Purpose: The main purpose of this study is to examine dividend theories and factorsfollowed by banks in Pakistan for setting dividend policy from 2005 to 2015.Methodology/Design: Panel regression is used on annual data to check the impact ofdifferent factors on dividend policy of 24 Pakistani banks.Findings: The results of study reveal that banks in Pakistan follow the dividendsmoothing hypothesis, life cycle theory, signaling theory and pecking order theorywhile setting dividend policies. The results also highlight that profitability; investmentopportunities, last year dividend, growth and loan deposit ratio have significantinfluence on dividend policy of Pakistani banks.Implications: In the light of these results, it is recommended that management ofbanks needs to look into these factors while formulating dividend policy of theirrespective banks. By catering these factors they are in a position to set optimaldividend policy which not only fulfills banks’ growth and investment needs, but alsosatisfy investors’ need of return.Limitations: This study uses only listed commercial banks of Pakistan. All other i.e.specialized banks are excluded in this study.
Nadeem et al. (Tue,) studied this question.