Abstract
This study seeks to explore the relationship between corporate governance and dividend payout policywith the mediating role of leverage.Relationship between corporate governance and dividend payout already established but mediating role of leverage is checked for the first time. Better corporate governance may impact the capital structure due to reduced agency problem and hence the firms change the dividend payout policy. CEO duality, audit committee, number of meetings, independent directors and board size are taken as indicators of corporate governance. The study uses the secondary data of Pakistan Stock Exchange 100 index listed companies from 2011 to 211. Total 327 firm-year observations are included in the study. AMOS is used to apply Structural Equation Modeling for the confirmation of mediation process. The empirical results show that leverage plays mediating role between corporate governance and dividend payout policy when CEO is not holding the office of ChairmanBoD and there is existence of audit committee. Board size is significantly and positively related with leverage and the leverage is significantly and negatively related with dividend payout ratio. Result reveal that if a company has audit committee and CEO is separate from chairman board of directors and want to increase the dividend payout then the company will have to decrease its leverage. Empirical results show that board size is significantly and positively related to leverage and leverage is significantly and negatively related to dividend payout. So the company will have to keep its board size minimum to minimize the leverage and maximize dividend payout if it is willing to pay higher dividends. On the other hand, it is found that the investorswho opt to purchase shares with the intent to receive higher dividend they will have to select a company with minimum board size. It is revealed from the empirical results that smaller board size keeps the leverage minimum and consequently dividend is maximized.