Examining The Relationship between Firm Age, Financial Leverage and Dividend Policy in Pakistan’s Banking Sector

Abstract

This study examines the effect of firm age, financial leverage, and earnings per share on dividend policy in Pakistan’s banking sector. Dividend policy is a critical financial decision for commercial banks because they must balance dividend distribution with retained earnings, liquidity, capital adequacy, regulatory obligations, and future growth requirements. The study employs a quantitative, explanatory research design and uses secondary data obtained from audited annual reports and financial statements of selected listed commercial banks in Pakistan. The sample consists of 50 bank-year observations covering five banks over the period 2015–2024. Dividend policy is measured through the dividend payout ratio, while firm age is measured in years since establishment. Financial leverage is measured as total liabilities divided by total assets, and earnings per share is included as an additional explanatory variable. The data are analysed using descriptive statistics and fixed-effects panel regression in EViews. The results show that the overall fixed-effects regression model is statistically significant (F = 12.512, p < .001), with an adjusted R-squared value of 0.310. This indicates that the study variables explain approximately 31.0% of the variation in dividend policy. Firm age has a significant positive effect on dividend policy (β = 0.0521, p < .001), indicating that more mature banks tend to distribute higher dividends. The quadratic age term has a significant negative effect (β = −0.0114, p < .001), while the cubic term is positive and significant (β = 0.0029, p < .001), demonstrating a nonlinear relationship between age and dividend payout. Financial leverage has a significant negative effect on dividend policy (β = −0.0284, p < .001), whereas earnings per share has a significant positive effect (β = 0.0386, p < .001). The study concludes that bank maturity, leverage, and profitability significantly shape dividend decisions in Pakistan’s banking sector.