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Impact of Dividend Policy on Shareholders' Wealth: A Case of Karachi Stock Exchange

Author

Listed:
  • Shahid Ali

    (Institute of Management Sciences, Peshawar)

  • Qamar Ishtiaq

    (Institute of Management Sciences, Peshawar)

  • Muhammad Naveed

    (Muhammad Ali Jinnah University, Islamabad)

Abstract

This current study is aimed at investigation of a relationship between two important segments of investor expectations relating to cash dividends' policy and wealth of shareholders. A number of research attempts have still to find an exact relationship. This study relies on a data that is gathered from sixty-eight companies from Karachi Stock Exchange. For some companies the financial year concludes in December while for others in June. The analysis is spread in two categories; in one of the categories 37 firms that close their accounts in June are taken for the period 2003 to 2007 whereas in the second category 31 firms are taken which close their accounts in December. The study period for the second category is from year 2004 to 2007. Ordinary least squares and fixed effect model are used to estimate regression equation by taking stock returns as explained variable and dividend payout ratio as explanatory variables. The results of the analysis show that returns have a negative correlation with dividend policy and firm size and have a positive correlation with return on assets, price-earning ratio and growth of the company for the companies with year ended June. For the companies with year ended December returns are negatively correlated with size of the firm, dividend payout ratio, and return on assets. The analysis reveals that OLS Model is not a good model for estimation of returns, but fixed effects model is a good model that can be used for estimation purposes.

Suggested Citation

  • Shahid Ali & Qamar Ishtiaq & Muhammad Naveed, 2011. "Impact of Dividend Policy on Shareholders' Wealth: A Case of Karachi Stock Exchange," Business & Economic Review, Institute of Management Sciences, Peshawar, Pakistan, vol. 3(1), pages 106-121, April.
    • Handle: RePEc:bec:imsber:v:3:y:2011:i:1:p:106-121
    DOI: dx.doi.org/10.22547/BER/3.1.7
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    Citations

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    Cited by:

    1. Shah, Mohay Ud Din & Shah, Attaullah & Khan, Safi Ullah, 2017. "Herding behavior in the Pakistan stock exchange: Some new insights," Research in International Business and Finance, Elsevier, vol. 42(C), pages 865-873.
    2. Andrey Davydenko & Krishnamoorthy Charith, 2021. "Informationswert von Dividendenausschüttungen: Einfluss von Bardividenden auf die Aktienkurse von produzierenden Unternehmen in Sri Lanka [Informational value of dividend initiations: Impact of cas," Post-Print hal-03359177, HAL.
    3. Krishnamoorthy Charith & Andrey Davydenko, 2021. "Informational Value of Dividend Initiations: Impact of Cash Dividends on Share Prices of Manufacturing Companies in Sri Lanka," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 13(3), pages 1-13, March.

    More about this item

    Keywords

    Dividends; dividend policy; shareholder wealth;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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