When do mature firms skip dividends?

This study examined that if efficient firms at their mature stage of life cycle may skip dividends. For doing so, this study investigated the direct and indirect impacts of firm efficiency on the dividends. To calculate the firm efficiency, data envelopment analysis (DEA) was used and for analyzing the data, logistic regression models were used. This study uses data of 1010 firm year observations of the firm’s listed Pakistani non-financial firms over the period 2011–2015. Findings of this study indicated that the probability to pay dividends is high in the firms having high level of efficiency. Likewise, probability to pay dividend is high in the mature firms as compared to the growth firms. However, efficient and mature firms may skip the dividends. These findings present an alternative view on the signaling and life cycle theories of dividends in that the mature firms having high efficiency which may not necessarily pay dividends in contradiction to the life cycle theory. Likewise, efficient firms may not necessarily pay dividends to signal their future growth prospects. Therefore, the future research may focus more on the role of firm efficiency while examining the dividend pay-out under the life cycle and signaling theories of dividends. This study is among the first studies to examine the direct impact of firm efficiency on probability to pay dividends by examining the interaction effect of firm efficiency and firm maturity on probability to pay dividends.