One of the most significant and well extensively examined areas of financial management is the choice of dividends, however not much investigation has been done in nations with poor institutional quality, notably Pakistan. This study contributes to the body of knowledge by identifying the critical variables that, in the face of corruption, influence Pakistani companies' judgements about dividend distribution as a crucial measure of institutional quality. The current study is unique in the sense that it explores the relation of dividend payout policy of the firm on the value of the firm in the presence of mediating variable, Institutional quality IQ which is measure through control of corruption. Pakistan is developing country with low Institutional Quality. The study used quantitative approach took a sample of 484 Non-financial firms from 2010 to 2021. The Haussmann Test recommended fixed Effect technique for Regression Model. The analysis was performed in two steps first the effect Dividend distribution policy was examined on the value of a firm in the absence of mediation (Institutional Quality). The dividend distribution policy showed a positive and a strong impact on the value of the firm. In the second step with inclusion of Mediating variable Dividend policy showed negative but a significant influence on the value of the firm.

Keywords: Institutional Quality, Payout Ratio, Signaling Theory.