Impact of Firm-Bank Relationship on Dividend Policy of the Client Firm: A Study from Pakistan

Firms are always very curious about their dividend policy as it shows the strength of the firm's financial health and attracts or distract the investors. Many determinants in this regards are studied in the past. This research is aimed to find the link between the firm dividend policy and its banking relationships which is quite significant as this is a less addressed issue in these terms. This paper attempts to explain the firm-bank relationship and its impact on the dividend payout of the client firm. For the said cause the data of listed companies in Karachi Stock Exchange were collected from 2008 to 2013. For the bank-firm relationships, two proxies were used. A dummy variable was used for bank relations (1 if number of bank relations is more than 5 otherwise 0) and the second variable is actual number of relations a firm is maintaining with banks. We have regressed these variables among some of largely used determinants of dividend payout as control variables and found that, though the coefficients are low but both proxies taken for bank-firm relationship are significant at 5%. It concludes that the policy makers and investors may also consider this relationship for their decision making as a significant factor and also draw attention for future researches in this horizon.