Company announcements, changes in earnings and dividends and stock price reactions: evidence from Karachi stock exchange

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.