Managing Earnings V/S Strategizing Dividends: Sectoral Evidence from Pakistan Stock Exchange

Farhan Ahmed, Javed Ahmed


This paper means to inspect the regression between the Price to Book ratio as a proxy for earning management and payout proportion as a proxy to dividend policy. This paper utilizes multivariate analysis to examine the relationship between the price to book ratio and dividend policy. Using 11 years’ annual data from 2006-2016, this paper delivers new confirmation demonstrating that timely payment of dividend has a positive impact on the reputation of the company in the market. Dividend payment boosts up investors’ confidence to invest in the company. This study helps the corporate superintendents and stock financial experts to focus on the relationship of the dividend. No past review has handled the issue of the contingent relationship between the price to book ratio and payout proportion in Pakistani Industry and specifically on cement, food and oil and gas sectors.

Abstrak dalam Bahasa Indonesia : Tulisan ini bermaksud untuk meneliti regresi antara Price to Book Ratio sebagai proksi untuk manajemen penghasilan dan proporsi pembayaran sebagai proksi untuk kebijakan dividen.Penelitian ini menggunakan analisis multivariat untuk menguji hubungan antara Price to Book Ratio dan kebijakan dividen. Dengan menggunakan data tahunan selama 11 tahun dari 2006-2016, artikel ini memunculkan suatu konfirmasi yang menunjukkan bahwa pembayaran dividen tepat waktu memiliki dampak positif pada reputasi perusahaan di pasar. Pembayaran dividen meningkatkan kepercayaan investor untuk berinvestasi di perusahaan. Studi ini membantu pengawas perusahaan dan ahli keuangan saham untuk fokus pada hubungan dividen. Belum ada penelitian sebelumnya yang menangani masalah hubungan kontingen antara Price to Book Ratio dan proporsi pembayaran dalam Industri di Pakistan dan khususnya pada sektor semen, pangan dan minyak dan gas.


price to book; debt to equity; earning per share


Full Text



Adelegan, O. J. (2003). An empirical analysis of the relationship between cash flow and dividend changes in Nigeria. African Development Review, 15(1), 35-49.

Afzal, T., & Mirza, H. H. (2010). Ownership structure and cash flow as determinants of corporate dividend policy in Pakistan. International Business Research, 3(3), 210–221.

Aharony, J., Lin, C., & Loeb, M. (1993). Initial public offerings, accounting choices, and earnings management. Contemporary Accounting Research, 10(1), 61-81.

Ahmed, F., Advani, N., & Kanwal, S. (2018). Earnings management and dividend policy: Empirical evidence from major sectors of Pakistan. International Journal of Economics and Financial Issues, 8(3), 182-190.

Ahmed, H., & Javid, A. Y. (2008). Dynamics and determinants of dividend policy in Pakistan (evidence from Karachi stock exchange non-financial listed firms). Retrieved from

Ali, U., Noor, M. A., Khurshid, M. K., & Mahmood, A. (2015). Impact of firm size on earnings management: A study of textile sector of Pakistan. European Journal of Business and Management, 7(28), 47-56.

Aurangzeb, D., & Dilawer, T. (2012). Earnings management and dividend policy: evidence from Pakistani textile industry. International Journal of Academic Research in Business and Social Sciences, 2(10), 362–372.

Ayub, M. (2005). Corporate governance and dividend policy. Pakistan Economic and Social Review, 43(1), 115-128.

Bhattacharya, S. (1979). An exploration of nondissipative dividend-signaling structures. Journal of Financial and Quantitative Analysis, 14(4), 667-668.

Bushman, R., Dutta, S., Hughes, J., & Indejejikian, R. (1993). Strategic behavior of differentially informed traders around public announcements. Unpublished working paper, University of Minnesota.

Charitou, A., & Vafeas, N. (1998). The association between operating cash flows and dividend changes: an empirical investigation. Journal of Business Finance & Accounting, 25(1‐2), 225-249.

Farinha, J., & Moreira, J. A. (2007). Dividend and earnings quality: The missing link? Retrieved from

Gorganlidavaji, J., & Vakilifard, H. (2014). The effect of firm size and growth opportunity on accounting discretion and its relationship with future stock return (management opportunism test). European Online Journal of Natural and Social Sciences, 3(3), 511-521. Retrieved from

Goshen, Z. (1995). Shareholder dividend options. The Yale Law Journal, 104(4), 881-932.

Hosseinian, M., & Ramzani, J. (2016). Investigate the relationship between earnings management and profitability the firms Listed in the Tehran Stock Exchange. Journal of Productivity and Development, 2(4), 86-95.

Imran, K. (2011). Determinants of dividend policy: A case of Pakistan engineering sector. Romanian Economic Journal, 14(41), 47-60. Retrieved from

Jones, J. J. (1991). Earnings management during import relief investigations. Journal of Accounting Research, 29(2), 193-228.

Jensen C. M. (1986). Agency costs of free cash flow, corporate finance, and takeovers, The American Economic Review, 76, 323-329.

Jensen, M., & Mackling, W. H. (1976). Theory of the firm: Managerial behavior, agency cost and ownership structure. Journal of Financial Economics (JFE), 3(4).

Jensen, M. C., & Murphy, K. J. (1990). Performance pay and top-management incentives. Journal of Political Economy, 98(2), 225-264.

Kazemi, H., Rostami, V., & Ghorbani, B. (2014). Earnings management and dividend policy among listed companies in Tehran Stock Exchange. Asian Research Journal of Banking and Finance, 4(4), 206–219.

Khurana, I. K., Martin, X., & Pereira, R. (2006). Financial development and the cash flow sensitivity of cash. Journal of Financial and Quantitative Analysis, 41(4), 787-808.

La Porta, R., Lopez‐de‐Silanes, F., Shleifer, A., & Vishny, R. W. (2000). Agency problems and dividend policies around the world. The Journal of Finance, 55(1), 1-33.

Lev, B. (1989). On the usefulness of earnings and earnings research: Lessons and directions from two decades of empirical research. Journal of Accounting Research, 27, 153-192.

M’rabet R., & W. Boujjat. (2016). The relationship between dividend payments and firm performance: A study of listed companies in Morocco. European Scientific Journal, ESJ, 12(4).

McKee, T. E. (2005). Earnings management: an executive perspective. Australia: South-Western Pub.

Miller, M. & Kevin (1985). Dividend policy under asymmetric information. Journal of Finance, 40(4), 1031-1051.

Miller, M., & Modigliani (1961). Dividend policy, growth and the valuation of shares. Journal of Business, 34(4), 411-433.

Moghri, A. E., & Galogah, S. S. (2013). Effect of earnings management on dividend policy: evidence from Tehran Stock Exchange. World of Sciences Journal, 1(14), 58-65.

Osamwonyi, I. O., & Lola-Ebueku, I. (2016). Does dividend policy affect firm earnings? Empirical evidence from Nigeria. International Journal of Financial Research, 7(5), 77.

Savov, S. (2006). Earnings management investment, and dividend payments. Working paper University of Mannheim, Germany.

Shah, S. Z. A., Yuan, H., & Zafar, N. (2010). Earnings management and dividend policy: An empirical comparison between Pakistani listed companies and Chinese listed companies. International Research Journal of Finance and Economics, 35(1), 51-60.

Sloan, R. G. (1993). Accounting earnings and top executive compensation. Journal of accounting and Economics, 16(1-3), 55-100.

Sloan, R. G. (2001). Financial accounting and corporate governance: A discussion. Journal of accounting and economics, 32(1-3), 335-347.

Cited by

  • There are currently no citations to this article.

Copyright (c) 2018 Farhan Ahmed, Javed Ahmed

Creative Commons License
This work is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

favicon Department of Management | Business School | Universitas Pelita Harapan | Indonesia | +62 21 546 0901 |