ISJ Theoretical & Applied Science 03(47) 2017

ISPC Technological breakthrough in science, Philadelphia, USA

Iftikhar AB, Raja NJ, Sehran KN

IMPACT OF DIVIDEND POLICY ON STOCK PRICES OF FIRM.

Full Article: PDF

Scientific Object Identifier: http://s-o-i.org/1.1/TAS-03-47-7

DOI: https://dx.doi.org/10.15863/TAS.2017.03.47.7

Language: English

Citation: Iftikhar AB, Raja NJ, Sehran KN (2017) IMPACT OF DIVIDEND POLICY ON STOCK PRICES OF FIRM. ISJ Theoretical & Applied Science, 03 (47): 32-37. Soi: http://s-o-i.org/1.1/TAS-03-47-7 Doi: https://dx.doi.org/10.15863/TAS.2017.03.47.7

Pages: 32-37

Published: 30.03.2017

Abstract: Dividend is the part a firm’s total net profit earned during a specified period of time. The net profit of a firm is divided among investors (the shareholders of the firm) according to their respective share of investment. Dividend policy is the most important dimension of a firm which directly influences stock prices of a firm. The firm’s Board of Directors makes and implements its dividend policy with regards to profit management, distribution of profit among shareholders and to retain a part of profit in company account to avail some better investment opportunities in future. This study focuses on analyzing the impact of dividend policy on the stock prices a firm. To study the impact of dividend policy on the stock prices the banking sector firms were selected. The 10 year (2005 to 2014) financial data of five banks were collected from their financial reports and websites of State Bank of Pakistan and Karachi Stock Exchange. The results revealed that a rational dividend policy plays an important role in attracting reputable investors and contributes a lot in strengthening capital structure of a firm. The study was initiated by literature review conducted around relevant texts and journals to get awareness about previous research in the area. To get a critical view of dividend policies of different firms and relevant impact on stock prices, a large scale secondary data was taken about capital structure and relevant dividend policies of these firms. Secondary data was gathered through internet and personal visits of selected sample of respondents. The findings of the study revealed that dividend policies of a firm might have a positive and desirable impact on stock prices of a firm if devised and implemented after in-depth study of capital structure of the market and dividend policies of different firms. The results of the study are expected to help business institutions, business students and researchers to understand a distinct interdependence between dividend policies and stock prices of a firm.

Key words: Dividend, dividend policy, stock prices, investment, dividend payout.