A IMPACT OF MANAGERIAL ENTRENCHMENT AND GROUP AFFILIATION ON DIVIDEND POLICY IN EMERGING ECONOMY OF PAKISTAN EMPIRICAL EVIDENCE FROM KSE LISTED NON-FINANCIAL FIRMS

Abstract

For analysis of managerial entrenchment hypothesis, insider’s ownership (MSO)
is divided into three parts, i.e., MSO less than 25%, between 25% and 50% and
above 50%. For data analysis Random effect model and Tobit model are used. Many
studies have shown the linear relationship among managerial ownership and firm’s
performance but a very few studies documented a non linear relationship in literature
(Farinha, 2002; Chen et al., 2005). The study presented a non linear relationship
between insiders’ ownership and dividend policy, i.e. at low level (MSO< 25%)
a negative relationship exists which proves the agency theory hypothesis, whereas
above this level (MSO>25%) a significant positive relationship is documented which
is backed by the managerial entrenchment hypothesis, as at high level of MSO
“resource extraction” and above 50% level “expropriation of minority rights” exist.
Group affiliation (ASSO) is also included to see the impact on dividend policy and
results reveal a significant negative relation between group affiliation and dividend
policy