a strong influence on achieving
production efficiency. In this context, this study tests the effects of product
market competition on payouts of Pakistani firms. The paper relies on a panel
dataset of nineteen listed manufacturing industries over a period of fifteen years
i.e. from 2001 to 2015. The study uses inverse of Herfindahl-Hirschman Index as
proxy for measuring the intensity of product market competition in different
industries. Four different approaches are used to measure dividend payouts
along with several other independent and control variables. From our analysis, it
seems that firms that have achieved better controls on production costs are
paying more dividends. Firms found low on product market competition are
found to have lower payouts. Product market competition is evidenced as having
a negative relationship with firm payouts. Corporate managers make dividend
payments not only to establish good reputation but also to mitigate the agency
costs that can help the firms to minimize the cost of raising new finances. Family
ownership in view of product market competition is also evidenced as negatively
related to payouts. In our country, firms with family ownerships avoid paying
dividends. Family owned firms are found to have large amount of expenses as the
managers who are also owners are compensated with high salaries. This seems to
result in either very low or negative income to payout any dividends
Shahid Ali, Maryam Jabeen , Zia Obaid, Saima Zaib. (2020) Relationship between Product Market Competition and Payout Policy of Pakistani Firms, , Volume-14, Issue-2.
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