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This section discusses the methods and the research methodology that has been adopted to conduct this research. The research has used the both qualitative and quantitative methods to investigate the relation between the dividend policy and the value of the share price. The qualitative and quantitative methods are used to conduct this research. The research is divided into three phases. The first phase includes the pilot study of the topic in order to reach the second phase. In second phase the primary research has been conducted with the help of the instrument of interviews of the company executives and the financial analyst. The last phase includes the study of the case study in detail in order to get to final conclusion. The listed companies of the Pakistan in KSE are the focused group for conducting the interviews. The research is being conducted to determine the policies that various companies are adopting regarding the dividends and the share prices. The detail study has been done about the Karachi Stock Exchange in order to build a sound understanding for the topic and the pilot study as well.

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The research is going to cover the 202 firms listed on the Karachi Stock Exchange (KSE). The event study is going to be done among 639-dividend events. The interviews are going to be taken for a sample size of 23 executives and the financial analyst of the listed companies of the KSE. The process used for the study is a random sampling. There is a structure for the interviews being conducted as follows:

Respondents Total number Percentage
Executives and financial analyst who believe there is some relation between dividend and value of share 15 87%
Executives and financial analyst who believe there is no relation between dividend and value of share 08 13%
Total 23 100%


The research has incurred a number of data collection techniques in order to analyze the results. In order to collect the data from the executives of the firms and various financial analysts, interviews have been conducted. Similar to it, in order to get other kind of complimentary data the event study has been done. For a purpose of a greater scope, various secondary sources have been used. These sources include the reports of Karachi Stock Exchange, documents, financial reports of listed companies, internet, journals, articles, statistics provided by the National Bureau of Statistics and the Ministry of Finance in their annual reports.


The information gathered with the help of the above given data collection techniques are used to analyze the results. The results are concluded by conducting the statistical, as well as descriptive analysis of the data. The information collected gives the sound analysis of the relationship between the dividend payments and the fluctuations in the share prices. The software of the Statistical Package for Social Science (SPSS) is used to process the information of the interviews in order to get the results in the form of the percentages and cross-tabulations. The software is widely used in the researches to get the results in the form of tabulated reports, descriptive statistics, complex, statistical evaluations of the data and the tabulated reports. The given is used as a source of information for this purpose.

Table: Share Price before and after Dividend Announcement

                   Abnormal returns                                Excess returns
  Day (before or after)               Mean            Median Standard Deviation Mean           Median
   10 day     -0.00241           -0.00028        0.02675     -0.00198       -0.00010          0.02736
p-value       (0.031)             (0.134)            (0.112)        (0.280)
   9 day      0.00290              -0.00033        0.04939       0.00253      -0.00050          0.04960
p-value       (0.136)                (0.571)            (0.200)        (0.310)
   8 day      0.00043              -0.00032        0.03391       0.00007         0.00002        0.03195
p-value      (0.735)                 (0.951)            (0.943)        (0.968)
   7 day      -0.00229             -0.00012        0.06316      -0.00301          0.00011        0.06203
p-value      (0.328)                 (0.863)            (0.215)        (0.483)
   6 day       0.00109               0.00000        0.02451       0.00069         0.00014        0.02421
p-value     (0.253)                 (0.284)            (0.531)        (0.661)
   5 day      0.00192               0.00001        0.02976        0.177              0.00001        0.03017
p-value     (0.085)                 (0.227)           (0.134)        (0.431)
   4 day     0.00462                0.00002          0.08518       0.00412         0.00003        0.08561
p-value     (0.192)                 (0.170)           (0.242)        (0.272)
   3 day      0.00254               -0.00016         0.06742       0.00249         0.00011        0.06730
p-value     (0.332)                 (0.319)           (0.351)        (0.376)
   2 day     0.00478                0.00010          0.04496       0.00513         0.00012        0.04453
p-value     (0.007)               (0.073)             (0.005)         (0.059)
   1 day     0.00222                0.00010          0.03176       0.00164         0.00000        0.03334
p-value     (0.082)                (0.356)            (0.216)        (0.872)
0 day        0.00258             -0.00052             0.04430       0.00111      -0.00240          0.04501
p-value    (0.141)                (0.767)             (0.533)        (0.227)
   1 day     0.00414            -0.00050            0.06421       0.00069        -0.00032          0.04279
p-value    (0.126)                (0.671)             (0.631)        (0.365)
   2 day     0.00276              0.00043           0.06846      -0.00057       -0.00021          0.03334
p-value    (0.306)               (0.265)              (0.684)        (0.175)
   3 day     0.00352            -0.00058           0.06671     -0.00098       -0.00153             0.03569
p-value   (0.182)                (0.134)               (0.482)        (0.003)
   4 day     0.00082           -0.00049        0.06420       -0.00353       -0.00091           0.02713
p-value   (0.733)               (0.032)                (0.002)        (0.003)
   5 day     0.00136         -0.00066          0.06735        -0.00223      -0.00151           0.02543
p-value    (0.581)             (0.008)               (0.036)       (0.001)
   6 day     0.0056            0.00001          0.06486       0.00091         0.00000             0.02971
p-value     (0.024)            (0.431)               (0.412)        (0.542)
   7 day     0.0033           -0.00031          0.08212      -0.00047          0.00000            0.04259
 p-value    (0.245)            (0.891)               (0.762)        (0.784)
   8 day     0.00287         -0.00051           0.06239     -0.000422          0.00000        0.02268
p-value     (0.243)          (0.186)                  (0.654)        (0.389)
   9 day     0.00368         -0.00023           0.06536     -0.00043          0.00000        0.02711
 p-value    (0.162)          (0.634)                  (0.697)        (0.201)
  10 day    0.00165         -0.00034           0.06465     -0.00093          0.00000        0.02891
 p-value    (0.534)          (0.119)                  (0.445)        (0.377)

Source: Field Data


This section the general profile of the stock market of the Pakistan is given. A number of dimensions related to the topic, and various elements that are the part of the topic are discussed such as, stock exchanges of Pakistan, types of dividend policies, impacts of different types of dividend policies, impacts of dividend decision on the value of shares, etc. the section also provides with the impact assessment of the dividends on the firm’s value. The market outreach and the fluctuations caused due to the decisions of dividends are also discussed in this section. The findings and the conclusion are discussed in the section following this section. At the end of this section the implications of the study are given in detail.


The pilot study is the first phase of the process of the research. It is done with the help of the theory of irrelevance presented by MM (1961). It helps in building the theoretical framework for the research. According to this theory, the investors are insensitive of the impact of the dividends. The theory explains that the dividend payment does not affect capital cost and stock price. Therefore, the dividend policy is considered irrelevant of the value of the share prices of the firm. They also presented a valuation approach to assets of the firms’ valuation. In addition, MM (1961) suggested theoretical framework for empirical tests of correlation between share price and “insufficient” dividends. According to them, the theory is only applicable when there are certain assumptions to be held. They are of the view that the investor has no interest either the payment is made in the form of capital gain or dividends. They also elaborated that the issue of shares balanced the dividend payments in the stock market.

The theory also elaborated that the value of the firm is assessed on the basis of the investment opportunities and the earning capacity not on the capacity of dividend payment. It implies very convincingly that there is no effect of the dividend announcements on the value of the stock market. Apart from it, the recent research that is being conducted in this field rejected this theory. It is according to the Efficient Market Theory (EMH) that the share prices are the depiction of the all kind of information available in the market including the dividend decisions of every type. According to this theory, the prices determined for the shares are the combined effect of the all kind of information including the dividend decisions. The researcher Fama (1970) categorizes the Efficient Market Hypothesis in three parts. The part of weak EMH reflects the historical data involvement in the price of the share, and then there is no possibility for the outperformance of the investor. It is not feasible to perform or trade on the basis of the past news. The second part is of semi-strong EMH, it explains that the prices of the share are the reflection of the information that is made public. Any information that is publicized is useless to use. The last part involves the information about the strong form of the EMH that explains the prices of the shares are the reflection of the information that is available in the market including the information about the private information about the equity values.

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It is found with the help of the research that if the market of Pakistan follows the structure given by the Efficient Market Hypothesis, then the dividend details are very important for the investors and it will provide significant returns on the dividend decisions. In the current research the significance of the relationships between dividend yield and share price volatility is based on the following variables: debt, payout ratio, earning volatility, growth and size of yields and prices. For establishing the relationships between dividend yield and share price volatility, regression analysis was conducted. Dividend yield is an independent variable and payout ratio is analyzed with the help of cross-sectional regression analysis.

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