Abstract
This study has been conducted to investigate the stock price behaviour around dividend announcement day in Karachi Stock Exchange. The literature suggests the mix trend in stock price around dividend announcement. This area in finance has been subject of extensive research since Miller Modigliani’s (1961) seminal paper. The impact of dividend announcement on stock price has been explored in number of ways. Despite of extensive research, dividend puzzle is still unresolved. In some circumstances stock price alone cannot interpret, dividend announcements’ impact properly. This study examines whether dividend announcement signals any information about future prospects of company and how investors react towards dividend announcement. This study is based on companies listed at KSE 30 Index during 2007 to 2009. The sample of 19 companies has been selected on the basis that companies are listed at KSE 30 Index throughout the study period. The study has followed event study methodology and market adjusted abnormal return (MAAR), cumulative abnormal return (CAR) and abnormal volume ratio has been calculated over the event window of 41days bifurcated in 20 days before and after announcement. The findings from the study reflect that price movement on announcement day is insignificant. Average MAAR on dividend announcement day is 0.003142% with t-value of -0.29355 which is not statistically significant. Cumulative abnormal return, reflect that investors have loosed, value of their investment on dividend announcement day. The CAR on dividend announcement day is 0.0268% with t-value of -0.154.
The Editor and the Sub-Editor share no responsibility regarding the views and opinions expressed by the authors. Articles published in the Biannual Research Journal Grassroots can be quoted or reproduced after acknowledgment.