The Impact of Dividend Announcement on Stock Returns Among the Ten Top Companies in Pakistan

Abstract

The study tested the response of stock prices around the dividend declaration dates in Pakistan stock exchange. It estimated the data of 1110 dividends announced by 91 firms of the highest ten active sectors of Pakistan Stock Exchange. To empirically investigate the relationship between stock returns and dividend announcement, the panel regression was employed by creating dummy variables for 61 days around the dividend declaration dates. Cumulative average abnormal returns and average abnormal returns were also stimated around the events with the help of event study methodology. Outcomes of the empirical analysis revealed strong evidence of market abuse in the term of insider trading and supported the argument of the information content hypothesis and semistrong form of efficient market. Moreover, the study also found a robust impact of the probable ex-dividend date. The study recommended that it is a responsibility of stock exchange regulatory authorities, whistleblowers, registered companies, and the investors collectively to detect and punish this white-collar financial crime.

Dividend capturing on ex- dividend day: A scenario of Pakistan.

“…Recently, several studies have been done to examine stock behavior in Pakistan as well. Tanveer et al, (2019) examined how stock prices on Pakistan's stock exchange responded to dividend declaration dates. They calculated the data for 91 companies in the top ten most active industries on the Pakistan Stock Exchange.…”

Does Size of the Firm Matter in the Relationship Between Foreign Ownership and Dividend Policy?

“…According to Baker and Weigand (2015), solving the dividend puzzle has now become an even more challenging phenomenon because every firm and market have peculiar characteristics and various possible forms of dividends substitutes. More recently, Tanveer and Jamil (2019) also stated that a dividend is very vital as firms continue to make its payments despite the difficulties faced by financial economists in their analyses. In addition to the size and form of dividends that a firm is expected to pay, managers first need to consider the likely factors that will necessitate its payment.…”