MODERATING EFFECT OF CORPORATE GOVERNANCE INDEX BETWEEN DIVIDEND POLICY AND FIRM PREPERFORMANCE: A CASE STUDY ON PAKISTAN CEMENT SECTOR

Abstract

In this study, how the Corporate Governance Index (CGI) moderated the relationship between dividend policy and firm performance of listed cement companies in Pakistan has been investigated. Both quantitative research design and longitudinal research design have been employed in the study while the panel data is taken from the annual reports of the cement companies listed on the Pakistan stock exchange (PSX) from 2018 to 2022. The above two indexes, Return on Assets (ROA) and Return on Equity (ROE) are used to evaluate the performance of the firms, while the dividend policy is evaluated by means of dividend capacity and dividend payout ratio. The Corporate Governance Index (CGI) is used to moderate the above two indexes. Proposed relationships are tested with the application of panel data regression techniques like the fixed effects and random effects models. The hypotheses of the study are tested with descriptive statistics and regression analysis. The findings revealed that dividend policy (Dividend capacity and Dividend payout ratio) positively affected the performance of cement listed companies in Pakistan as reflected in ROA and ROE. The results also show that the Corporate Governance Index has a significant positive moderating effect on the link between dividend policy and firm performance, thus indicating that a stronger corporate governance mechanism would strengthen the positive impact of dividend policy on firm performance. The study has been limited to listed Cement Industry of Pakistan and the time frame of the study period is from 2018-2022. The findings of the study could be furthered by including the variables of developed and developing economies, the mediating variables of other corporations and financial variables, and by using mixed methods approaches, which would integrate the quantitative findings with qualitative findings.