Dividend Policy and Its Impact on Market Price: an Empirical Study of Fuel and Energy Sector

Abstract

This research endeavored to expose dividend policy and its impact on market price in perspective of fuel and energy sectors of Pakistan and Dividend policy is a very strong concern for all nature of corporation for getting accomplishment the goals of an enterprise. Dividends (cost of equity) are allocated from profit after tax and retained earnings that facilitates a chance to the pecuniary administrator for raising the price of shares, so it replicates the importance of meaningful effect of bonus policy on the company and its earnings as well. The conclusions of this guiding principle have been analyzed from all possible way of approaches by scholars. Literature characterizes differing observations of all type of probable investigating work and various assumptions that explain how proxies of dividend policy momentously effect with stock prices such as dividend irrelevance, bird in hand, signaling, tax preference, transaction cost, and agency cost. Data of seventeen firms out of twenty seven firms of fuel and energy sectors of Pakistan from time period of 10 years have been gathered through organized sample. Fixed effect model (types of panel model) has been analyzed in panel data. All selected tools have been run through Eviews and SPSS software in this research work. Many techniques have been used such as Levin li chu , Hauseman ,Wald, VIF, Tolerance, Durbon Watson. All explanatory variables are found significant except PAT. It signifies that proxies of dividend policy have significance in all types of decisions in area of finance because it affects on market price of shares. The decisive justification in support of suggestion to the shareholders of fuel and energy sectors is that the operating firms need to work out a dividend policy on the basis of market price. This study signifies stock buyers’ pre nature towards price or price consciousness. It is clearly shows that the theory of dividend relevance is fully accepted an empirical study of these sectors in Pakistan.