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Jensen (1986) explained debt benefits that reduce agency costs and how the programs of diversification generate losses from the agency costs theory perspective. Also, Jensen (1986) concerned about the issue of substituting dividends by debt and similarities between certain industries that are revealed when generating takeovers. Also, Jensen (1986) considered why bidders tend to perform abnormally before takeover.  Grigore and Ştefan-Duicu (2010) stated that agency theory aims to explain agents’ behaviors that are interacting with the companies. Grigore and Ştefan-Duicu (2010) explained the optimal capital structure from the perspective of agency theory and explained emerging of possible conflicts between capital suppliers and managers (Grigore, Stefan, 2010).

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Caelers (2010) also stated that dividend policies of the firms are an ambiguous problem. The issue of forming dividend policies is tightly connected with agency conflicts. The model used by Caelers (2010) is based on the costs minimization. Caelers (2010) revealed the connections between dividend announcements and dividend policies (Caelers, 2010).  Michaely (2006) compared the dividend policies or private and public companies using the dividend model based on agency costs theory. Michaely (2006) found that public firms tend to smooth dividends using a policy of a gradual increase while private firms follow an erratic pattern of distribution of dividends. Michaely (2006) stated that a distribution of dividends influences the amounts of investments. Also, Michaely (2006) emphasized on the differences between public and private firms in the methods of paying off dividends conditioned by the availability of government protection for public companies (Michaely, 2006).

In the course of the research conducted by Singhania (2006) the following findings were revealed: tax preference theory appeared to work in the context of several companies examined. Singhania (2006) revealed that the difference between tax regimes is significant. Also, empirical findings showed the differences in dividend payout tax regimes connected with industry and size of the companies.


The paper of Iqbal (2008) focuses on post-liberalization capital market in Pakistan. The following aspects of the stock market in Pakistan were examined: market liberalization, integration to the global market, the mechanism of trading and settlement, and the issues of corporate governance. Iqbal (2008) concerned the phenomena of Pakistani stock market being declared as the best performing capital market globally. Interestingly, the stock market in Pakistan is more effective than many other stock markets of the same size providing significant returns to the investors.

Tahir, Sabir, Alam and Ismail (2013) conducted a research of Pakistani firms with respect to the returns they provide. The data related 307 firms listed on Karachi Stock Exchange were analyzed for the period of 12 years (2000-2012). The study revealed strong connection between market capitalization, earning per share, sales growth, and book to market value.

Salman (2005) considered particular features of Islamic capital market stating that Islamic capital relies on asset-based and equity financing. Also, Salman (2005) paid attention to the development of the stock market products in Pakistan. Salman (2005) emphasized on the proportion of Shari’ah stocks in the market capitalization. Salman (2005) offered some insights on the product development in the Pakistani context stating that these products should be tax neutral and match economic and financial conditions thus giving insights on the Pakistani stock market. On the contrary to Iqbal (2008), Tahir (2011) provided evidence of weak efficiency of Pakistani stock market. The evidence presented by Tahir (2011) is based on the survey of 20 companies listed in Karachi Stock Exchange. The main conclusion of Tahir (2011) based on research data was that the stock market in Pakistan is inefficient.

Zameer, Rasool, Iqbal and Arshad (2013) examined the effects of dividend policies on dividend policy of the banking sector in Pakistan. Zameer, Rasool, Iqbal and Arshad (2013) showed the impact of dividend payout on the performance and share prices based on the theories of tax preferences and agency costs. Zameer, Rasool, Iqbal and Arshad (2013) came to the conclusion that last year dividends and the structure of ownership make a positive impact on dividend payout and willingness to invest.  As well as Zameer, Rasool, Iqbal and Arshad (2013), Hamid, Hanif, Saif-Ul-Malook and Wasimullah (2012) investigated dividend policies in the banking sector in Pakistan based on the theory of tax preferences. Hamid, Hanif, Saif-Ul-Malook and Wasimullah (2012) stated that taxes make an impact on investors and taxes make an impact on a distribution of profits in the companies. Also, the authors came to the conclusion that taxes influence dividend policy. Thus, the changes in payout of dividends are anticipated when the government changes income tax policy (Zameer, Rasool, Iqbal, 2013).

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Nishat and Irfan attempted to determine the impact of dividend policies on risk related stock price fluctuation in Pakistan. The analysis of Nishat and Irfan (2011) is based on 160 companies listed in Karachi Stock Exchange for the period 1981-2000. Nishat and Irfan (2011) found out that such dividend policy measures as dividend yield and payout ratio make an impact on volatility of share prices. Nishat and Irfan (2011) suggested that dividend policy makes an impact on price volatility thus providing information effect in Pakistan. Also, dividend policy supports realization and duration effects. In addition, the dividend yield responded to stock price volatility in greater extent during the period from 1991 to 2000.

Khan, Burton and Power (2011), offered an insight on dividend decisions in Pakistan. Khan, Burton and Power (2011), emphasized the impact of non-standard tax system in the country and practical implementation of dividend policies. The study is based on the survey of officials working for 23 Pakistani companies related the influence on the dividend policies. Pakistani companies’ dividend policies were compared to the dividend policies implemented by the developed countries of the world including USA. Burton and Power (2011) stated that the respondents did not refuse to announce a reduction in dividends (Khan, Burton, Power, 2011).

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