Effect of Financing Methods on Earning Per Share and Dividend per Share of the Companies Listed on KSE 100 Index

Ghulam Mustafa
Muhammad Tariq
Ranjeet Kumar
Effect of Financing Methods on Earning Per Share and Dividend

Abstract

This study is aimed at evaluating the effects of different financing methods such as debt and stock issuance and retained earnings on firms’ earning per share and dividend per share of the companies listed on KSE 100 index. To achieve this objective, the panel data for the (EPS) Earnings per Share, (DPS) Dividend per Share (Dependent Variables), Stock Issuance, Debt Issuance and Retained Earnings (Independent variables) of the companies listed on KSE have been taken for the period of nine (09) years from 2004 to 2012. The annual data have been taken for the study. As a sample size, 47 companies have been selected from different non-financial sectors such as Textile, Oil and Gas, Food Producers, Chemical and Cement. Total 423 research observations have been taken for this study. The data is collected from the annual reports of the companies listed in Karachi Stock Exchange (KSE) 100 index from the above mentioned non financial sectors. For the purpose of analysis, Panel Least Square (PLS) statistical technique has been applied to test the study hypothesis. The Panel Least Square (PLS) technique had been applied by using EVIEWS software. The study found that there is no significant impact of debt and stock (equity) financing on firms’ EPS and DPS. On the other hand, this study found that there is a significant impact of financing through retained earnings on firm’s EPS and DPS in the future. This study will help individuals and business firms that how different financing methods such as debt issuance, stock issuance and retained earnings affect firm’s EPS and DPS.

Keywords: Dividend per share, Earnings per share, Stock issuance, Debt issuance, Retained earnings

  1. Introduction

 

Overview

A major part of research is to find the effect of different financing methods on EPS and DPS of the companies. It shows the change in cost of capital structure on the companies’ earnings and its dividends. Stock exchange is a capital market where different companies of shares and bonds are traded. In stock exchange; Investors are either interested in capital gain or dividend yield means the EPS and DPS of the company’s share. In this thesis we examine the cross-sectional relationship between different financing methods on earning per share and dividend per share. There are two main sources of financing in companies either internal and external resource. In internal sources are cash flows, sales of assets and retain earnings. External sources are mostly relay on the company’s position; some companies need a fund to operate their functional units to run the organization business. In external sources, bonds and preferred stock are useful functions by which the organizations can provide long-term financial services.
The impact of capital structure change on return and risk is done in the framework of financial leverage degree and EBIT analysis. Financial leverage aims at establishing optimal balance between risk probability and companies return (Earnings Before Interest and Taxes (EBIT) and Earning per Share (EPS) (Asgari, Zadeh & Mohammadi, 2012).
Sometimes debt financing forced the sale of common stock for the payment of debt which cause the increase of cost of capital. Internal financing like companies who retained their profit is good source for attaining capital in small firms (Fu, Mei-Chu, & Huang, 2012).
In this research paper we examine the effects of different financing methods on companies EPS and DPS. So we use to determine the impact of financing methods on EPS (Earnings per Share) and DPS (Dividend per Share).
Background, Objectives and Significance of the study
Eugene, Fama and French (1998) studied the impact of dividend and debt to the firm value. It measures how the firms tax dividend and debt effects on the firm value. The study examines three variables dividend, taxes and financial debt. The results of the study founded that the dividend and financial debt of the organizations create impact on firm’s value but there is no impact of tax on the pricing of dividends.
MW's study examines convertible debt bonds referred as COCOs to use them to manipulate diluted earnings per share. The main reason of adding debt bonds in to the capital structure for financial reporting purpose because these bonds have high dilution than non COCOs which is a debt instrument to finance the company. The Convertible Bonds have not made any disparity in yields, the fees of the investment banking or reactions of the market which is general characteristics of conditional features.
Winker (1998) studied that the firm age and size on the factors of the financing constraints. Furthermore, there is an impact on research and development expenditures. The firms which are smaller in size and in the regions of the country there constraints of financing are on equity bases. While as a big firms using the both financing methods which are equity and debts capital methods because they allocate more money on investment of research and development for the growth of the organization as compare to smaller firms. The fundamental objective of this study is to examine the impact of different financing methods on Earning per Share and Dividend per Share. The study help in enlightening the impact of issuance of share capital, increase/decrease in debt capital and retain earning into the earning per share and dividend per share. This study was significant for individuals and firms who want to know the effect of financing methods on EPS and DPS for the purpose of maximizing their profit and wealth.

Objective of the study
The fundamental aim of this study is to examine the impact of different financing method on Earning Per Share and Dividend Per Share. The study will help in enlightening the impact of issuance of share capital, increase/decrease in debt capital and retain earning into the earning per share and dividend per share.

Research Hypotheses
The following hypotheses have been developed for this study:
H1: There is significant impact of debt financing on EPS.
H2: There is significant impact of financing through stock issuance on EPS.
H3: There is significant impact of financing through retained earnings on EPS.
H4: There is significant impact of debt financing on DPS.
H5: There is significant impact of financing through Stock Issuance on DPS.
H6: There is significant impact of financing through retained earnings on DPS.
  1. Literature Review
Companies are striving to know which financing method is best suit to their firms that can maximize the value of the firm. The research study was conducted by Asgari, Zadeh and Mohammadi (2012) to examine the impact of financing methods on EPS and DPS for the firms that are listed on Tehran Stock Exchange (TSE). Their research provided the actions of different financing methods on EPS and DPS. This study found that the debt and stock issuance have significant effect on earnings and dividend per share but retain earnings does not create any impact on EPS (earnings per share) and DPS (dividend per share).
The debt financing increases in the capital more than 30%, which shows that the firm working into the international activity makes them to change the Cost of Capital but does not create the impact of its earnings. Debt financing increasing usually conducted as market capitalization rather as financial profits. Debt capital ratio indicates the international activities of the firm with the debt financing participation in the cost of capital. This study indicates that domestic firms have low debt financing as compare to international firms who involve in international activities (Sattar, & Reeb, 2002)
MW's study examines convertible debt bonds refer as COCOs to use them to manipulate diluted earnings per share. The main reason of adding debt bonds into the capital structure for financial reporting purpose because these bonds have high dilution than non COCOs which is a debt instrument to finance the company. The Convertible Bonds have not made any disparity in yields, the fees of the investment banking or reactions of the market which is general characteristics of conditional features.
(Patricia C. O' Brien) argued that earnings of the company can be managed through transaction mechanism, diluted earnings per share (DEPS) and contingent convertible debts. Stock issuance is usually used for the capital gain or increase in the share holder equity forms in the financial reports of the companies and Parent companies used it for tax shield. The impact of stock issuance on the earning per share is temporary basis. They analyze the difference in issuance of shares btw parent company or subsidiary company but the conclusion is similar in many prospects.
This study examines the impact of debt financing on companies strategic and financial performance in the Indian manufacturing industries. This study shows that short term debt is more effective for strategic performance and the marketing of the companies’ products while as long term debt take a long time for performing its benefit in the marketing and strategic of the companies but both long term and short term debt doesn’t create any valuable impact on the financial performance of the companies. So this study proves that debt financing is used for the marketing of the companies’ products then the financial performance.
The study suggested that the investors are supposed to be rational, who looks for higher return and hence investors invest in a company which pays higher return. Brealey (2008) concluded that investors’ decision related to investment was largely influenced by the dividend payouts; therefore study suggested that dividend acts as a motivator for investment decision.
Baker and Powell (1999) stated that from the perspective of companies the policy related to dividend payouts is one of most important aspect as it is related with companies’ financial management and capital structure. The study discusses the dividend policy in very detail and the effect of dividend policy was compared with capital market results. The study found that selection of the company to modify the amount of dividend is recognized by the premium on dividends imposed by the capital market.
“Robert and Taggart (1985) studied the impact of too much debt in the non financial companies in US. In 1984 45% of total capital for U.S non financial corporation is financed by debt. It reveals the increase of short term debts financing to for the availability of the internal funds. It indicates the relation of internal funds to the short term debts. Its further shows the decrease in equity financing trend by re-purchasing the company shares from the market so it will not affect the total fund but it change the percentage of different financing methods in the capital structure.
The study has been conducted on the firm age and size on the factors of the financing constraints. Furthermore, there is an impact on research and development expenditures. The firms which are smaller in size and in the regions of the country there constraints of financing are on equity bases. While as a big firms using the both financing methods which are equity and debts capital methods because they allocate more money on investment of research and development for the growth of the organization as compare to smaller firms (Winker, 1998).
Kracaw and Zenner (1996) studied the impact of financing announcements of high leverage transaction on the share price of the banks. It shows that those financial announcements create increase in capital for the lending banks. Similarly it also examines those banks have loan announcements create decrease in the banks wealth. These studies suggest that high leverage transactions increase in share holder equity but it not increase due to wealth transfer between the banks.
Kim (1998) examined the impact of those organizations capital before and after the initial public offer in the Korean market. These firms use the cash for the availability of the internal funds for the running operations of the organizations. The result shows initial public offer is the big advantage for the smaller firms but for the larger firms its not so effective.
Eugene, Fama and French (1998) study the impact of dividend and debt to the firm value. It measures how the firms tax dividend and debt effects on the firm value. This research study examines three variables dividend, taxes and financial debt and the result shows that the dividend and financial debt of the organizations create impact on firm’s value but there is no impact of tax on the pricing of dividends.
Pringle (1973) analyzes the choice of debt and equity which effect the firm price earnings ratio of the companies it shows that the company core business for investment which cause the increase in market value similarly increase in the price earnings ratio of the companies. While as the companies are in financing there price earnings ratio is lower.
A considerable amount of literature has examined particular financial methods and their potential association with EPS (earnings per share) and DPS (dividend per share). It may be expected that firms with unfavorable financial characteristics may resort to manage the earnings activities of the company so as to enhance their image in the market. Moreover, significant financial measures such as profitability and growth may provide substantial evidence concerning earnings management activity. The companies which amend their earnings are less profitable, highly leveraged, low growth and smaller as compared to other rival companies in the industry (Sun & Rath, 2008).
Consistent with Beaver (1968), high growth firms are more vulnerable to increased risk and cost of capital consequently, factors that could lead to earnings management activity. Additionally, these firms seem more susceptible in meeting earnings benchmarks provided by the financial analysts’ forecasts in order to facilitate their growth prospects (Bartov, Givoly & Hayn, 2002).
Consistent with this approach, Matsumoto (2002) provided strong evidences that the companies which have higher growth expectations are ready to use accounting choices that increase reported income, primarily guided by the forecasts provided.
On a relevant study, Madhogarhia, Sutton and Kohers (2009) mentioned that growth firms stock prices was severely suffer in case of earnings deterioration, significantly higher than their counterparts. That provides additional motivation for growth firms to imply earnings management practices. They concluded that companies with higher growth assertively handle earnings of their company up and down as compared to companies with more value founded on discretionary long-term accruals, discretionary current accruals and total discretionary accruals.
As prescribed, prior literature indicates that environment plays a significant role on managing earnings level applied by high growth firms.
Firth, Fung and Rui (2007) argued that fast growing firms can manipulate the earnings of the firm more easily than mature companies because the business activities of the fast growing companies are very difficult to monitor.
It is therefore naturally more apparent for that kind of firms to resort on earnings management practices, especially after considering their continuously attempt to facilitate growth.
This can be additionally reinforced by Doyle, Ge, and McVay (2007), who showed that fast growing firms have generally weaker internal controls, factor that leaves considerable space for earnings management activities. Finally, fast growing firms require higher amounts of financing in order to support their activities, which can also lead to increasing EPS (earnings per share) and DPS (dividend per share). Profitability also seems to have strong relationship with the management of earnings level applied by the company.
Iatridis and Kadorinis (2009) point out an increased possibility of earnings management activities in cases of firms’ decreased profitability so to improve their financial picture. Additionally, Sun and Rath (2008) demonstrated that the profitability along with firm size is the primary determinants of the earnings management policies. They suggested that the companies with lower profits are possibly having involvement in practices such as earnings management, both income increasing and decreasing.
Moreover, as indicated by Burgstahler and Dichev (1997), that the companies perhaps prone to earnings management in case of earnings decrease and losses increases. In order to avoid reporting losses, they exploit the accounting discretion provided in order to influence the outcomes and to achieve instead reporting of small profits.
On the other hand, as prescribed before, political cost hypothesis Watts and Zimmerman (1990) implied that larger firms have strong incentives to report income decreasing earnings. In that case, firms prefer to sacrifice reported profitability in order to avoid unfavorable political consequences and increased monitoring.
On the same direction, according to Healy (1985), in cases of poor reported profitability figures, firms may be inclined to employ “big bath” strategy. As suggested by this technique, they prefer to decrease even more the reported earnings so that they can achieve more easily the future years’ earnings benchmarks and improve the firms’ financial figures. Mainly driven by forward-looking incentives, they are exploiting one year’s unfavorable earnings, so that they can substantially improve the firms’ financial condition over the years following.
Moreover, earnings of the firms seem also to be significantly associated with the level and method of debt applied by a firm in order to finance its operations. A considerable amount of existing literature has investigated the association between leverage and earnings management. It is difficult though to generalize the findings of prior studies since they appear to be inconsistent and contradictory. However, financial distressed firms are more likely to present increased absolute discretionary accruals in order to avoid destructive aftermaths.
First of all, as the debt/equity hypothesis of the Positive Accounting theory implies that the companies which have financial burden are more likely to use accounting choices which lead to income increasing so as to eliminate the constraints affected by the high debt level. Moreover, they would apply earnings management to avoid a potential technical default (Sweeney, 1994).
DeFond and Jiambalvo (1994) investigated firms with high debt/equity ratio focusing though on the year of the firms’ debt covenant violation. They pointed out a positive relationship between leverage or debt and the level of earnings management applied earlier to the agreement breach.
Consistent with the debt/equity hypothesis, Dichev and Skinner (2002) provided evidence that financial distressed firms are more likely to meet or beat covenant thresholds by exercising managerial discretion over the reported numbers.
Several other studies though have reached different conclusions on the association between leverage and earnings management.
DeAngelo, DeAngelo, and Skinner (1994) examined this association in a sample of 76 firms which were listed on NYSE (New York Stock Exchange) that face serious financial difficulties. They present strong evidence that these firms prefer accounting choices that decrease reported income. As mentioned in their paper that when keeping in view the closer assessment, it indicated that 87% of the companies re-settle their agreements with lenders, and/or influence for government support, have management changes all of these things conceivably induce managers to lessen reported earnings of the company. Hence, income-decreased reported numbers may be preferred in order to achieve more desirable financial terms.
Additionally, as argued by Becker, DeFond, Jiambalvo, and Subramanyam (1998) that there is negative relationship between leverage or debt in financial burden firms and discretionary accruals. Finally, Jelinek (2007) investigates the effects of leverage increases on the magnitude of discretionary accruals applied. Her findings suggest that increased leverage is significantly associated with negative accruals, indicating that as a beneficial consequence for the firm.
Besides not widely applied in the existing earnings management literature, liquidity undoubtedly elaborates as an indication of high importance when considering a firms’ financial health. Consistent with Iatridis and Kadorinis (2009), “companies which take adverse financial actions, are more likely to show high discretionary accruals and consequently inclined to earnings management”. Liquidity may be regarded as a measurement of the firms’ efficiency concerning the cash generating process. It reflects the ability of the firm to meet its short term obligations as also to adequately finance its business operations.

  • RESEARCH METHODS
The key objective of this research was to investigate the impact of different financing methods on earning per share and dividend per share on the non financial sector. The statistical technique applied in this research is Panel Least Square to analyze the impact of financing methods on earning per share and dividend per share. The Panel Least Square technique is applied through Eviews software.

Method of Data Collection
According to the nature of the topic, the secondary source of data collection has been used. Both theoretical and empirical aspects of the topic were analyzed in this study. The data has been extracted from companies’ annual reports listed in KSE 100 index from the above mentioned non financial sectors.
The Sample Size
The panel data for the Earnings per Share, Dividend per Share (Dependent Variables), Stock Issuance, Debt Issuance and Retain Earnings (Independent variables) have been taken for nine (09) years from 2004 to June 2012. The data is yearly adjusted, meaning annual data have been taken for the study. As a sample size, 47 companies have been selected from different non-financial sectors such as Textile, Oil and gas, Food producers, Chemical and Cement. Total 1017 research observations have been taken for this study.
The detail of the sample size of the companies for different sectors from the population is as follows:
Instrument of Data Collection
This research thesis is totally based on the secondary data; therefore, no research instrument such as questionnaire has been used for the data collection.

Research Model Developed
Following research model has been developed as per thesis variables and hypothesis.
Independent variables                                                                        Dependent variables









Figure 3.1 Financing methods and firm’s profitability model

Research Model

EPS =
DPS =
Where:
EPS is Earnings per share
PAT= Profit after tax
DPS is dividend per share
α is a constant
β is beta
e is error term at time t
Where St is financing with stock issuance
CA0 indicates capital before increase
CA1 indicates capital after increasing
B is the increase percent from the cash sources of stockholders capital.
Dt = dt – dt-1
Where Dt is financing through debt issuance
dt is dept financing after increasing debt capital
dt-1 is dept financing before increasing debt capital
ER = Retain earnings of the period

Statistical Technique
Because the data used in this study is panel data; therefore, panel least square (PLS) statistical technique have been applied to test the study hypothesis. The panel least square (PLS) technique had been applied by using EVIEWS software.

  1. Results
The objective of this study is to investigate that how different financing methods effects on EPS (Earnings per share) and DPS (Dividend Per Share) of the companies listed in KSE-100 Index of the non-financial sectors companies. On the basis of research findings, the study will conclude with rejecting or accepting the null and alternative hypothesis that were developed for this research study. Following the testing interpretations has been provided for each hypothesis.
Findings and Interpretation of the results
In this study we had to investigate that how different financing methods such as stock issuance, debt issuance and retained earnings affect on EPS (Earnings per share) and DPS (Dividend per Share) of the companies listed in KSE-100 Index of the non-financial sectors companies. The data for this study has been extracted from companies’ annual reports listed in KSE 100 index from the above mentioned non financial sectors. The yearly adjusted panel data for the Earnings per Share, Dividend per Share (Dependent Variables), Stock Issuance, Debt Issuance and Retained Earnings (Independent variables) have been taken for nine (09) years from 2004 to June 2012. As a sample size, 47 companies have been selected from different non-financial sectors such as Textile, Oil and gas, Food producers, Chemical and Cement. Total 423 research observations have been taken for this study. The Panel Least Square (PLS) statistical technique has been applied to test the possible study hypothesis. The Panel Least Square (PLS) technique had been applied by using EVIEWS software.
When the study was investigated to see the effect of different financing methods (debt financing, stock issuance and retained earnings on EPS (Earning Per Share), the above mentioned table 4.1 was generated by Eviews software where EPS is dependent variable and Debt Issuance, Stock issuance , Retain earning  is an independent variable. The table 4.1 shows that EPS (Earnings Per Share) is a dependent variable, method or statistical technique is Panel Least Squares, sample size is 9 years (2004-2012), 47 companies have been included as sample, and 1017 are observation on which the study is conducted.
H1: There is significant impact of financing methods on EPS.
As shown in the above table 4.1, the p-value for Debt Issuance is 0.625 which is greater than our level of significant (α=0.05) 0.05, (0.625>0.05), therefore, it is suggested that the study will fail to reject (i.e. accept) the null hypothesis, that there is no significant impact of debt issuance on earnings per share of the company. Finally, the study found that if the company relied solely on debt issuance, then it will not have any impact on firm’s EPS (Earnings Per Share).

H2: There is significant impact of financing through stock issuance on EPS.
The above table 4.1 shows that the p-value for Stock Issuance is 0.7173 which is greater than our level of significant (α=0.05) 0.05, (0.7173>0.05), therefore, it is suggested that the null hypothesis of the study will be accepted and our alternate hypothesis that there is significant impact of stock issuance on earnings per share (EPS) will be rejected. Finally, the study found that if the company issues stocks to finance its projects, then it will have no impact on firm’s EPS (Earnings Per Share).
H3: There is significant impact of financing through retained earnings on EPS.
The table 4.1 depicted above, shows that the p-value for Retained Earnings (ER) is 0.0159  which is less than our level of significant (α=0.05), (0.0000<0.05), therefore, it is suggested that the null hypothesis of the study will be rejected, and the alternate hypothesis that there is significant impact of Retained Earnings on Earnings Per Share (EPS) will be accepted. Finally, the study found that if the firm use retained earnings rather than issuing debt or stock, to finance its project(s), then it will have positive impact on firm’s EPS (Earnings per Share) in the future.
In the earlier section for three hypotheses, the impact of different financing methods on EPS have been discussed and the findings of the these financing methods are written that how above mentioned financing methods affect the Earnings Per Share (EPS), now onwards we will examine the impact of these financing methods on DPS (Dividend per Share).

Now, as mentioned above, we will examine the impact of same financing methods (debt, stock and retained earnings), on DPS (Dividend per Share) rather than EPS as shown in table 4.2 that our dependent variable is DPS. The method or statistical technique is same Panel Least Squares, sample size is 9 years from 2004-2012, 47 companies have been included as sample, and 1017 are the observation on which the study has been conducted.
H4: There is significant impact of financing through Debt Issuance on DPS.
As depicted above in table 4.2, the p-value for Debt Issuance is 0.9974 which is greater than our level of significant (α=0.05) 0.05, (0.9974>0.05), therefore, it is suggested that the study failed to reject (i.e. accept) the null hypothesis, that there is no significant impact of debt issuance on firm’s DPS (Dividend per Share). Finally, the study found that if the company borrowed capital through debt issuance, then it will not have any impact on firm’s DPS (Dividend per Share). This is same result as we have seen above for EPS.
H5: There is significant impact of financing through Stock Issuance on DPS.
The above table 4.2 shows that the p-value for Stock Issuance is 0.9770 which is greater than our set level of significant (α=0.05) 0.05, (0.9770>0.05), therefore, it is suggested that the null hypothesis of the study will be accepted and our alternate hypothesis that there is significant impact of Stock Issuance on Dividend per Share (DPS) will be rejected. Finally, the study found that if the company issues stocks to finance its projects, then it will have no impact on firm’s DPS (Dividend per Share).
H6: There is significant impact of financing through retained earnings on DPS.
In the above table 4.2, it shows that the p-value for Retained Earnings (ER) is 0.5554 which is greater than our level of significant (α=0.05), (0.0000<0.05), therefore, it is suggested that the null hypothesis of the study will be accepted and the alternate hypothesis, that there is significant impact of Retained Earnings on Dividend Per Share (DPS) will be rejected. Finally, the study found that if the firm uses its Retained Earnings to finance its project(s), then it will have positive impact on firm’s EPS (Earnings per Share) in the future.
CONCLUSION, DISCUSSIONS, IMPLICATIONS AND FUTURE RESEARCH

Discussion
There are two main sources of financing in companies either internal and external resource. In internal sources are cash flows, sales of assets and retain earnings. External sources are mostly relay on the company’s position; some companies need a fund to operate their functional units to run the organization business. In external sources, bonds and preferred stock are useful functions by which the organizations can provide long-term financial services. The main reason of this study was to determine whether there is significant impact of different financing methods on firms’ earnings per share (EPS) and dividend per share (DPS) or not. To achieve this objective, the panel data for the (EPS) Earnings per Share, (DPS) Dividend per Share (Dependent Variables), Stock Issuance, Debt Issuance and Retained Earnings (Independent variables) have been taken for the period of nine (09) years from 2004 to 2012. The data is yearly adjusted, meaning annual data have been taken for the study. As a sample size, 47 companies have been selected from different non-financial sectors such as Textile, Oil and Gas, Food Producers, Chemical and Cement. Total 423 research observations have been taken for this study. The data is collected from the annual reports of the companies listed in Karachi Stock Exchange (KSE) 100 index from the above mentioned non financial sectors. For the purpose of analysis, Panel Least Square (PLS) statistical technique have been applied to test the study hypothesis. The Panel Least Square (PLS) technique had been applied by using EVIEWS software. The study found that there is no significant impact of debt and stock (equity) financing on firms’ EPS and DPS. On the other hand, this study found that there is a significant impact of financing through retained earnings on firm’s EPS and DPS in the future.

Conclusion
This study concludes that:
There is no significant impact of debt issuance on earnings per share of the company, because the p value (0.625) is greater than our set level of significant (α=0.05) 0.05, (0.625>0.05), therefore, it is suggested that the study failed to reject (i.e. accept) the null hypothesis, that there is no significant impact of debt issuance on earnings per share of the company. Finally, the study found that if the company relied on debt issuance, then it will not have any impact on firm’s EPS (Earnings Per Share).
There is no significant impact of financing through stock issuance on firms’ earnings per share (EPS) because p value (0.7173) is greater than our level of significant (α=0.05) 0.05, (0.7173>0.05), therefore, the study found that if the company issues stocks to finance its projects, then it will have no impact on firm’s EPS (Earnings Per Share). The main reason behind that every company issues shares hardly twice or three times in ten years so it will not be any impact of the Earning per share of the companies.
There is significant impact of Retained Earnings on Earnings Per Share (EPS), because p value for retained earnings (0.0159) is less than our level of significant (α=0.05) 0.05, (0.0159<0.05), therefore, the study found that if the firm use retained earnings rather than issuing debt or stock, to finance its project(s), then it will have positive impact on firm’s EPS (Earnings per Share) in the future.
There is no significant impact of debt issuance on firm’s DPS (Dividend per Share), because the p value (0.9974) which is greater than our level of significant (α=0.05) 0.05, (0.9974>0.05), therefore, the study found that if the company borrowed capital through debt issuance, then it will not have any impact on firm’s DPS (Dividend per Share). This is same result as we have seen above for EPS.
There is significant impact of Stock Issuance on Dividend per Share (DPS), because, the p-value for Stock Issuance is 0.9770 which is greater than our set level of significant (α=0.05) 0.05, (0.9770>0.05), therefore, the study concluded that if the company issues stocks to finance its projects, then it will have no impact on firm’s DPS (Dividend per Share). The main reason behind that every company issues shares hardly twice or three times in ten years so it will not affect the dividend of the companies.
There is no significant impact of Retained Earnings on Dividend Per Share (DPS), because the p value (0.5554) for Retained Earnings (ER) is greater than our level of significant (α=0.05), (0.5554<0.05), therefore, this study concluded that if the firm uses its Retained Earnings to finance its project(s), then it will have no impact on firm’s EPS (Earnings per Share) in the future.
In short, this study concluded that there is no significant impact of debt and stock (equity) financing on firm’s EPS and DPS. On the other hand, this study also concluded that there is a significant impact of financing through retained earnings on firm’s EPS in the future but not in the DPS.
Policy Implications
This research provides evidence that there is a significant impact of Retained Earnings (ER) only on firm’s earnings per share and there no impact on dividend per share, but there is no significant impact of financing through debt and stock issuance (equity) on firms’ Earnings per Share (EPS) and Dividend per Share (DPS).

Future Research
This study will help individuals and business firms that how different financing methods such as debt issuance, stock issuance and retained earnings affect firm’s EPS and DPS. This research study is limited to Pakistan only. In future the research can be extended to other countries such as India, China, Bangladesh, USA etc, to explore the impact of different financing methods on firms’ EPS and DPS of the companies listed on their respective stock exchanges. This research will be more helpful; if the independent variables are tested independently because together they effect the sample size of the population.


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