Five Factor Model Personality Inventory

1. Use the Five Factor Model Personality Inventory to rate yourself on the Big Five personality dimensions. Describe each factor of your Big Five Personality Inventory. Which factor shows the greatest value in predicting your behavior? Why does it? Select one of your friends. Identify the qualities that make that person substantially different from you. In what ways are you basically similar? Which dominates, the differences or similarities? You must attach the Five Factor Model Personality Inventory together with your answers. Answer: The Big Five Personality is broad categories of personality traits.While there is a significant body of literature supporting this five-factor model of personality, researchers don't always agree on the exact labels for each dimension. The Big Five Personality Inventory includes agreeableness, Extraversion, Conscientiousness, Emotion stability and Openness to experience. Agreeableness means that the person is a good natured, co-operative, softhearted a nd trusting. Agreeableness also has an interpersonal component. Agreeable individuals tend toward conformity in groups, toward modesty, toward not being demanding, and toward being sympathetic.These individuals might be motivated toward helping others and toward prosocial behaviour in general. There may be a link between the motivational processes operating within individuals in regards to this trait, such that agreeable individuals strive for intiacy and solidarity in groups they belong to, which provides emotional rewards. People scoring low on agreeableness place self-interest above getting along with others. They are usually more cautious about other's agendas; they may feel that others are out to better their own self-interest.Extraversion is â€Å"the act, state, or habit of being predominantly concerned with and obtaining gratification from what is outside the self†. Extraverts tend to enjoy human interactions and to be enthusiastic, talkative, assertive, and gregariou s. They take pleasure in activities that involve large social gatherings, such as parties, community activities, public demonstrations, and business or political groups. Politics, teaching, sales, managing, brokering, and acting are fields that favor extraversion.An extraverted person is likely to enjoy time spent with people and find less reward in time spent alone. They tend to be energized when around other people, and they are more prone to boredom when they are by themselves. Conscientiousness means that someone who are dependable, responsible, achievement oriented and persistent. Conscientiousness is related to impulse control, but it should not be confused with the problems of impulse control found in neuroticism. People high on neurotic impulsiveness find it difficult to resist temptation or delay gratification.Individuals who are low on conscientious self-discipline are unable to motivate themselves to perform a task that they would like to accomplish. These are conceptuall y similar but empirically distinct. People who score high on the trait of conscientiousness tend to be more organized and less cluttered in their homes and offices. For example, their books tend to be neatly shelved in alphabetical order, or categorized by topic, rather than scattered around the room. A considerable amount of research indicates that conscientiousness is one of the best predictors of performance in the workplace.Emotion stability is a state of an individual that enables him or her to have appropriate feelings about common experiences and act in a rational manner. The characteristics of a person with emotional stability include relaxed, secure, unworried, confident, easy going and steady. People with this personality will not easily get disturbed , will not get stressed out easily whenever he/she are facing problem and would not worry about things. He/she will have a positive thinking and try to solve the problem with the easy way.On the other hand, those who score lo w in emotional stability means that he/she is emotional instability or sometimes call neuroticism. They are more likely to interpret ordinary situations as threatening, and minor frustrations as hopelessly difficult. Their negative emotional reactions tend to persist for unusually long periods of time, which means they are often in a bad mood. These problems in emotional regulation can diminish the ability of a person scoring high on neuroticism to think clearly, make decisions, and cope effectively with stress. Openness to experience is used to describe human personality.Openness involves active imagination, aesthetic sensitivity, attentiveness to inner feelings, preference for variety, and intellectual curiosity. A great deal of psychometric research has demonstrated that these qualities are statistically correlated. Thus, openness can be viewed as a global personality trait consisting of a set of specific traits, habits, and tendencies that cluster together. Openness is associate d with tolerance of ambiguity (which means when something is not clear), a capacity to absorb information, being very focused and the ability to be aware of more feelings, thoughts and impulses simultaneously.The result is deeper more intense experiences. Open individuals are motivated to seek out the unfamiliar and to look for complexity. After rating myself by using the Five Factor Model Personality Inventory, the score that I get from all the five factor are extraversion=28, agreeableness=33, conscientiousness=26, emotional stability=27 and openness to experience=30. From the score that I get, agreeableness is the best factor to predict my behavior. Agreeableness, like what I mention above, is a tendency to be compassionate and cooperative rather than suspicious and antagonistic toward others.Yes, I am not deny that I am a person like that. I am a compassionate person. I am cooperative rather than suspicious and antagonistic toward others. I choose to believe what my friend told me. I will never suspect about them. I also choose to be kind to my friend. I will try my best to help them as I can whenever they need me. I am also a softhearted person. Usually, I will forgive those who hurt me after they said sorry to me or maybe they not, but, I will also forgive them after sometime just like nothing happen before. Yet, I am also a person who conformity in group and toward modesty.No wonder what activity I joined, I am just the follower but not the incharge person. My friend, Lau Chen Ee also get his highest score in the agreeableness factor and lowest score in openness to experience factor. We know each other since Form 6, that mean we already be friend for about 4 years. In this 4 years time, I get to know him well. He is a friendly person. He is good to all his friend very well. He not the person that who have a finger in every pie. But, he will show his concern to you when he notice that you are having some problem.Besides that, he is also an optimistic per son. I still can remember that, I can always hear his laughing voice all around the school. He seem like does not have anything to fuss over. Exam problem- no, homework problem-no, relationship problem-no! All the qualities that I mention above about him are the quality that I am lack of. I am a person who like to have finger in every pie. I am not an attentive person. I am always think negatively and worried about this worried about that. That is what he are substantially different from me.But, we still have similarity. I will show concern to my friend when they are facing some problem like he does. I am friendly to all my friend like he does. I will take time out to others like he does. I am sympathize to others like he does. Moreover, I like to sing like he does. After doing this Five Factor Model Personality Inventory rating, I get to know all the five personality well and this will help me a lot in how to communicate and to get along with others. This inventory also let me to k now myself more deeply and so my friend.

Ethical Dilemmas – Abortion

In our society, there are many ethical dilemmas that we are faced with that are virtually impossible to solve. One of the most difficult and controversial issues that we are faced with is abortion. There are many strong arguments both for and against the right to have an abortion which are so complicated that it becomes impossible to resolve. The complexity of this issue lies in the different aspects of the argument. The essence of a person, rights, and who is entitled to these rights, are a few of the many aspects which are very difficult to define. There are also issues of what circumstances would justify abortion. Because the issue of abortion is virtually impossible to solve, all one can hope to do is understand the different aspects of the argument so that if he or she is faced with that issue in their own lives, they would be able to make educated and thoughtful decisions in dealing with it. The definition of a person is an aspect of the abortion issue which raises some very difficult questions. Is an unborn baby a person When does the unborn baby become a person This is a difficult question because in order for one to answer it, he must define the essence of a person. When describing the essence of something, one needs to escribe the necessary and sufficient conditions of that thing. So how does one define the essence of a person Kant describes a person as a rational being. Some people define the essence of a person from more of a biological standpoint. Nevertheless, defining the essence of a person is a very difficult thing for a group of people to agree on. One own definition of a person would most likely greatly impact his opinion on whether abortion is morally justified or not. This becomes even more complicated when one takes into account potentiality. This raises the question of whether the fetus is an actual person r a potential person. Many would argue that a fetus is a potential person because it is has the potential to become what it is not yet. However, does a potential person have potential rights An example was used: does a potential doctor have the rights of a licensed doctor When one is describing potentiality, All he is really describing is what that thing is not. By declaring that a fetus is a potential person, one is also stating that a fetus is not a person. As one can see, this issue of the essence of a person and whether a fetus is a person is a very complicated one. This becomes seven more omplicated if one takes into account the issue of rights. Now, the concept of human rights, that is to say, what American society dictates as human rights, conflicts heavily with itself. On one hand, we form a deep and heavy opinion on one s right to life. On the other, we hold an equally strong opinion on one s freedom to live that life as they please. American society by and large has a firm belief in an individuals right to live. Therefore, if one comes to the conclusion that a fetus actually is a person, then that fetus should receive the protection to it s right to live, as much as you or I. This society also olds the firm belief in one s right to the sovereignty of his or her own body, equal to that of one s right to live. In this case, it is imperative that we understand what liberties we can and cannot take upon ourselves concerning our lives. Case in point, suicide. Society dictates what we are allowed to do, and how we are allowed to live, by law. Most of American laws are written to preserve one s rights to individuality, and one s right to take the liberty to live their lives as they see fit. However, laws are also written to undermine those who s actions compromise the liberties and freedoms of ther individuals, thus protecting the concepts and ideals of agency and liberty. Based on our society s laws, essentially, we believe that what you do to yourself is your choice, and is accepted by law, so long as it doesn stop or impede the lives and freedoms of others. The difficulty in this dilemma lies within the question of whether an abortion falls into a category of protection of a woman s right s over the sovereignty of her own body, or whether it falls into a different category of an action which is not permissible because, according to some people, the fetus is a person whose life and freedom is being ompromised. The question of rights is further complicated by the different circumstances where the abortion issue could be raised. Many people would argue that abortion should not be used as birth control or as a means to deal with the consequences of promiscuous sex. However, how does one address the abortion issue in the circumstance of rape or incest Many say that in these circumstances, abortion is justified. The confusing thing is that the outcome is the same in both circumstances. The fetus is being denied its right to live and grow to its potential as a human being. Where does one draw the line What about case where there is medical complications For example: a woman becomes pregnant and goes to the doctor for an examination. During the doctor visit, various tests are run and it is discovered that the baby will be born severely deformed and that its quality of life would be extremely substandard. If the woman were to have an abortion, would it be justified What about a situation where a woman becomes pregnant and she does to the doctor and is told that the baby is deformed and the birth would most likely kill the mother. The argument justifying abortion in this case goes back to the right to physical sovereignty ver one s own body. A person has the freedom to do what he or she wants to concerning their own body as long as it does not harm or compromise the freedom of another, except in self defense. Therefore, in the case of the mother who would most likely die in childbirth, an abortion could be justified because she is acting in self defense. And in the case of rape, many argue that an abortion is also justified because the woman s right to not conceive has been violated, therefore she should not be responsible for the consequences which came through no fault of her own. As on can see, the issue of abortion is on e that is xtremely complicated. The problem being that many of the ethical dilemmas involved in the abortion issue are so closely intertwined that they are difficult to distinguish from one another. There are some aspects of the issue that would convince most people that abortion is justified, however when those aspects are combined with other intertwining aspects and imperatives, justification oftentimes becomes impossible. In conclusion, the issue of abortion is so complicated and controversial that it is unlikely that a consensus could be reached by American society. There are too many aspects of he issue which peoples views vary to widely. Some of these issues could be things such as the definition of a person, is the fetus a person, and if so when does it officially become a person. There is also the issue of rights. Do the rights of a person outweigh the rights of a non person. Does the right of a mother s sovereignty over her body outweigh the right of an unborn child to live. The answers to these questions are very diverse as a result of the diversity of the American society. With the issue of abortion, one s attitude toward it is going to be based on many things such as religious background and ersonal morals. There is no black and white answer to the abortion issue. Luckily we live in a country where we are able to decide for ourselves whether something is morally right or wrong. Thus, ultimately, the choice is ours. As with the many other ethical issues which we are faced with in our society, it is hard to come to a concrete answer until we are personally faced with that issue. All we can do is make an effort to know all of the aspects which are involved so that we may be able to make a sound decision if we were faced with this problem in our own lives.

Advantage of being the oldest sibling Essay

Many kids say that being the last child is the best because you get everything you want. Well not me I believe that being the oldest child has many advantages to it. As the oldest child in my family I get to have things first, I get to stay out later than my other siblings and, I can set rules that younger siblings have to follow. First, I get to have things before my younger siblings. For example the reason why I get to have everything before my younger siblings is because I am the oldest, I get to have a car before everyone and my younger siblings have to wait. I also get to pretty much experience many things before my younger siblings. I was able to experience prom, graduating high school, and getting a car. These are some of the best experiences I got to experience before my younger siblings. They all look at me and get jealous because I get to do everything first. As they would say â€Å"That is not fair!† Second, the advantages of being the oldest is I get to stay out la ter rather than my siblings have to come home earlier. My siblings complain all the time about this topic because I get to stay out later. Then they complain to my parents asking them for more time out longer because they are having fun with their friends. My curfew for coming home is at 1:00 am my brother is at 10:00pm, and my younger sister is at 8:00 pm as you can see since I am the oldest I get to stay out later and I get more privileges than my brother and sister. It kind of makes me happy because I don’t have to sit there and wish I was the oldest so I can stay out later. Or wish I had a car so I can go to the mall with my friends. Lastly, I get to set rules that my siblings have to follow. I get to tell them what do when to do it and how to do it. For example, if my brother’s room is messy I tell him that he needs to clean it also with his homework, I tell him when to do it and I help him with it. It feels great to be the oldest sibling because I get to set many rules for my brother and sister, and they have to listen to me because if not then they will get in trouble with my parents. In conclusion, I love to be the oldest sibling because I get to have things before them, I get to stay out later than my  siblings, and I can set rules for my siblings to follow. My younger siblings wish that they were older so they can do the things that I can do but they cannot. I love to be the oldest child in my family for all these reasons but the best reason is being there for them when ever I can.

Workplace Violence in U.S. Health Care Settings Assignment

Workplace Violence in U.S. Health Care Settings - Assignment Example Violence in the workplace is a multifaceted problem that is closely interwoven in the United States by several psychological, economic, social, situational, and medical crises.4 Violence can take place in any place or setting, and practically anyone within the healthcare environment can be a victim or offender- employers, employees, clients, family members, given the appropriate factors and conditions. The Bureau of Labor Statistics (BLS) and Census of Fatal Occupational Injuries (CFOI) disclosed that ‘healthcare providers are at 16 times greater risk for violence than other workers.’5 This fact demonstrates the idea that the frequency of violence in the workplace is rising and is underreported. Once confined to psychiatric and emergency units, attacks take place in a broad range of settings, with a growth in the occurrences of assaults in healthcare settings.6 According to an investigation of incidents made public in 1991 of hospitals in Canada and the United States, the largest number of nonfatal attacks took place in patient or health care settings.7 Likewise, the National Institute of Occupational Safety and Health (NIOSH) disclosed that 64% of nonfatal attacks happened in service organizations.8 Nurses are the major care providers in healthcare settings and can be in danger when giving care to perpetrators, victims, and witnesses. Scholars logically estimate that nurses and other providers of care are attacked more often than any other employees in the United States.9 An international research reported that ‘75% of all psychiatric nursing staff had been attacked at least once in their profession.10’ Furthermore, Blair and New (1997) guesstimate that roughly ‘50% of healthcare workers will be assaulted at least once in their careers.11’ Usually, majority of service organizations and occupations are at great danger given the considerable extent of contact with various people. The general operation and

Preparing to teach Essay Example | Topics and Well Written Essays - 750 words

Preparing to teach - Essay Example (Brown G., & Atkins, M., 1988) First of all, I'd like to emphasize that activities in class much depend on planning, that's why it's so important to make all the necessary preparations for teaching to provide a strong and authoritative background for good educational results. The information provided was gathered with the help of analyzing quantitative and qualitative data of questionnaires and test results provided for students at the beginning and in the end of teaching process to study the results of teaching methods and their impact on group learning. Preparing for teaching a teacher needs to determine the group size. Generally, the shorter the task the smaller must be the group (those of six or less), but for better cooperating process the optimum number of people is from eight up to twelve, where there is a possibility to work in pairs and in groups of three. There is also a task for the instructor to select the group. Groups selected by the researchers tend to perform much better than the self-selected groups. Heterogeneous groups are generally better. The length of teaching process depends on the specific collaborative learning activity, but there is a need of time for a group to become cohesive. (Dechant, K., Marsick, V. J., and Kasl, E., 1993) So that I organized the group of twelve students to be able to work in small groups of two, three and four people, that also gives an opportunity to provide them with different types of tasks and make the process more interesting and useful one. Also I've selected the group members (6 boys and 6 girls to avoid the appearance of possible gender differential misunderstanding in the process of teaching and fulfillment the tasks. Then, me, as a teacher, arranged the room for students to face one another and so the teacher can walk up to each group. While structuring the task and positive interdependence among the students, I provided them with academic task explanation, and criteria for success explanation, pointed out a group goal for the students to be able to rely on one another, thus emphasizing the fact they need to establish good collaboration between one another, and that much is dependent on the inner relations of the group members. (Smith, K. A., 1996) That's why on the second preparatory stage the teacher is to think over the possibilities of conflicts appearance inside the group and provide the best practice of their outcomes. So this reason I've studied theoretical material on conflict management to structure the group in its best way; then - explained the task and common group goals for students to know what they are to aim at. While planning group structure, the teacher must choose between three main group types: informal, formal, and base. Informal groups can be created in short term for solving some problems, have little structure, can have new group member with each class day, and is mostly useful during lectures, because it provides a quick check on student comprehension. Next type, which is formal group, requires more planning as to the size and composition of the group, because it has greater structure; has a specific purpose, and the same group members throughout its existence. Base groups, on the contrary, serve a broader purpose. They meet regularly, require planning as to the size and composition, have a constant membership and a specific purpose to complete. The teacher here should provide support, encouragement, and

Nurse education Essay Example | Topics and Well Written Essays - 1500 words

Nurse education - Essay Example Nurses assist advance the most appropriate actions for patient services by cautiously investigating current strategies and giving response to their nurse leader (Needleman & Buerhaus, 2003). In addition, the transformational leadership technique is significantly related with perceived job satisfaction and efficiency. For example, transformational nurse leadership entails staff nurse involvement in performance development initiatives and strategic planning. My clinical experience occurred in labor & delivery or postpartum unit. Hospitals provide training programs, for example, assistant or technician trainings, which frequently incorporate trainee nurses right into the system of that facility. The labor & delivery or postpartum unit provided high danger and usual postpartum care. The unit was made up of ten beds, nine labor rooms, two examination rooms, one operating room, and one observation room. The labor & delivery or postpartum unit delivered almost seventy babies monthly. Most hospitals have websites where an individual may get information regarding nursing job vacancies and their requirements. The labor & delivery or postpartum unit merged caring proficiency with the most novel creative activities and up to date equipment (Kaestner, 2005). Participation also permitted firsthand experience and was an adequate way of learning. The model of care delivery is the synergy model. This model is a structure for creating nursing practice and establishing capabilities that indicate a combination of experience, skills, and knowledge of the nurse. The synergy model employs registered nurses incorporating them in the process of clinical decision making in the facility. There are ten nurses, six females and four males. The central point of view of the synergy model is that the synergy outcomes when the characters and requirements of the clinical unit, patient, or system are matched with the capabilities of a nurse. The problem is in the clinical decision making process. The synergy model provides the nurses with a strategy to make decisions in creating patient responsibilities matching the appropriate nurse with the adequate expertise for patient care. This model reduces work intensity, enhances the work surrounding, assures communication and cooperation between teams, and promotes a culture of learning (Kaestner, 200 5). Intervention   The nurse leader or manager proposes to deal with the issue of staffing shortage of registered nurses on a labor and delivery or postpartum unit in a number of ways. First, the nurse leader proposes the approval of federal standards indicating nurse to patient work load threshold and nurse to patient ratios. Health care providers should be required to offer necessary skill mix and efficient staffing levels to make sure there is an appropriate working environment for nurses and quality service to patients. Second, the nurse manager proposes a legal ban

Week 2 ILAB Research Paper Example | Topics and Well Written Essays - 250 words

Week 2 ILAB - Research Paper Example The sweetener is relatively safe in terms of both physical and chemical reactions. The sweetener reacts slowly with both cold and hot water. The sweetener is soluble in all liquids but its solubility depends on different temperature. However, it creates certain diseases such as diabetes mellitus and diabetes insipidus if consumed at high or low levels respectively. Different research studies show that sucrose is not associated with obesity, for example Bolton-Smith and Woodward found no relationship between bodyweight, and sugar intake in Australian adults aged between 25-64 years (Winsome Parnell, 2007). This data is in agreement with that of Gibson, who found no evidence that obese people in the United Kingdom were consuming a diet high in sucrose. A study carried out in New Zealand also showed that overweight adults did not have a high sugar intake than normal weight adults; obese children also gave the same results (Winsome Parnell,

Business straegies,development and management of Glaxo-Smithcline Essay

Business straegies,development and management of Glaxo-Smithcline - Essay Example Glaxo started as a small firm in 1970s with dried milk business and added antibiotics, nutritional supplements and respiratory drugs. Glaxo Inc was born as a result of acquisition of Meyer Laboratories in the US (Heller, 2006). It started investing in R&D during the 1980s which gave the company a phenomenal growth. By 1994 Glaxo had 3.6 percent share of the world market and had a strong presence in Europe and US (BÃ ¡tiz-Lazo, 2003). Its position as the leader was established in 1994 when the industry as a whole faced increased drug discovery costs. Wellcome Foundation (WF), the largest non-profit drug medical institution in the UK, had an ‘academic’ approach to pharmaceuticals – with strong science but weak in marketing. WF had a 40% stake in Galxo’s Zantac which contributed to 43 percent of Glaxo’s revenues. To a large extent the growth of Glaxo was based on the success of Zantac. Glaxo strategically engineered a takeover of Wellcome as Zantac’s patent was due to expire in 1997 and Wellcome had the capability to dissipate risk and ensure that resources would be able for research. The merger further consolidated Glaxo’s position as the third largest company by market capitalization in London and the world’s largest research firm with 54,000 employees. Organizational culture differences erupted trouble in the merger. While WF had a laid back management style and focused on science, Glaxo had a commercial and control-driven culture. The drugs pipeline was unimpressive and ne w products failed to live up to expectations. This paved the way for the merger of Glaxo Wellcome with SmithKline Beecham at the turn of the century. Glaxo SmithKline (GSK) was formed in December 2000 by the merger of Glaxo Wellcome plc and SmithKline Beecham plc. In 2005, it became the world’s second largest research-based pharmaceutical company in the industry (RedOrbit, 2006). The demand of the market was very high and integration of new people

Comparing and contrasting Essay Example | Topics and Well Written Essays - 1000 words - 3

Comparing and contrasting - Essay Example The appellant was not accountable to his clients within a reasonable time in that he did not make the necessary payments to his clients and other practitioners within a reasonable time. There was also failure to reflect all financial transactions in the books of accounts and delay with the payments of trust money to clients after due demand without any lawful reason. The orders of the court in this case were that the striking the appellants name off the role of attorney was substituted and instead the appellant was suspended from practicing for one year. He was also not found guilty of unprofessional, dishonorable or unworthy conduct by the court. In the Davey case, the Law society brought against Meumann White a number of complaints before the court that include; touting for work and are thereby engaging in conduct which is likely to attract business unfairly. By securing work through conferring benefits upon estate agents in order to induce them to channel work for Meumann White they were guilty of conduct which impairs their independence by creating conflicts of interest which is explicitly prohibited by the Prevention and Combating of Corrupt Activities Act. MW’s extensive expenditure is directed at securing instructions for the firm this is the premeditated and disguised scheme to â€Å"buy work† in order to derived significant direct financial benefit as a result. The court gave its judgment ad concluded that in all the circumstances of the case brought by the law society that MW has not been guilty of any wrongdoing. The court laid down a test for permissible advertising which is of the nature that is calculated to attract business unfairly and this is the only restraint placed on the entitlement of an attorney to advertise. They are both applications by the society concerned for the attorneys to be struck off the roll of attorneys or they be suspended from practice by the

A Study of Globalisation Essay Example for Free

A Study of Globalisation Essay Executive Summary This paper attempts to make sense of globalisation from a social and business perspective. Initially I will talk briefly about globalisation within our community and the different stand points those communities and individuals have taken; for and against globalisation. I will then talk about the multinational companies that have made the phenomenon of globalisation possible and these companies various impacts on societies and local communities around the world. The topic is further analysed by using multinational food retailing companies in Latin America as a case study. Displayed to the reader through this case will be a clear indication of how local communities and in particular their farmers are affected by globalisation and multinational companies. There are many different views on globalisation; and those against it oppose many different aspects of it. One of the countless reasons why there are anti-globalisation activists is due to the following: Multinational food retailing companies, the backbone of what is known as globalisation within the supermarket industry, have in many cases entered small farming communities around the globe and destroyed a way of life for many of the farmers and labourers around them. Within Latin America these farmers have been forced to flee their homes to find refuge within the slums of the urban sprawls within their cities or even to cross borders into the USA. Introduction to Globalisation Definition: Globalisation can be defined as the intensification of worldwide social relations which link distant localities in such a way that local happenings are shaped by events occurring many miles away and vice versa (Giddens 1990). It has also been described as process which embodies a transformation in the spatial organisation of social relations and transactions assessed in terms of their extensity, intensity, velocity and impact generating transcontinental or inter-regional flows and networks of activity. (Held, et al 1999) In relation to Latin America (the major area of discussion of this paper) globalisation can be defined as a practice or system that has affected several of the continents most persistent problems. Such problems would be the diverse extent of economic exploitation and social disparity that has branded Latin America ever since its European colonisation in the sixteenth century. (Harris Halebsky 1995) Pro-globalisation: Free trade fosters prosperity and has an extremely important characteristic that affects our way of life. This characteristic is actually its tendency to be able to prevent war. Extensive research has shown that trade promotes peace both directly, by reducing the danger of military divergence, and indirectly, by promoting prosperity and democracy (Weede 2004). Globalisation and free trade in the 20th century and beyond can be compared with the 19th Century expansion of empires (like the British Empire). These empires built an infrastructure in developing countries; railways, ports and beautifully constructed colonial buildings were just some of the benefits these developing countries could take advantage of. Even though these commodities werent built for the benefit of the developing country (they were built for British trade) they still ultimately increased these countries abilities to trade and to become technologically independent. In the 20th Century infrastructure, technology, health and education systems implemented by the world powers, in developing and developed countries, has improved the overall quality of life for people worldwide, this does not include Africa. The average GDP for all countries except Africa has gone up; however the downside is; the difference between the rich and poor countries has also increased. The reason for this is that the countries introducing themselves to the developing countries are actually gaining a much more significant benefit. Anti-globalisation: This term is more commonly attributed to the political standpoint of certain people, groups and organisations that are in opposition to certain facets of globalisation. Those in resistance often oppose large multi-national companys dominance of global trade agreements and trade-governing bodies like WTO (the World Trade Organisation) (Graeber 2002). Otherwise known as a social movement, anti-globalisation represents its participants in their opposition to large corporations who endeavour to attain and have attained political power. Political power can be put into effect via international trade agreements, anti globalisation activists scrutinize these agreements, stating that they quite often undermine the environment, labour rights, national sovereignty, the third world, and other various aspects of our everyday lives as human beings (Graeber 2002). It is common knowledge that globalisation and free trade can affect developing countries negatively, however, the worlds most developed countries and the people who live within them are also affected negatively. Globalisation forces job opportunities from these developed countries to other countries around the world and low skilled workers in developed countries lose their jobs. This increases the difference between the rich populace and poorer populace in that country. The following quote, from the United Nations, backs this statement up and shows us why there are anti-globalisation activists. The richest fifth of the world have 80% of the worlds income and the poorest fifth have 1%; this gap has doubled between 1960 and 2000 (United Nations 1999) largely due to the impacts of globalisation. As displayed above, multi-national corporations play a substantial role within the theory and practice of globalisation, these corporations are powerful by nature and currently account for over 33 per cent of world output, and 66 per cent of world trade (Gray 1999). These organisations even though considered to be global companies are still heavily nationally embedded in terms of their business activity (Hirst and Thompson 1996). Despite this; multinational corporations still have considerable economic and cultural power. The next section of this paper will talk about these companies, their branding and how they affect communities around the world. Globalisation Multinational Companies Social Impact (How do they impact our local communities?) Branding: The main driving force for the growth of multi-national companies and the globalisation of their impact is in their brand (Klein 2001). In the mid-1980s a management theorists came up with a seemingly harmless idea that successful corporations must primarily produce brands, as opposed to products. This idea led to the exorbitant expansion of wealth and cultural influence we see in multinational companies today and over the past fifteen years (Klein 2001). Brand builders are the new primary producers in our so-called knowledge economy (Klein 2001). Modern multinational companies have used a strait to the point yet brutally honest approach to branding over the past fifteen years. This approach is that companies should not disburse their limited capital on factories that will require physical maintenance, on equipment that will decay or on workers who will undoubtedly age and perish. As an alternative, they should focus that capital in the processes used to build their brands (Smith Smith 2002). Multinationals: Multinational corporations are in actuality weak and vague organisations that generally display the corrosion of everyday values that afflict practically all late contemporary social institutions (Gray 1999). Diverse communities around the world are impacted and exploited by these multinational companies. They continually create or contract business in countries where they can profit from cheaper wages and assets. As discussed earlier this can mean added wealth and infrastructure for that community. However, it quite often means increased levels of unemployment in the city/country where the industry was located beforehand. Not to mention that the wages payed and work environment in the communities where the operations are implemented are usually relatively poor (Smith Smith 2002). Below are a few examples that articulate this situation perfectly: * The numbers of people living on less than $2 per day has risen by almost 50% since 1980, to 2.8 billion-almost half the worlds population. And this is precisely the period that has been most heavily liberalized (World Bank 2000). * The worlds poorest countries share of world trade has declined by more than 40 per cent since 1980 to a mere 0.4 per cent (UNCTAD 1999). This has been precisely the period in which the majority of multinational companies have grown exponentially, and is obviously a large factor resulting from their growth. Multinationals apart from affecting whole economic systems of countries and communities also attempt to create new markets within these communities. They search for new markets which have not yet been exploited in order to increase sales; it is typically carried out by creating new desires among target groups. The easiest target market for multinational companies to create new desires for is the child and youth market. Prized not only for the influence they have over adult spending but also for their own escalating spending power, the youth of today are one of the most profitable and influential markets (Kenway and Bullen 2001). Despite all this negative hype about multinational companies; they have played a very significant role in the growth of globalisation. Around the world individuals and communities are linked much closer to each other and information and money flow quicker than ever before. Globalisation and its creation of multinationals has resulted in making goods and services in one part of the world increasingly available in all parts of the world. International travel and communication is also much more frequent. In all globalisation has made life easier for those who can actually afford the luxuries of travel and international business. (Sourcewatch 2006). The Food Chain; Survival of the Biggest A case study of Latin America and the detrimental effects globalisation and multinational food retail companies have had on its local farmers. Commodity prices have fallen dramatically, by some two thirds over the past 30 years, so that farmers have had to triple production just to maintain their incomes. One example among many: in just the last three years, Tanzanian farmers experienced a decline of 50% in the price of coffee. (OXFAM 2001) While farmers earn less, consumers have been paying more. (ONeill 2001) Although, according to the U.N. Food and Agriculture Organisation, Latin America produces four times the amount of food needed to feed the population, 58 million people are still malnourished. Introduction: During the 1980s a transformation within Latin America began; this transformation was one that would shape the future of farmers all over the continent for decades to come. For some it would be a positive change, however a large majority found it to be the opposite. The transformation I talk about is opening up of trade barriers within Latin America in order to allow food retailing companies access to the regions un-commercialised and fertile lands. During the 1990s the revolution in food retailing within Latin America accelerated extraordinarily as countries unbolted their economies to suit conditions for financing from the International Monetary Fund and the World Bank. As Latin Americas overall FDI significantly increased; multinational food retailers bought out local chains and entered joint ventures with the obstinate ones. The greatest fears for farmers in the region were realised when the multinational companies introduced unfair trade rivalry from American and European growers with weighted financial backing. Small farmers are constantly left to compete with the biggest world players as these food retailing chains (products of globalisation) move from large cities to smaller towns and from economically sound countries to ones still developing their economic and social systems (Dugger 2004). These chains are now the prevailing force in the trade of processed foods and theyre produce sales are growing to a similar reputati on. When global food retail companies dominate a market, there are scenarios whereby it can be seen to be advantageous for all the citizens within that community. Such a scenario would be when the economy, of the region being taken over, is growing energetically and spawning decent jobs for globalisations losers, because in spite of everything the chains are creating cheaper, cleaner and safer shopping environments for these societies. Samuel Morley, a visiting research fellow at the International Food Policy Research Institute (IFPRI), has written extensively on inequality and labour economics in Latin America, he stated that It would be an appealing transformation of the sector if alternative jobs could be made available, however these scenarios never seem to materialise in Latin America and other developing countries/continents around the world as they do not have economies of great strength. As Latin Americas population grows its economic situation trails further and further behind. In Latin America, 220 million of the total regional population of 500 million people are poor. The case study that I will shortly talk about outlines just how bad the situation in Guatemala is, Guatemala is actually one of Latin Americas better off regions, with supermarkets controlling 10-15% of grocery sales. Therefore the case gives you an indication of what the more unfortunate farming communities, in Latin America, must have to endure. For example in Argentina supermarket chains control 30% of this industry and in Brazil; 50% (Dugger 2004). Rural markets shrink throughout the continent, even though the victims of globalisation are pushed to trade within them, these rural markets are slowly but surely lost in the black holes that we call multinational companies. Within a single decade Latin Americas farming communities have been transformed by food retail giants such as Ahold and Walmart. These multinational goliaths have transfigured food distribution by offering low prices, a range of choices and convenience; they are now also changing the face of food growing (Dugger 2004). This could seem positive to some, however it is far from that; there are thousands of Latin American farming communities who have been devastated by the unforseen and overwhelming challenges that these companies bring (Dugger 2004). The major visible impact that these changes have had within the farming communities over the past decade is the great increase in the number of, now penniless, farming migrants entering the urban slums of their own countries and crossing the American border to seek refuge from their new corporately governed country side. Guatemalas Local Farmers Suffer (Case): Within the serene confines of the extraordinarily fertile and incredibly poor Guatemala, supermarket giants have crushed farmers to the point where they are no longer able to maintain operations within the land they once called home. Guatemala was once, not long ago, a place where people swapped produce for service and service for produce, money was required to sustain theyre everyday living, however, life was effortless and uncomplicated up until the multinational giants arrived on Latin American shores. Guatemalan man Mario Chinchilla would inspect his field of sickly tomatoes on a daily basis; he would labour all day trying to meet the requirements of the new supermarkets which had opened up in town, however no amount of labour could possibly turn his crop into the stout, flawless product that Guatemalas leading supermarket chain offered to its customers (Dugger 2004). A better product at a cheaper price, it seems good all round doesnt it, but at the end of the day it has ruined many people lives. The chain I talk about is a giant Dutch multinational company named Ahold (Worlds 3rd largest retailer). The Chain is so large it includes names such as Bi-Lo and Stop Shop under its assets. For some time Mario headed a farmers cooperative that was managing to sell produce to the chain however this proved to be an ephemeral opportunity whereby the multinational chain ran away with the locals hopes and dreams, leaving them to sit in their unsold crops of rotting vegetables. The reason for this was because the multinational retailers require farmers who encompass the proficiency and capital to invest in modern farming technologies such as; greenhouses, drip irrigation and pest control (Dugger 2004). They wanted consistent supply without ups and downs, said Mr Chinchilla. We didnt have the capacity to do it (Dugger 2004). Inequality, rebellion and violent repression within Latin America has been a recurring problem for many decades, during the 1990s there was already a gap between rich and poor and the supermarket chains have simply added to this gap. This time Latin America has tried a different (non-violent) approach. In order to fight for their right to live comfortably in their homeland farmers joined forces; there are rare success stories, however many (like Mario Chinchilla and his Co-op) have suffered a more common fate. In Guatemala there is a tiny farming community named Lo de Silva; more than 300 farmers who originally belonged to Mr. Chinchillas co-op, the Association of Small Irrigation Users of Palencia, were from this village (Dugger 2004). Out of those 300 farmers there are only 8 still enduring the torment that globalisation has brought them. These remaining farmers arent even able to sell to the supermarkets they sell their product to middle men for severely discounted prices; to top this off the only product the middlemen will accept from them is salad tomatoes. Mr. Chinchillas case is an ideal example that demonstrates how the opportunity of success for small farmers is a remote prospect to most. Small farmers are simply getting left behind due to their lack of market pull and marketing/operational techniques (Dugger 2004). A survival of the biggest situation has been created only the big can serve the big; the small need not apply, as global companies wipe out local distinctions in establishing a level economic playing field. (Hannaford 2006). During the 1990s food retail conglomerates went from controlling between 10 and 20 percent of the Latin American market to totally dominating it (Economist.com 1997). During this period, in Guatemala specifically, the quantity of supermarkets has more than doubled; as their share of food retailed has reached 35 percent. The smaller shops and open air markets still remain and retail a great deal of fruits and vegetables in Guatemala. For customers to leave these historically enriched and characterised markets and enter the newly opened supermarkets in the region, is to leave behind Guatemala and enter a commercialised shopping centre that could reside in Hong Kong or London, with its marked down jumbo packages and symmetrical fruits in plastic trays. None of this, however, matters unless the bottom line is understood. The bottom line is that the rules of the World Trade Organisation are actually taking second place in importance to the privately set standards of the food retail giants. Also pressures from the I.M.F. and the World Bank to allow greater foreign investment into Latin America were proposed to formulate more competitive economies for them; however it is obvious that this model didnt have a community element at its centre. Hardships have come from; not only what I described previously (the fact that the farmers must sell theyre produce at much cheaper prices, better quality and in a more convenient matter) but also from the fact that that they are now competing with the rest of Latin America, the United States and even the world because trade borders have been opened to allow almost anyone import and export capabilities. Rigid opposition from internationally renound growers is now a reality for Central and Latin American farmers; at a distribution centre, for a subsidiary company of Ahold in Guatemala City, shipments of apples from Washington, pineapples from Chile, potatoes from Idaho and avocados from Mexico are brought in (Hannaford 2006). Conclusion Globalisation has positive and negative affects on our society. This paper has outlined in great detail the negative affects of globalisation and multinational food retailing companies on Latin Americas and the worlds small farmers. The reason for this is due to the fact that there were; only on occasion, very rare and unusual success stories to be found about smaller farmers succeeding in their sales to companies such as Ahold and Walmart, within Latin America. After researching farming communities around the globe, it can be deduced that Latin America is not alone in this battle to produce food and sell it at competitive prices, while still maintaining some sort of meaningful social existence. Asian, African and Indian farmers; have been heavily exploited. Even farmers within more developed countries such as Australia have had to sell their products at severely discounted prices in order to satisfy multinational company standards. Farmers world wide, are however, not alone. Traditional strategies of help to farmers that feel the hardships of globalisation, such as providing fertilizers and improved seeds, are no longer enough to enable them to sustain their businesses. Professors and agronomists are banding together to document trends and develop new methods of help that will allow the fleeing farmers of Latin America, Africa and Asia to compete with others in selling products to the multinationals. In the midst of the these methods a few techniques stand out, such as; regulations put upon the multinationals that require farmers be paid promptly, laws that restrain these companies from dominating entire markets (such as mergers of supermarket chains) and enhanced hygiene and convenience through technology at open-air markets. After reading this paper I hope you too can conclude it is important that societies living within the limitations of this amazing world are given the chance to experience lifes pleasures and break out of the chain of inevitable failures that multinational corporations have brought to them. Being given the chance to make an honest and fair living, is only basic compassion and mercy; two marvellous characterises that any individual can encompass. If multinational food retail companies and global companies in general were able to, in some way, display this, then Anti-Globalisation would be a much less used expression. References * Dugger, C. W., (2004) Foreign Desk Late Edition Final, Section A, Page 1, Column 1, New York Times December 28, Tuesday. (http://www.nytimes.com) * Economist.com, (1997) Survey: Business In Latin America Back on the pitch, The Economist print edition. * Giddens, A., (1990) Consequences of Modernity. Cambridge: Polity Press. * Graeber, D., (2002) New Left Review 13, January-February issue, The New Anarchist. * Gray, J., (1999) False Dawn. The delusions of global capitalism, London: Granta. 262 pages. * Hannaford, S., (Last updated 2006) Small farmers versus oligopolies: No contest, (http://www.oligopolywatch.com). * Harris, R. L., Halebsky, S., (1995) Capital, Power, and Inequality in Latin America, chapter: The Global Context of Contemporary Latin American Affairs, (Boulder. CO., Westview Press.) * Held, D., McGrew, A., Goldblatt, D. and Perraton, J. (1999) Global Transformations politics, economics and culture, Cambridge: Polity Press. * Hirst, P. and Thompson, G., (1996) Globalisation in Question. London: Polity Press. * Kenway, J. and Elizabeth Bullen, (2001) Consuming Children: Entertainment, Advertising and Education, Open University Press. * Klein, N., (2001) No Logo, London: Flamingo. 490 pages. * ONeill, B., (2001) Whats eating Us? OXFAM News. (http://www.oxfam.ca/news/WorldFoodDay/Whats_eating_us.htm) * OXFAM. (2001) Briefing Paper No 9, November. (http://www.oxfam.org.uk/search?SearchableText=Briefing+Paperssubmit.x=19submit.y=8) * Smith, M. K. and Smith, M., (2002) Globalization encyclopaedia infed. (www.infed.org/biblio/globalization.htm) * Sourcewatch 2006 Globalisation, (Centre for Media and Democracy) http://www.sourcewatch.org/index.php?title=Globalization). * UNCTAD. (1999) Conference on Least Developed Countries. (http://www.unctad.org/Templates/Page.asp?intItemID=3073lang=1) * United Nations. (1999) Human Development Report. * Weede, E., (2004) The Independent Review, Volume 9, number 2, The Diffusion of Prosperity and Peace by Globalisation. * World Bank. (2000) Global Economic Outlook Report. Washington: World Bank.(http://web.worldbank.org/WBSITE/EXTERNAL/DATASTATISTICS/0,,menuPK:232599~pagePK:64133170~piPK:64133498~theSitePK:239419,00.html)

Cash Flow and Profitability of Dividend Payout

Cash Flow and Profitability of Dividend Payout CHAPTER 1: INTRODUCTION Overview The issue of dividend has been studied comprehensively in last few decades. Still it remained as one of the most debatable issue in the field of Finance. The contradictory nature and massive importance 0f dividend in finance had made it one of the most discussable topics for researchers. Researchers in the past enclosed many aspects of dividend; few among them are views about dividend, dividend payment effects on firm value, dynamics and determinants of dividend policy, and dividend movement of different markets. Lintner (1956) study the allocation of income of corporations among dividends, retained earnings and taxes by taking data from the years 1918 to 1941 as a training period and data from the years 1942 to 1951 as the testing period. Researchconcluded that the basic origin of dividend changes werenet earning and preceding year dividends. In addition, firms attempt to continue a constant stream of dividend and influence to make a regularly partial adjustment to a target payout ratio relatively hysterically changing their payout when a change in income occurs. In the short run, dividends are consistent to avoid frequent changes. This dispute is rooted back to the significant effort of Miller and Modigliani (1961), in which it was challenged in a perfect market condition dividend policy did not affect the value of firm. In contrast, Lintner (1962) and Gordon (1963) based à ¢Ã¢â€š ¬Ã…“Bird-in-handà ¢Ã¢â€š ¬? theory and argued that in the world of ambiguity and imperfect information, hig h dividend payment is linked with high firm value. In addition, Black (1976) called dividend as great puzzle which need extensive researched. Furthermore, the Brealey and Myers (2005) listed dividend as one of the top ten significantvague topic in advance corporate finance. According to Anil and Sujjata(2008) emerging consensus was that no individual factor alone can describe dividend behavior. The existing corporate theories supported that cash flow and profitability have significant impact on dividend. The aim of this study was to know the impact of cash flow and profitability on dividend payout of non financial firms in Pakistan market. This study considered free cash flow and profitability was most important for non financial firm in Pakistan market. Talat and Mirza(2010) conducted research related to ownership structure and cash flow as predictor of dividend payout policy. According to that personal ownership, cash flow delicacy, size, and leverage were negatively associated with dividend payout policy. In contrast, profitability and operating cash flow was found as determinants of cash dividend. In addition, Researcher concluded that executive ownership, personal ownership, operating cash flow, and size were important determinants of dividend while, leverage and cash flow delicacy did not contribute considerably in determining the level of corporate dividend payment. DeAngelo and DeAngelo (1990) found significant relation between cash flow and dividend changes. Problem Statement In the field of corporate finance, the dividend was considered as one of the most noteworthy issues. The main purpose to study the impact of cash flow and profitability on dividend payout of non financial firm in Pakistani market was to analyze the cash dividend behavior of developing countries firm. In addition, study was conducted to find out how strongly these two variables free cash flow and profitability have impact on the dividend payout because, profitability was most likely used as determinants of dividend payout in most of the previous researches but free cash flow was not taken too much in previous research. Furthermore, how these two variables serve as an indicator for dividend payout. Hypothesis This research study has tested the following hypothesis to fulfill the objective of the research. H1: There is significant impact of free cash flow on dividend payout. H2: There is significant impact of return on assets on dividend payout. H3: There is significant impact of return on equity on dividend payout. H4: There is significant impact of earning per share on dividend payout. H5: There is significant impact of net profit margin on dividend payout. Outline of the Study The research structured follows. Chapter one was consist on the introduction of the thesis, it is essential to review the views and theoretical background of dividend, the statement o problem, scope and objective, hypothesis. Chapter two consisted of literature review given by various authors, theories on dividend and impact of cash flow and profitability on dividend payout. Chapter three explained methodology, it consisted of explanation of the selection of the variables, the sampling and research design, the data technique and hypothesis. Chapter four represents the analysis of results after processing the data. Chapter five composed of final result, conclusion and recommendation. Chapter six consisted of references. CHAPTER 2: LITERATURE REVIEW Since 1956, dividend has always considered one of the most interested and investigated topic in world of finance.Lintner (1956) analyzed the allocation of earning of corporation among dividends, retained earnings, and taxes by taken data into consideration for years 1918 to 1941. It was found the basic determinants of dividend change are net earning and preceding year dividends. In addition, firms tried to continue a stable flow of dividend and likely made a regularly limited adjustment to a target payout ratio instead radically changing payout when earning changed. Jensen and Meckling (1976) paid attention toward agency cost hypothesis and described that dividend restricted the funds under management control, as a result putting them under strict capital market examination. Owner responsibility was reduced to deal with the quality of investment and to handle the expenditure on manager prerequisites. Marke, Langrehr, and Hexter(1998) conducted research on dividend policy determinants. Researchers had taken focus of firm, natural log of sales of firm, inside ownership for firm, no of common shareholder for firm, free cash flow for firm, sales growth of firm, and standard deviation of returns o f firm as determinants of dividend policy. Authors concluded that corporate focus has negative impact on dividend payout. While inside ownership had also negative impact, according to researcher the firms have greater inside ownership have small dividend payout. In addition, the firms with higher free cash flow have higher dividend payout and lower payout ratio of firms with higher standard deviation of returns. William and Nanda (1994) conducted research on free cash flow, shareholder value, and the unallocated profits after tax of 1936 and 1937. In this study researcher tried to explore the investor reaction toward the anticipated decrease in free cash flow presented to corporate managers. In addition, researchers suggested agency costs as partial determinants of dividend policy. To avoid the agency problem corporate have to pay higher dividend and imposed higher tax on undistributed profit so the problem of agency cost handled efficiently. The study conducted on determinants of dividend payout ratio in GhannabyAmidu and Abor (2006). In this study 20 listed firms of Ghana Stock Exchange were used as a sample which shows 76% of the total listed firm in Ghana Stock Exchange. Researchers have taken the Payout Ratio as controlled variable and explanatory variables includes risk, profitability, cash flow, corporate tax, institutional holding, sales growth, and market to book value. It was foundthat more profitable firms paid more dividends and profitability is positively related to dividend payout. In addition, cash flow and taxes are also positively related to dividend payout. Further, they also concluded there is a positive relationship between increase in liquidity and dividend payout. Results suggested negative relationship of dividend payout with growth, market to book value, risk, and institutional holding. The firms with the earning instability found hard to pay low and no dividends. Al-Malkawi (2007) worked on determinants of corporate dividend payout policy in Jordan. Researcher used a firm level panel data of all publicly traded firms on the Amman Stock Exchange for the year 1989-2000. Researcher used dividend payout as a depended variable and agency cost, Ownership, annual share turnover, market to book ratio, market capitalization of common equity, financial leverage ratio, profitability ratio, and taxes as independent variables. By using Tobit specification researcher concluded that positive relationship between size, age, and profitability with dividend payout and negative relationship between signaling device, ownership, and taxes in Jordan. Fairchild (2010) worked on Dividend policy, signaling and free cash flow: an integrated approach. Researcher has tried to examine the dividend policy by taking only two hypothesis signaling and free cash flow. In order to understand the composite environment of dividend policy, signaling game is developed in which most of the information possesses by managers than investors about the quality of the firms. The signaling hypothesis shows that asymmetric information between managers and investor, dividend work as signal regarding current performance and future prospect. The study found that high dividend has positive effect on the firm performance, in term of providing a positive signal for current performance and as will as future scenario. In addition, dividend payout reduces the free cash flow problem, which may attract the manager to invest in negative NPV project for personal interest. But if the project shows positive NPV so investment opportunities are available which lead toward the higher dividend in future. Gill, Nahum, and Rajendra (2010) worked on determinants of dividend payout ratio in United States. In this study researcher extend the Amidu and Joshua, and Anil and Kapoor finding for the American service and manufacturing firms. Researcher took same variables into account such as profitability, tax, market to book value, cash flow, and sale growth. The sample size was 266 out of 500 financial reports. According to the researcher dividend payout ratio of manufacturing firms is the function of profit margin, tax, and market to book value ratio. It was also found that result differ when the dividend payout ratio was defined as the ratio between after tax cash flow and cash dividend, not considering after tax earning of the companies. Reddy (2006), studied the dividend behavior of Indian companies, movement, and determinants and struggled to decide the behavior of the companies listed at Bombay Stock Exchange with theassist of trade off theory and signaling theory hypothesis. According to researcher analysis of dividend trend depicted that stock traded on New York Stock Exchange and Bombay Stock Exchange indicated that percentage of companies paying dividend has declined from 60.5% in 1990 to 32.1% in 2001 and there is only few companies paying dividend constantly. Beside that firms paying dividend are more profitable, large in size, and having enough growth. Indian context did not represent corporate tax and ax preference theory. Lastly the dividend change indicated signal to current and lagged earning performance rather than future earning performance. Baker, Farrelly and Edelman (1986) studied New York Stock Exchange 318 firms. According to the researchers main determinants of dividend payments were expected future earning and picture of past dividend. Gitman and Pruitt (1991) asked 1000 largest US firms financial managers and concluded present and precedent year earning were significant determinants effect dividend payment. According to Baker and Powell (2000) survey companies listed on New York Stock Exchange were industry explicit and predicted level of future income was the main factor of dividend payout Anil and Kapoor (2008) studies Indian information technology sector for determinants of dividend payout ratio. The phase for study 2000-2006 encompass both recessionary and booming phase of Indian information technology sector. Researcher concluded that beta and liquidity was discovered a notable determinant of dividend payout ratio. In addition, authors concluded that due to recession from 2003 onwards IT sector observed exponential growth, and it was anticipated linear growth in IT sector after 2006. Recently in Pakistani perspective, Ahmed and Attiya (2009) investigated sample of 320 non-financial firms listed on Karachi Stock Exchange from 2001 to2006.Researchers concluded Pakistani companies dependent more on current earning than past dividend. In addition, authors highlighted few predictors that may affect payout policies. Firstly, the finding demonstrated companies containing high profit with consistent earning can manage larger amount of free cash flow as a result to payout larger dividend. The firms having larger investment chance can easily affect and have a significant role in determinants of dividend payout policy in Pakistan. The companies paid more dividends to shareholders where inside ownership exist. Ownership structure has considered major factor in determining dividend policy in Pakistan. Beside that dividend payout was not affected pay growth of the firms and market liquidity has a significant impact on dividend payout. Furthermore, size was significant determin ants for dividend payout that means companies invest in assets relatively paying dividends to its stockholders. 2.1 Dividend irrelevance theory: Miller and Modigliani (1961) proposed that dividend policy is irrelevant to the shareholder and stockholder wealth was constant in the world of perfect market condition and any growth in the current payout is financed by literally priced stock sales. The basic assumption was that management paid 100 percent payout in every period. Other assumptions were as follow. First, market is perfect capital market that means there were no taxes on transaction cost, single buyer and seller not influenced price and everyone have free access to information. Second, investors are rational and value of securities was based on the discounted future cash flow to investor. Third, manager act as a agent of shareholders, and there was no uncertainty about the investment policy of the firm. 2.2 Bird-in-hand theory: Al-Malkawi (2007) emphasized that dividend valued differently from retained earnings (capital gains) in world of ambiguity and irregularity information. à ¢Ã¢â€š ¬Ã…“A bird in hand (dividend) is valued more than two in the bush (capital gain)à ¢Ã¢â€š ¬?. Investors always preferred dividends to retained earnings due to uncertainty of future cash flow. Although, this controversy has been extensively condemned and has not get strong empirical base, but, it was supported by Gordon and Shapiro (1956), Lintner (1962), and Walter (1963). The basic assumptions were as followed Firstly, investors have inadequate information regarding the profitability of a firm. Secondly, cash dividend was taxed at a higher rate when capital gain was realized on the sale of share. Thirdly, dividend serves as a signal of expected cash flow. 2.3 Agency cost and free cash flow theory: Ross (2008) define agency cost is the cost of the conflict of interest that exists among shareholders and management. It was happened when management act for own interest rather than shareholders interest who own the firm. This could be direct and indirect. It was in contrast to assumption of Millar and Modigliani (1961) that mangers act as an agent of shareholders. This is somewhat dubious, as the owners of the firm are different from the management. Managers are bound to carry out some activities, which could be costly to shareholders, such as undertaking unprofitable investments that would yield excessive returns to them, and unnecessarily high management compensation (Al-Malkawi, 2007). These costs are borne by shareholders; therefore, shareholders of firms with excess free cash flow would require high dividend payments instead. Agency cost may also arise between shareholders and bondholders: while shareholders require more dividends, bondholders require fewer dividends than shar eholders by putting in place a debt covenant to ensure availability of cash for their debt repayment. Easterbrook (1984) also identified two agency costs: the cost of monitoring managers and the cost of risk reluctance on the part of managers. Jensens free cash flow/overinvestment hypothesis (1988) provides a surrogate description for the positive association between the direction of the dividend change and the stock price reaction. Jensen argues that managers tend to hold cash to invest in negative NPV projects for their own utility maximization. The agency costs that result from this overinvestment decrease the value of the firm. Like the signaling hypothesis, the FCF argument suggests there should be a positive relationship is the direction of the dividend policy change and the stock price reaction. However, the FCF argument differentiates itself with respect to the level of growth opportunities faced by the firm. If a firm initiated a cash dividend, FCF arguments postulate there are fewer funds available for costly overinvestment. Likewise, if company didnt pay dividend, the strongest form of a decrease would reduce the value of the firm because there are more funds available to invest in less present value projects. The FCF hypothesis assumes larger stock price volatility for the firms who have few growth opportunities as compared to the firms with many growth opportunities. There is disagreement between different researchers on dividend policy. Allen and Rachim (1996) in Australia found no significant association between stock price volatility and divided policy. According to Gordon (1963) the stock price volatility is influenced by dividend payout. The firms who pay large dividend have minimum risks in terms of stock price value. Some of hypothetical mechanism also suggests the universal relationship of dividend yield and dividend payout ratio with stock price volatility. Jensens and Meckling (1976) developed Agency cost argument which proposed that dividend payout lower the cost of funds and increase the cash flows for the company. The company after paying cash dividends to stock holders would have less cash in hands of the managers to invest at below the cost of capital. According to Asquith and Mullin (1983), Born, Moser, and Officer (1984) and Miller and Rock (1985) dividend declaration provide information to the share holders to forecast the financial position of the company and the present firms earnings. This also depends on the source of information that either it is doubtful or not to respond on announcement of dividend. Hence, there remains disagreement till yet, the relation of dividend yield and stock price volatility and it is still unexplained and is considered as debatable in corporate CHAPTER 3: RESEARCH METHODS 3.1 Method of Data Collection Required data was collected from Karachi Stock Exchange as given by State Bank of Pakistan in publication of Balance Sheet Analysis of Joint Stock Companies Listed on the KSE (2005-2009). The period of study covered five years, 2005-09. The sample size of 100 non-financial firms was taken from all non financial firm listed at KSE. The required sample was chosen on the basis of cash dividend paid by firms at-least for two years. The sample represents major industry. 3.2 Sample Size Sample of 100 non-financial firms was collected from KSE. Sample consisted of firms which paid cash dividend for at least two years. Firms that was selected for study represented all major industries functioning in Pakistan and listed at KSE from 2005-2009. The impact of the cash flow and profitability on dividend payout was examined on selected sample of 100 non-financial firms. 3.3 Research Model Developed There were various financial factors of the non-financial firms which affected the Dividend payout of the firms. This research study investigated the impact of free cash flow and profitability on the dividend payout. 3.3.1 Dividend payout Dividend payout and dividend amount are taken as the dependent variables. Since dividend payout is the generally used alternative for dividend policy, almost every financial researcher has used payout as a proxy for corporate dividend policy (See for example Gugler, 2003; Reddy and Rath, 2005; Papadopoulos, 2007; Al-Malkawi, 2007; Ahmed Attiya, 2009). In order to calculate dividend payout was calculated as cash dividend per share divided by earning per share. 3.3.2 Earning per share According to Hafeez and Attiya (2009) high profitability with constant earnings can manage to pay for larger free cash flows as a result to pay out larger dividends. The earnings per share after tax were used as independent variable. Earning per share after tax was used because dividend has been paid after interest, taxes and after depreciation and calculated as net earnings divided by number of shares. H1: There is significant impact of earning per share on dividend payout 3.3.3 Return on Equity This variable is used in different previous studies such as: Abor (2005), Miller (2007), Al-Ajmi et al. (2009), and Ebaid (2009) etc. Some authors measured profitability or performance by three measurements such Gross profit margin (GPM), Return on Equity (ROE), and Return on Assets (ROA) and same predictors Ebaid (2009). Likely results with this variable are same as revealed by Abor (2005) and Ebaid (2009) such as: Significance and positive relationship with dividend payout. Return on Equity is considered best measure of firm profitability. Return on Equity (ROE) is one measure of how efficiently a company uses its assets to produce earnings. ROE was calculated by dividing Net Income minus preferred dividend by Share holder equity H2: There is significant impact of Return on Equity on dividend payout. 3.3.4 Free Cash flow According to Jensens (1986) free cash flow hypothesis, companies choose to use their cash resources to invest in profitable projects first; dividend is paid out of residual. From a companys point of view, cash generated from operations plays an important role in deciding the level of payout, among all three sources of cash flows i.e. operating; investing and financing, cash generated from operations is considered as most desirable source of funds for the company for distribution of dividends. Anil and Sujjata (2008) also found cash flow from operations as the most significant determinant of dividend policy in Indian IT industry. A  measure of financial performance calculated as Net income minus depreciation minus change in working capital minus change in capital expenditure. Free cash flow (FCF) represents the cash that a company is able to generate after  placing out the money required to maintain or expand its asset base.  Free  cash flow is important be cause it  allows a company to  pursue opportunities that enhance shareholder value. H3: There is a significant impact of free cash flow on dividend payout. The model developed was a linear model and its specifications are provided below: Div payout = a0 a1EPS + a2ROE + a3FCF + ц Dividend payout = Dividend per share divided by earning per share EPS = Net income divided by number of share outstanding ROE =Net income minus preferred dividend divided by common shareholder equity FCF =Net income minus Depreciation minus change in working capital minus change in Capital expenditure à Ã¢â‚¬Å¾ = error term 3.4 Statistical Technique Multiple Linear Regression Analysis (MLR) technique was used for this research study to examine the impact of the distinctive financial characteristics of the non-financial firms on their dividend payout of the selected firms; Statistical Package for the Social Sciences (SPSS) was used for the examination of the secondary data. CHAPTER 4: RESULT The sample of 100 non-financial firms from Karachi Stock Exchange was taken into consideration. This research study used multiple regression analysis (MLR). Researcher examined the behavior of non-financial firms of KSE about dividend payout. The selected technique was used to study the impact of cash flow and profitability on dividend payout. 4.1 Finding and Interpretation of the results In the beginning, the regression technique was applied on collected data by using SPSS, and there was no single variable was significant. It was clear from the result that there was the high co-linearity among the independent variables of the dividend payout and this means there was strong interrelationship present among the predictors. Return on assets and net profit margin was omitted from the data, thus, the issue of co-linearity was resolved. Now, proceeding with the analysis of the results because issue of co-linearity was addressed. The interpretation and analysis is presented in the next sections of this research study. Table 4.1: Model Summary Mod R R Sq. Adj. R Sq. 1 .289 .084 .078 Tables 4.1 depict the summary about the regression model. The R square of 8.4% showed that all the predictors of dividend payout together explained 8.4% variation in the dependent variable and the remaining variation was unexplained or hidden predictor were not included in the model. TABLE 4.2:ANOVA Model Sum of Squares df Mean Square F Sig. 1 Regression 31503.936 3 10501.312 15.236 .000a Residual 345316.428 501 689.254 Total 376820.364 504 The table 4.2 checked the significance of the linear regression model in such a way that the reliability of the data file regarding the applicability of the regression technique can be understood from the above table; however, ANOVA table was reliable test of checking the linear regression models ability to explain any variation in the dependent variable of liquidity. This was perfectly obvious from the sig value of .000 that meant that the linear regression model was highly significant for the data collected for the research study conducted. In addition, ANOVA explained that all means are not equal. In table4.3 the final model of regression included only three independent variable that were free cash flow, earning per share, and return on equity These variables were included in the model due to highly significantly describing the relation with dependent variable dividend payout. Returns on equity and free cash flow have positive impact on dividend, while earning per share has negative impact on dividend payout. 4.2 Hypothesis Assessment Summary The hypothesis of research was unique financial factors had significant impact on the non-financial firms dividend payout decision. These financial characteristics were cash flow taken as free cash flow of firms and profitability taken as earning per share and return on Equity of firms. This research tasted individual financial characteristics and concluded the result as follow. TABLE 4.4: Hypothesis Assessment Summary S.No. Hypothesis ÃŽÂ ² SIG. RESULT H1 There is significant impact of free cash flow on dividend payout. .001 .005 Accepted H2 There is significant impact of Return on equity on dividend payout. .216 000 Accepted H3 There is significant impact of Earning per Share on dividend payout. -.123 .016 Accepted H4 There is significant impact of Return on Assets on dividend payout. .340 .170 Rejected H5 There is significant impact of Net profit margin on dividend payout. -.034 .530 Rejected CHAPTER 5: DISCUSSIONS, IMLICATION, FUTURE RESEARCH AND CONCLUSION 5.1Conclusion It was concluded with support of results of this research study return on equity, earning per share, and free cash flow were significant independent variables in Pakistani market. These result were matching with the study under taken by Hafeez and Attiya (2009) in Pakistani context, Researchers concluded firms with high profitability and with stable earning can afford larger free cash flow therefore pay out larger dividends to its shareholder. In addition, Talat and Hammad (2010) examined the ownership structure and cash flow as determinants of dividend policy. Researchers concluded that companies in which high proportion of share were occupied by managers and individual were more reluctant of pay high dividends. In contrast, companies in which managerial and individual ownership is low paid less dividends. It was also concluded that companies having high operating cash flow increase companies potential to pay high dividend and it was considered cash flow sensitivity reduce the compa nies payout but still it was not determined as potential determinants of corporate payout in Pakistan. 5.2 Discussions Profitability and free cash flow could lay significant impact on dividend payout in Pakistani context. Hafeez and Attiya(2009) was also considered profitability as significant determinant of dividend payout, But study conducted by Talat and Hammad (2010) concluded operating cash flow cannot consider significant determinant of dividend payout in Pakistani market.This research considered that free cash flow and profitability measured through earning per share and returns on equity have significant impact on dividend payout of the companies. 5.3 Implication and Recommendations This research was encompasses non-financial companies listed on Karachi Stock Exchange Pakistan. The required data collected from 100 non-financial firms listed at KES for the period of 2005 t0 2009. Only firms were included in samples which were paid cash dividend for atleast two years. It is recommended that such type of study should be carried out in other countries of Asia. Further, it also recommended that other determinants except one analyzed in this study should be researched in more extensive manner so the dividend payout policy and its dynamics became clearer. 5.4 Future Research This research addressed the problems of investor, management and other researcher conductor in examining and observing the behavior of firm regarding their payout decisions. Research students who want to work further on dividend payout could be benefited by this study. In addition, all non financial firms will get benefit from this study because this research study taken all major sectors into the consideration and study clarified the impact of free cash flow and profitability on dividend payout. Cash Flow and Profitability of Dividend Payout Cash Flow and Profitability of Dividend Payout CHAPTER 1: INTRODUCTION Overview The issue of dividend has been studied comprehensively in last few decades. Still it remained as one of the most debatable issue in the field of Finance. The contradictory nature and massive importance 0f dividend in finance had made it one of the most discussable topics for researchers. Researchers in the past enclosed many aspects of dividend; few among them are views about dividend, dividend payment effects on firm value, dynamics and determinants of dividend policy, and dividend movement of different markets. Lintner (1956) study the allocation of income of corporations among dividends, retained earnings and taxes by taking data from the years 1918 to 1941 as a training period and data from the years 1942 to 1951 as the testing period. Researchconcluded that the basic origin of dividend changes werenet earning and preceding year dividends. In addition, firms attempt to continue a constant stream of dividend and influence to make a regularly partial adjustment to a target payout ratio relatively hysterically changing their payout when a change in income occurs. In the short run, dividends are consistent to avoid frequent changes. This dispute is rooted back to the significant effort of Miller and Modigliani (1961), in which it was challenged in a perfect market condition dividend policy did not affect the value of firm. In contrast, Lintner (1962) and Gordon (1963) based à ¢Ã¢â€š ¬Ã…“Bird-in-handà ¢Ã¢â€š ¬? theory and argued that in the world of ambiguity and imperfect information, hig h dividend payment is linked with high firm value. In addition, Black (1976) called dividend as great puzzle which need extensive researched. Furthermore, the Brealey and Myers (2005) listed dividend as one of the top ten significantvague topic in advance corporate finance. According to Anil and Sujjata(2008) emerging consensus was that no individual factor alone can describe dividend behavior. The existing corporate theories supported that cash flow and profitability have significant impact on dividend. The aim of this study was to know the impact of cash flow and profitability on dividend payout of non financial firms in Pakistan market. This study considered free cash flow and profitability was most important for non financial firm in Pakistan market. Talat and Mirza(2010) conducted research related to ownership structure and cash flow as predictor of dividend payout policy. According to that personal ownership, cash flow delicacy, size, and leverage were negatively associated with dividend payout policy. In contrast, profitability and operating cash flow was found as determinants of cash dividend. In addition, Researcher concluded that executive ownership, personal ownership, operating cash flow, and size were important determinants of dividend while, leverage and cash flow delicacy did not contribute considerably in determining the level of corporate dividend payment. DeAngelo and DeAngelo (1990) found significant relation between cash flow and dividend changes. Problem Statement In the field of corporate finance, the dividend was considered as one of the most noteworthy issues. The main purpose to study the impact of cash flow and profitability on dividend payout of non financial firm in Pakistani market was to analyze the cash dividend behavior of developing countries firm. In addition, study was conducted to find out how strongly these two variables free cash flow and profitability have impact on the dividend payout because, profitability was most likely used as determinants of dividend payout in most of the previous researches but free cash flow was not taken too much in previous research. Furthermore, how these two variables serve as an indicator for dividend payout. Hypothesis This research study has tested the following hypothesis to fulfill the objective of the research. H1: There is significant impact of free cash flow on dividend payout. H2: There is significant impact of return on assets on dividend payout. H3: There is significant impact of return on equity on dividend payout. H4: There is significant impact of earning per share on dividend payout. H5: There is significant impact of net profit margin on dividend payout. Outline of the Study The research structured follows. Chapter one was consist on the introduction of the thesis, it is essential to review the views and theoretical background of dividend, the statement o problem, scope and objective, hypothesis. Chapter two consisted of literature review given by various authors, theories on dividend and impact of cash flow and profitability on dividend payout. Chapter three explained methodology, it consisted of explanation of the selection of the variables, the sampling and research design, the data technique and hypothesis. Chapter four represents the analysis of results after processing the data. Chapter five composed of final result, conclusion and recommendation. Chapter six consisted of references. CHAPTER 2: LITERATURE REVIEW Since 1956, dividend has always considered one of the most interested and investigated topic in world of finance.Lintner (1956) analyzed the allocation of earning of corporation among dividends, retained earnings, and taxes by taken data into consideration for years 1918 to 1941. It was found the basic determinants of dividend change are net earning and preceding year dividends. In addition, firms tried to continue a stable flow of dividend and likely made a regularly limited adjustment to a target payout ratio instead radically changing payout when earning changed. Jensen and Meckling (1976) paid attention toward agency cost hypothesis and described that dividend restricted the funds under management control, as a result putting them under strict capital market examination. Owner responsibility was reduced to deal with the quality of investment and to handle the expenditure on manager prerequisites. Marke, Langrehr, and Hexter(1998) conducted research on dividend policy determinants. Researchers had taken focus of firm, natural log of sales of firm, inside ownership for firm, no of common shareholder for firm, free cash flow for firm, sales growth of firm, and standard deviation of returns o f firm as determinants of dividend policy. Authors concluded that corporate focus has negative impact on dividend payout. While inside ownership had also negative impact, according to researcher the firms have greater inside ownership have small dividend payout. In addition, the firms with higher free cash flow have higher dividend payout and lower payout ratio of firms with higher standard deviation of returns. William and Nanda (1994) conducted research on free cash flow, shareholder value, and the unallocated profits after tax of 1936 and 1937. In this study researcher tried to explore the investor reaction toward the anticipated decrease in free cash flow presented to corporate managers. In addition, researchers suggested agency costs as partial determinants of dividend policy. To avoid the agency problem corporate have to pay higher dividend and imposed higher tax on undistributed profit so the problem of agency cost handled efficiently. The study conducted on determinants of dividend payout ratio in GhannabyAmidu and Abor (2006). In this study 20 listed firms of Ghana Stock Exchange were used as a sample which shows 76% of the total listed firm in Ghana Stock Exchange. Researchers have taken the Payout Ratio as controlled variable and explanatory variables includes risk, profitability, cash flow, corporate tax, institutional holding, sales growth, and market to book value. It was foundthat more profitable firms paid more dividends and profitability is positively related to dividend payout. In addition, cash flow and taxes are also positively related to dividend payout. Further, they also concluded there is a positive relationship between increase in liquidity and dividend payout. Results suggested negative relationship of dividend payout with growth, market to book value, risk, and institutional holding. The firms with the earning instability found hard to pay low and no dividends. Al-Malkawi (2007) worked on determinants of corporate dividend payout policy in Jordan. Researcher used a firm level panel data of all publicly traded firms on the Amman Stock Exchange for the year 1989-2000. Researcher used dividend payout as a depended variable and agency cost, Ownership, annual share turnover, market to book ratio, market capitalization of common equity, financial leverage ratio, profitability ratio, and taxes as independent variables. By using Tobit specification researcher concluded that positive relationship between size, age, and profitability with dividend payout and negative relationship between signaling device, ownership, and taxes in Jordan. Fairchild (2010) worked on Dividend policy, signaling and free cash flow: an integrated approach. Researcher has tried to examine the dividend policy by taking only two hypothesis signaling and free cash flow. In order to understand the composite environment of dividend policy, signaling game is developed in which most of the information possesses by managers than investors about the quality of the firms. The signaling hypothesis shows that asymmetric information between managers and investor, dividend work as signal regarding current performance and future prospect. The study found that high dividend has positive effect on the firm performance, in term of providing a positive signal for current performance and as will as future scenario. In addition, dividend payout reduces the free cash flow problem, which may attract the manager to invest in negative NPV project for personal interest. But if the project shows positive NPV so investment opportunities are available which lead toward the higher dividend in future. Gill, Nahum, and Rajendra (2010) worked on determinants of dividend payout ratio in United States. In this study researcher extend the Amidu and Joshua, and Anil and Kapoor finding for the American service and manufacturing firms. Researcher took same variables into account such as profitability, tax, market to book value, cash flow, and sale growth. The sample size was 266 out of 500 financial reports. According to the researcher dividend payout ratio of manufacturing firms is the function of profit margin, tax, and market to book value ratio. It was also found that result differ when the dividend payout ratio was defined as the ratio between after tax cash flow and cash dividend, not considering after tax earning of the companies. Reddy (2006), studied the dividend behavior of Indian companies, movement, and determinants and struggled to decide the behavior of the companies listed at Bombay Stock Exchange with theassist of trade off theory and signaling theory hypothesis. According to researcher analysis of dividend trend depicted that stock traded on New York Stock Exchange and Bombay Stock Exchange indicated that percentage of companies paying dividend has declined from 60.5% in 1990 to 32.1% in 2001 and there is only few companies paying dividend constantly. Beside that firms paying dividend are more profitable, large in size, and having enough growth. Indian context did not represent corporate tax and ax preference theory. Lastly the dividend change indicated signal to current and lagged earning performance rather than future earning performance. Baker, Farrelly and Edelman (1986) studied New York Stock Exchange 318 firms. According to the researchers main determinants of dividend payments were expected future earning and picture of past dividend. Gitman and Pruitt (1991) asked 1000 largest US firms financial managers and concluded present and precedent year earning were significant determinants effect dividend payment. According to Baker and Powell (2000) survey companies listed on New York Stock Exchange were industry explicit and predicted level of future income was the main factor of dividend payout Anil and Kapoor (2008) studies Indian information technology sector for determinants of dividend payout ratio. The phase for study 2000-2006 encompass both recessionary and booming phase of Indian information technology sector. Researcher concluded that beta and liquidity was discovered a notable determinant of dividend payout ratio. In addition, authors concluded that due to recession from 2003 onwards IT sector observed exponential growth, and it was anticipated linear growth in IT sector after 2006. Recently in Pakistani perspective, Ahmed and Attiya (2009) investigated sample of 320 non-financial firms listed on Karachi Stock Exchange from 2001 to2006.Researchers concluded Pakistani companies dependent more on current earning than past dividend. In addition, authors highlighted few predictors that may affect payout policies. Firstly, the finding demonstrated companies containing high profit with consistent earning can manage larger amount of free cash flow as a result to payout larger dividend. The firms having larger investment chance can easily affect and have a significant role in determinants of dividend payout policy in Pakistan. The companies paid more dividends to shareholders where inside ownership exist. Ownership structure has considered major factor in determining dividend policy in Pakistan. Beside that dividend payout was not affected pay growth of the firms and market liquidity has a significant impact on dividend payout. Furthermore, size was significant determin ants for dividend payout that means companies invest in assets relatively paying dividends to its stockholders. 2.1 Dividend irrelevance theory: Miller and Modigliani (1961) proposed that dividend policy is irrelevant to the shareholder and stockholder wealth was constant in the world of perfect market condition and any growth in the current payout is financed by literally priced stock sales. The basic assumption was that management paid 100 percent payout in every period. Other assumptions were as follow. First, market is perfect capital market that means there were no taxes on transaction cost, single buyer and seller not influenced price and everyone have free access to information. Second, investors are rational and value of securities was based on the discounted future cash flow to investor. Third, manager act as a agent of shareholders, and there was no uncertainty about the investment policy of the firm. 2.2 Bird-in-hand theory: Al-Malkawi (2007) emphasized that dividend valued differently from retained earnings (capital gains) in world of ambiguity and irregularity information. à ¢Ã¢â€š ¬Ã…“A bird in hand (dividend) is valued more than two in the bush (capital gain)à ¢Ã¢â€š ¬?. Investors always preferred dividends to retained earnings due to uncertainty of future cash flow. Although, this controversy has been extensively condemned and has not get strong empirical base, but, it was supported by Gordon and Shapiro (1956), Lintner (1962), and Walter (1963). The basic assumptions were as followed Firstly, investors have inadequate information regarding the profitability of a firm. Secondly, cash dividend was taxed at a higher rate when capital gain was realized on the sale of share. Thirdly, dividend serves as a signal of expected cash flow. 2.3 Agency cost and free cash flow theory: Ross (2008) define agency cost is the cost of the conflict of interest that exists among shareholders and management. It was happened when management act for own interest rather than shareholders interest who own the firm. This could be direct and indirect. It was in contrast to assumption of Millar and Modigliani (1961) that mangers act as an agent of shareholders. This is somewhat dubious, as the owners of the firm are different from the management. Managers are bound to carry out some activities, which could be costly to shareholders, such as undertaking unprofitable investments that would yield excessive returns to them, and unnecessarily high management compensation (Al-Malkawi, 2007). These costs are borne by shareholders; therefore, shareholders of firms with excess free cash flow would require high dividend payments instead. Agency cost may also arise between shareholders and bondholders: while shareholders require more dividends, bondholders require fewer dividends than shar eholders by putting in place a debt covenant to ensure availability of cash for their debt repayment. Easterbrook (1984) also identified two agency costs: the cost of monitoring managers and the cost of risk reluctance on the part of managers. Jensens free cash flow/overinvestment hypothesis (1988) provides a surrogate description for the positive association between the direction of the dividend change and the stock price reaction. Jensen argues that managers tend to hold cash to invest in negative NPV projects for their own utility maximization. The agency costs that result from this overinvestment decrease the value of the firm. Like the signaling hypothesis, the FCF argument suggests there should be a positive relationship is the direction of the dividend policy change and the stock price reaction. However, the FCF argument differentiates itself with respect to the level of growth opportunities faced by the firm. If a firm initiated a cash dividend, FCF arguments postulate there are fewer funds available for costly overinvestment. Likewise, if company didnt pay dividend, the strongest form of a decrease would reduce the value of the firm because there are more funds available to invest in less present value projects. The FCF hypothesis assumes larger stock price volatility for the firms who have few growth opportunities as compared to the firms with many growth opportunities. There is disagreement between different researchers on dividend policy. Allen and Rachim (1996) in Australia found no significant association between stock price volatility and divided policy. According to Gordon (1963) the stock price volatility is influenced by dividend payout. The firms who pay large dividend have minimum risks in terms of stock price value. Some of hypothetical mechanism also suggests the universal relationship of dividend yield and dividend payout ratio with stock price volatility. Jensens and Meckling (1976) developed Agency cost argument which proposed that dividend payout lower the cost of funds and increase the cash flows for the company. The company after paying cash dividends to stock holders would have less cash in hands of the managers to invest at below the cost of capital. According to Asquith and Mullin (1983), Born, Moser, and Officer (1984) and Miller and Rock (1985) dividend declaration provide information to the share holders to forecast the financial position of the company and the present firms earnings. This also depends on the source of information that either it is doubtful or not to respond on announcement of dividend. Hence, there remains disagreement till yet, the relation of dividend yield and stock price volatility and it is still unexplained and is considered as debatable in corporate CHAPTER 3: RESEARCH METHODS 3.1 Method of Data Collection Required data was collected from Karachi Stock Exchange as given by State Bank of Pakistan in publication of Balance Sheet Analysis of Joint Stock Companies Listed on the KSE (2005-2009). The period of study covered five years, 2005-09. The sample size of 100 non-financial firms was taken from all non financial firm listed at KSE. The required sample was chosen on the basis of cash dividend paid by firms at-least for two years. The sample represents major industry. 3.2 Sample Size Sample of 100 non-financial firms was collected from KSE. Sample consisted of firms which paid cash dividend for at least two years. Firms that was selected for study represented all major industries functioning in Pakistan and listed at KSE from 2005-2009. The impact of the cash flow and profitability on dividend payout was examined on selected sample of 100 non-financial firms. 3.3 Research Model Developed There were various financial factors of the non-financial firms which affected the Dividend payout of the firms. This research study investigated the impact of free cash flow and profitability on the dividend payout. 3.3.1 Dividend payout Dividend payout and dividend amount are taken as the dependent variables. Since dividend payout is the generally used alternative for dividend policy, almost every financial researcher has used payout as a proxy for corporate dividend policy (See for example Gugler, 2003; Reddy and Rath, 2005; Papadopoulos, 2007; Al-Malkawi, 2007; Ahmed Attiya, 2009). In order to calculate dividend payout was calculated as cash dividend per share divided by earning per share. 3.3.2 Earning per share According to Hafeez and Attiya (2009) high profitability with constant earnings can manage to pay for larger free cash flows as a result to pay out larger dividends. The earnings per share after tax were used as independent variable. Earning per share after tax was used because dividend has been paid after interest, taxes and after depreciation and calculated as net earnings divided by number of shares. H1: There is significant impact of earning per share on dividend payout 3.3.3 Return on Equity This variable is used in different previous studies such as: Abor (2005), Miller (2007), Al-Ajmi et al. (2009), and Ebaid (2009) etc. Some authors measured profitability or performance by three measurements such Gross profit margin (GPM), Return on Equity (ROE), and Return on Assets (ROA) and same predictors Ebaid (2009). Likely results with this variable are same as revealed by Abor (2005) and Ebaid (2009) such as: Significance and positive relationship with dividend payout. Return on Equity is considered best measure of firm profitability. Return on Equity (ROE) is one measure of how efficiently a company uses its assets to produce earnings. ROE was calculated by dividing Net Income minus preferred dividend by Share holder equity H2: There is significant impact of Return on Equity on dividend payout. 3.3.4 Free Cash flow According to Jensens (1986) free cash flow hypothesis, companies choose to use their cash resources to invest in profitable projects first; dividend is paid out of residual. From a companys point of view, cash generated from operations plays an important role in deciding the level of payout, among all three sources of cash flows i.e. operating; investing and financing, cash generated from operations is considered as most desirable source of funds for the company for distribution of dividends. Anil and Sujjata (2008) also found cash flow from operations as the most significant determinant of dividend policy in Indian IT industry. A  measure of financial performance calculated as Net income minus depreciation minus change in working capital minus change in capital expenditure. Free cash flow (FCF) represents the cash that a company is able to generate after  placing out the money required to maintain or expand its asset base.  Free  cash flow is important be cause it  allows a company to  pursue opportunities that enhance shareholder value. H3: There is a significant impact of free cash flow on dividend payout. The model developed was a linear model and its specifications are provided below: Div payout = a0 a1EPS + a2ROE + a3FCF + ц Dividend payout = Dividend per share divided by earning per share EPS = Net income divided by number of share outstanding ROE =Net income minus preferred dividend divided by common shareholder equity FCF =Net income minus Depreciation minus change in working capital minus change in Capital expenditure à Ã¢â‚¬Å¾ = error term 3.4 Statistical Technique Multiple Linear Regression Analysis (MLR) technique was used for this research study to examine the impact of the distinctive financial characteristics of the non-financial firms on their dividend payout of the selected firms; Statistical Package for the Social Sciences (SPSS) was used for the examination of the secondary data. CHAPTER 4: RESULT The sample of 100 non-financial firms from Karachi Stock Exchange was taken into consideration. This research study used multiple regression analysis (MLR). Researcher examined the behavior of non-financial firms of KSE about dividend payout. The selected technique was used to study the impact of cash flow and profitability on dividend payout. 4.1 Finding and Interpretation of the results In the beginning, the regression technique was applied on collected data by using SPSS, and there was no single variable was significant. It was clear from the result that there was the high co-linearity among the independent variables of the dividend payout and this means there was strong interrelationship present among the predictors. Return on assets and net profit margin was omitted from the data, thus, the issue of co-linearity was resolved. Now, proceeding with the analysis of the results because issue of co-linearity was addressed. The interpretation and analysis is presented in the next sections of this research study. Table 4.1: Model Summary Mod R R Sq. Adj. R Sq. 1 .289 .084 .078 Tables 4.1 depict the summary about the regression model. The R square of 8.4% showed that all the predictors of dividend payout together explained 8.4% variation in the dependent variable and the remaining variation was unexplained or hidden predictor were not included in the model. TABLE 4.2:ANOVA Model Sum of Squares df Mean Square F Sig. 1 Regression 31503.936 3 10501.312 15.236 .000a Residual 345316.428 501 689.254 Total 376820.364 504 The table 4.2 checked the significance of the linear regression model in such a way that the reliability of the data file regarding the applicability of the regression technique can be understood from the above table; however, ANOVA table was reliable test of checking the linear regression models ability to explain any variation in the dependent variable of liquidity. This was perfectly obvious from the sig value of .000 that meant that the linear regression model was highly significant for the data collected for the research study conducted. In addition, ANOVA explained that all means are not equal. In table4.3 the final model of regression included only three independent variable that were free cash flow, earning per share, and return on equity These variables were included in the model due to highly significantly describing the relation with dependent variable dividend payout. Returns on equity and free cash flow have positive impact on dividend, while earning per share has negative impact on dividend payout. 4.2 Hypothesis Assessment Summary The hypothesis of research was unique financial factors had significant impact on the non-financial firms dividend payout decision. These financial characteristics were cash flow taken as free cash flow of firms and profitability taken as earning per share and return on Equity of firms. This research tasted individual financial characteristics and concluded the result as follow. TABLE 4.4: Hypothesis Assessment Summary S.No. Hypothesis ÃŽÂ ² SIG. RESULT H1 There is significant impact of free cash flow on dividend payout. .001 .005 Accepted H2 There is significant impact of Return on equity on dividend payout. .216 000 Accepted H3 There is significant impact of Earning per Share on dividend payout. -.123 .016 Accepted H4 There is significant impact of Return on Assets on dividend payout. .340 .170 Rejected H5 There is significant impact of Net profit margin on dividend payout. -.034 .530 Rejected CHAPTER 5: DISCUSSIONS, IMLICATION, FUTURE RESEARCH AND CONCLUSION 5.1Conclusion It was concluded with support of results of this research study return on equity, earning per share, and free cash flow were significant independent variables in Pakistani market. These result were matching with the study under taken by Hafeez and Attiya (2009) in Pakistani context, Researchers concluded firms with high profitability and with stable earning can afford larger free cash flow therefore pay out larger dividends to its shareholder. In addition, Talat and Hammad (2010) examined the ownership structure and cash flow as determinants of dividend policy. Researchers concluded that companies in which high proportion of share were occupied by managers and individual were more reluctant of pay high dividends. In contrast, companies in which managerial and individual ownership is low paid less dividends. It was also concluded that companies having high operating cash flow increase companies potential to pay high dividend and it was considered cash flow sensitivity reduce the compa nies payout but still it was not determined as potential determinants of corporate payout in Pakistan. 5.2 Discussions Profitability and free cash flow could lay significant impact on dividend payout in Pakistani context. Hafeez and Attiya(2009) was also considered profitability as significant determinant of dividend payout, But study conducted by Talat and Hammad (2010) concluded operating cash flow cannot consider significant determinant of dividend payout in Pakistani market.This research considered that free cash flow and profitability measured through earning per share and returns on equity have significant impact on dividend payout of the companies. 5.3 Implication and Recommendations This research was encompasses non-financial companies listed on Karachi Stock Exchange Pakistan. The required data collected from 100 non-financial firms listed at KES for the period of 2005 t0 2009. Only firms were included in samples which were paid cash dividend for atleast two years. It is recommended that such type of study should be carried out in other countries of Asia. Further, it also recommended that other determinants except one analyzed in this study should be researched in more extensive manner so the dividend payout policy and its dynamics became clearer. 5.4 Future Research This research addressed the problems of investor, management and other researcher conductor in examining and observing the behavior of firm regarding their payout decisions. Research students who want to work further on dividend payout could be benefited by this study. In addition, all non financial firms will get benefit from this study because this research study taken all major sectors into the consideration and study clarified the impact of free cash flow and profitability on dividend payout.