The Dividend Divide: Moderating Role of Leverage Among Shariah-Compliant Vs Non-Shariah Compliant Firms in Pakistan

Abstract

This study examines the moderating effect of financial leverage on dividend payout among Shariah-Compliant (SC) and Non-Shariah-Compliant (NSC) firms listed on the Pakistan Stock Exchange from 2017 to 2023, across five non-financial sectors in Pakistan. A purposive sampling technique has been employed to select a sample of 152 dividend-paying firms, comprising 111 Shariah-compliant and 41 non-Shariah-compliant firms. Consistent with previous studies, empirical findings reveal a notable disparity in the dividend policies of SC and NSC firms. The empirical findings reveal that Shariah-compliant firms show higher payout ratios for dividend disbursement compared to their non-Shariah-compliant counterparts. The findings support the notion that a low level of debt constrains Shariah-compliant firms due to their adherence to Shariah principles and have a greater likelihood of distributing dividends compared to non Shariah-compliant firms. These findings have implications for prospective investors and Shariah compliant firms.