EFFECT OF DIVIDENDS ON SHARE PRICES OF DIFFERENT COMPANIES IN KARACHI STOCK EXCHANGE

Abstract

This paper attempts to determine the impact of dividend yield on stock price risk in Pakistan. A sample of listed companies in Karachi Stock Exchange is examined for a period from 2004 to 2007. Dividend policy measures have significant impact on the share price on the stock exchange. The relationship is not reduced much even after controlling for the above mentioned factors. So dividend policy affects stock prices and they fluctuate accordingly. Price data has been taken from the annual reports and other annual publications of Karachi Stock Exchange. . The empirical estimation is based on a cross-sectional regression analysis of the relationship between stock price volatility and dividend policy after controlling for firm size, earning volatility. Dividend yield and payout ratio have significant impact on the share price volatility. The relationship is not reduced much even after controlling for the above mentioned factors. This suggests that dividend policy affects stock price volatility and it provides evidence supporting the arbitrage realization effect, duration effect and information effect in Pakistan. Whereas payout ratio. Whereas payout ratio measure is having significant impact only at lower level of significance. In overall period the size and leverage have positive and significant impact on stock price volatility. The earnings volatility impact is negative and significant only during reform period. The paper attempts to formulate dividend yield with the help of dividends that are calculated by using formula in the excel sheet. This would give us the idea about effects of change in dividend policies on the share prices. We have also give graphs and figures regarding this information with the help of an equation. This equation shows the relationship between stock price volatility and no. of outstanding shares. Dividend yield of 93 companies is being analyzed thoroughly after calculation to interpret about the results concerning share prices. All the data is given in appendix A and b. After that article on Dividend policies and share prices are taken into consideration to reach conclusion.