World Applied Sciences Journal 19 (5): 659-665, 2012 ISSN 1818-4952; © IDOSI Publications, 2012 DOI: 10.5829/idosi.wasj.2012.19.05.1948 Corresponding Author: Muhammad Jamil Anjum, Faculty of Management & HRD (FPPSM), 81310 UTM Skudai, Johor, Malaysia. 659 Dividend Preferences: Evidence from Panel Data Muhammad Jamil Anjum, Misbah Sadiq, 1 1 Meisam Karami, Saif-Ur-Rehman Khan and Amran Rasli 1 1 2 Faculty of Management and HRD (FPPSM), 81310 UTM Skudai, Johor, Malaysia 1 Dean of the Faculty of Management and HRD, Universiti Teknologi Malaysia 2 Abstract: The study aims to investigate the dividend preferences in Pakistani capital market and further deals with the investigation of cash dividend preference of poorly performing firms list on Karachi Stock exchange. The study utilized the financial data for 2001-2011 of listed Pakistani firms to examine the behavior of distribution of cash dividends. Panel regression statistical technique was used. From the analysis, it is originated that poorly performing firms having lesser portion of tradable shares pay dividends in cash. The study finds that the cash dividend distribution behavior of poorly performing firms and describes the preference of directors. Further, low performing firms prefer cash dividends as compared to stock dividends as long as they have large percentage of directors or financial institutions or block-holders’ ownership of nontransferable shares. Furthermore, if a firm has mix of directors, financial institutions and block-holders’ ownership of nontransferable shares then the firm also prefer cash dividends. Key words: Non-tradable shares Cash dividends Cash channeling hypothesis Panel Regression INTRODUCTION necessary. Whenever the earnings of a firm fall down, the Dividend policy for a firm means whether to pay or term growth in the bottom line. not pay the dividend: whether to pay in cash, in stocks or Why do firms listed on Karachi Stock Market pay both in cash and stocks and how frequently to pay. dividends in cash with declining earnings? In this study, Debate among empirical conversations related to cash the firms involve heaving two kinds of shares tradable dividend exists. Even though the cash dividends decision and non-tradable. Tradable shares, that constitute influence the formation of capital [1]. The association majority of the shares of a company. The directors, their between cash dividend announcements and share prices spouses, financial institutions and government etc.etc is not apparent [2-7]. Principal-agent relationship cost usually hold the other one. However, in some cases does matter in the cash dividend policy, however, through directors hold majority of the total shares and are the cash dividend policy managers attempt to reduce the controlling stockholders [12] described second type of Principal-agent relationship cost [8-11]. shares, which are not listed on stock markets. Although Karachi Stock Exchange is a developing market of the the non-tradable shares occupied by organizations can be region with not a sound regulatory framework. Therefore, sold with, the consent of government, but such it is reasonable to say that as compare to firms listed on permissions are frequently based on political the developed markets of United States and Europe; the government’s policies and such permission is rarely firms listed on KSE do not observe good corporate granted. governance practices generally. Moreover, to protect This area of study almost unexplored for emerging shareholders from bad effect non-tradable shares held by economy where investors are poorly protected, the rate of directors and their spouses, financial institutions and cash in firms is minor for marginal holders. The main external block-holders, good corporate governance is reason of research is to know about crash of non-tradable distribution of cash dividend does not serve to be long-