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Share Price Reaction to Dividend Announcements: A Case of Pakistani Banking Sector

International Journal of Business Studies Review

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Title Share Price Reaction to Dividend Announcements: A Case of Pakistani Banking Sector
 
Creator Malik Manzoor Iqbal, 1Muhammad Murtaza, 1Sammar Abbas
 
Description The relationship between dividend policy and stock prices has been researched extensively in the developed countries. Their relationship has also been checked in emerging countries especially in Pakistan. However, despite the far-reaching literature on dividend policy still no unanimity on a general dividend theory had been achieved that either explains the process of dividend decision making or forecast an ideal dividend policy. At this point one is compelled to accept the term “Dividend Puzzle” introduced by (Black, 1976) by saying, “The harder we look at the dividend picture, the more it seems like a puzzle, with pieces that just don’t fit together”. This paper is in attempt to analyze the relationship between dividend policy and stock prices in the context of Pakistani banking sector. During the conduct of the research, for the achievement of desired objectives, a standard event study has been used to find the unexpected returns for the three types of announcements i.e. cash dividends, bonus issues (stock dividend), simultaneous cash and bonus announcements using the dividend announcements data of 21 banks as a sample over a period 2005-2013. The analysis of the data reveals that beta values of individual securities do matter and thus convey important information to the outsiders in Pakistani banking sector thereby supporting the dividend signaling hypothesis. Since most of the returns on events dates are negative thereby transmitting bad news to the investors, it might be due to the dividend decrease events, as the study analyzed the aggregate dividend events without differentiating the dividend-increase firms from dividend-decrease companies. so, the managers are required to revise their corporate practices to overcome these negative returns or if it is due having certain projects with positive net present values or due to tax reasons, they must properly educate the investors with the prospects of such decisions.
 
Publisher KUST
 
Date 2017-06-05
 
Type info:eu-repo/semantics/article
info:eu-repo/semantics/publishedVersion
 
Format application/pdf
 
Identifier http://intjourbsr.org/index.php/ijbsr/article/view/50
 
Source International Journal of Business Studies Review; Vol 2 No 1 (2017); 27-40
2521-0068
 
Language eng
 
Relation http://intjourbsr.org/index.php/ijbsr/article/view/50/44