Firm Innovation and Dividend Policy: Mediating and Moderating Role of Firm Financial Characteristics

Abstract

This study aims to investigate the mediating and moderating effect of firm financial characteristics in the relationship between firm innovation, stock trading volume, and dividend policy. For data analysis, quantitative methodology was used based on a secondary data set of 82 firms of the manufacturing sector listed on Pakistan Stock Exchange (PSX). Data was collected for the period 2014-2023. The selected company’s financial ratios provided the key quantitative metrics for analysis. The mediation analysis revealed a significant positive effect of firm performance in the relationship between firm innovation, stock trading volume, and dividend policy (measured through dividend payout), confirming hypotheses 1, 2, 5, and 6. Likewise, the moderating effect of firm size in the relationship between firm innovation, stock trading volume, and dividend payout was also found to be significant and positive, supporting hypotheses 3 and 4. Previous studies primarily focused on innovation in IT firms, leaving innovation in the manufacturing sector largely unexplored. This paper makes two key contributions. Firstly, it examines manufacturing firms engaged in innovation. Secondly, it addresses this gap by analyzing the firms’ unique characteristics through firm innovation and trading volume factors overlooked in prior research. By doing so, this study provides updated evidence, enhancing the robustness of the existing findings.