Dividend Policy and Firm Performance: The Case of Shariah-Compliant Non-Financial Firms in Pakistan

This study examines how dividend policy affects the performance of Shariah-compliant (SC) non-financial firms in Pakistan. These firms operate under Islamic law, which restricts interest-based and speculative activities. Because of these rules, their financial structures differ from conventional firms. The study uses data from 2013 to 2023 for all non-financial SC firms listed on the Pakistan Stock Exchange. The screening criteria of Karachi Meezan Index (KMI) were used to identify these firms. A fixed-effects model was applied after conducting the Breusch–Pagan Lagrange Multiplier (BPLM) and Hausman tests. The results show that the dividend payout ratio (DPR) has a significant adverse effect on firm performance. Firm size (FS) and sales growth (SG) have positive, significant effects, while leverage has an adverse, significant effect. Dividend yield (DY) and dividend per share (DPS) were not significant. The findings support the agency, bird-in-hand, and signaling theories. The study contributes to the limited research on Islamic equity markets in Pakistan and shows how dividend policy influences profitability in Shariah-compliant firms. The results can help investors, managers, and policymakers design better dividend policies and strengthen Islamic financial governance in Pakistan. Keywords: Dividend policy, Firm performance, Shariah-compliant, Dividend payout ratio, Dividend yield, Dividend per share