IMPACT OF DIVIDEND ON SHARE PRICE: A CASE OF PHARMACEUTICAL COMPANIES

Abstract

Purpose - This study is conducted to examine the impact of dividend on share price of Pharmaceutical sector companies listed at Karachi Stock Exchange (KSE). Design/metliodology/approach - In this study, a sample of 7 Pharmaceutical firms listed at KSE were selected. Data is extracted from their respective annual reports from the period 2009-2013. In order to measure dividend, three main ratios used which are Dividend per share (DPS), Dividend yield (DY) and Dividend payout (DPO) while market price is used as dependent variable. Descriptive statistics, Correlation analysis and regression models are used to examine the impact between dividend and share price after controlling factors such as Debt, Size, Earning per share and Return on equity. Findings - The paper find that dividend had an impact on share price as 49.4% variation in market price is explained by the model. A positive relationship is found between Dividend per share and market price and a negative relationship between Dividend payout and market price. It was found that Dividend yield has no significant impact on price while Return on equity and price are negatively significant to each other. Practical implications - The outcomes of this study will help the pharmaceutical companies’ financial managers to understand the importance of distributing right amount of dividend and hence improve their share price. Moreover, investors also find the results of this study as a useful source in their investment decisions either to invest in a company which pays higher dividend or retaining more.