Dividend Announcements and Stock Returns: An event study on Karachi stock exchange

Mahmood, Shahid; Sheikh, Muhammad Fayyaz; Ghaffari, Abdul Qayyum
December 2011
Interdisciplinary Journal of Contemporary Research in Business;Dec2011, Vol. 3 Issue 8, p972
Academic Journal
The purpose of present study is to explore the effect of cash paid as dividend on share prices. Value relevance of cash dividend announcement is tested on a sample of around 100 corporate dividend announcements in Karachi Stock Exchange (KSE), during the period of 2005 to 2009. Market model with top three basic extensions i.e., Market, Mean, and Risk adjusted return models were used with the application of event study methodology on daily stock returns. Although there is a marginal bias, the results of all three methods are almost similar. The observed results advocated that dividend announcements are positively value relevant and rejected dividend irrelevance hypothesis in KSE. Strong preference for dividend supports the evidence of agency cost. Results also show the signs of insider traders in the market in the form of market activism in pre event window. Finally the arbitrage opportunities are also visible from results.


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