Abstract:
Dividends are payments made to the shareholders out of the company’s income. There are many
researches performed to deal with the problem of why organizations distribute dividends and
whether the market reacts to announcements. Most of the studies in such context are carried out
in developed countries as it is clear from the literature; comparatively little research has been
conducted in emerging stock markets of Asia and Particularly Southern Asia. As the country of
origin of the author is Pakistan, therefore this thesis is based on Pakistan’s Karachi Stock
Market. The dissertation tries to cover the literature by inspecting the impact of dividend and
earning announcements on the stocks of Pakistani listed companies in Karachi Stock Exchange.
The main aim of this thesis is to contribute to a better understanding of the Pakistani Stock
Market based on the empirical evidence on the semi-strong market inefficiency. To achieve this
goal, the focus was given on announcements effect of earnings and dividends analyzing both the
stock price and trading volume. For research purposes, an event study approach is employed to
evaluate any abnormal returns around the dividend announcements for a sample of 36 firms
having 288 dividend announcements over a period of 2004-2011. It analyses by calculating
abnormal returns from the market model by using t-test (parametric).
The results provide little or no evidence of statistically significance of earnings and dividends, as
we did not found any evidence of abnormal returns on the event day and therefore we can
conclude that Pakistani Stock Market is not semi-strong form efficient.
