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Impact of Dividend Policy, Earning per Share, Return on Equity, Profit after Tax on Stock Prices

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  • Hunjra, Ahmed Imran
  • Ijaz, Muhammad Shahzad
  • Chani, Muhammad Irfan
  • Hassan, Sabih ul
  • Mustafa, Umer

Abstract

Purpose: The volatility in stock prices is one of the most discussed topics in finance. Many studies have been conducted to find the factors which cause fluctuation in stock prices and different results have been found. In this study an attempt has been made to see the affect of dividend yield, dividend payout ratio, return on equity, earning per share and profit after tax on stock prices in Pakistan. For this purpose four non financial sectors (Sugar, Chemical, Food and personal care, Energy) have been selected. A sample of 63 companies listed at Karachi stock exchange was analyzed for the period of 2006-2011. Methodology: Ordinary least square regression model has been applied on panel data. Findings: The results indicate dividend yield and dividend payout ratio which are both measures of dividend policy have significant impact on stock price. Dividend yield is negatively related with stock price and dividend payout ratio is positively related with stock price which means that these results are against dividend irrelevance theory. For other independent variables profit after tax and earnings per share have significant positive impact on stock price and return on equity which shows positive insignificant impact on stock price. Recommendations: This paper shows new insights for policy makers to improve the performance of Karachi stock exchange.

Suggested Citation

  • Hunjra, Ahmed Imran & Ijaz, Muhammad Shahzad & Chani, Muhammad Irfan & Hassan, Sabih ul & Mustafa, Umer, 2014. "Impact of Dividend Policy, Earning per Share, Return on Equity, Profit after Tax on Stock Prices," MPRA Paper 60793, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:60793
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    References listed on IDEAS

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    1. Muhammad Asghar & Syed Zulfiqar Ali Shah & Kashif Hamid & Muhammad Tahir Suleman, 2011. "Impact of Dividend Policy on Stock Price Risk: Empirical Evidence from Equity Market of Pakistan," Far East Journal of Psychology and Business, Far East Research Centre, vol. 4(4), pages 45-52, July.
    2. Merton H. Miller & Franco Modigliani, 1961. "Dividend Policy, Growth, and the Valuation of Shares," The Journal of Business, University of Chicago Press, vol. 34, pages 411-411.
    3. Ahmed, Hafeez & Javid, Attiya Yasmin, 2008. "Dynamics and determinants of dividend policy in Pakistan (evidence from Karachi stock exchange non-financial listed firms)," MPRA Paper 37342, University Library of Munich, Germany.
    4. Khaled Hussainey & Chijoke Oscar Mgbame & Aruoriwo M. Chijoke-Mgbame, 2011. "Dividend policy and share price volatility: UK evidence," Journal of Risk Finance, Emerald Group Publishing, vol. 12(1), pages 57-68, January.
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    Cited by:

    1. Anatol MELEGA & Vasilica - Monica ANCUÈšA (ARSENE), 2020. "Analysis Of The Result Of The Financial Year And Of The Earnings Per Share," European Journal of Accounting, Finance & Business, "Stefan cel Mare" University of Suceava, Romania - Faculty of Economics and Public Administration, West University of Timisoara, Romania - Faculty of Economics and Business Administration, vol. 14(24), pages 96-109, October.
    2. Mustafa Cayir & Nasuh Oguzhan Altay, 2021. "Direct and Indirect Effects of Cash Dividend Policies on Firms’ Capital Accumulation in Selected Developed Markets," Istanbul Business Research, Istanbul University Business School, vol. 50(2), pages 235-254, November.
    3. Tharinee Pongsupatt & Apichat Pongsupatt, 2019. "Factors Affecting Stock Price: The Case of Thailand Stock Exchange SET 100 Index," Proceedings of International Academic Conferences 9711711, International Institute of Social and Economic Sciences.
    4. Krishnamoorthy Charith & Andrey Davydenko, 2021. "Informational Value of Dividend Initiations: Impact of Cash Dividends on Share Prices of Manufacturing Companies in Sri Lanka," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 13(3), pages 1-13, March.
    5. Andrey Davydenko & Krishnamoorthy Charith, 2021. "Informationswert von Dividendenausschüttungen: Einfluss von Bardividenden auf die Aktienkurse von produzierenden Unternehmen in Sri Lanka [Informational value of dividend initiations: Impact of cas," Post-Print hal-03359177, HAL.
    6. Senjuti Barua, 2020. "Firm Level Characteristics and Stock Returns: Evidence from Selected Insurance Companies Listed on the Dhaka Stock Exchange," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 10(12), pages 1356-1365, December.
    7. Nurul Hidayah & Wahyudin Zarkasyi, 2017. "The Effect of Human Resources Management Competency and the Role of Culture on Accrual Accounting Implementation Effectiveness and the Impact on Quality of Accounting Information," European Research Studies Journal, European Research Studies Journal, vol. 0(4B), pages 183-199.
    8. Pudji Astuty, 2017. "The Influence of Fundamental Factors and Systematic Risk to Stock Prices on Companies Listed in the Indonesian Stock Exchange," European Research Studies Journal, European Research Studies Journal, vol. 0(4A), pages 230-240.
    9. Dama, Hais, 2018. "The Influence of the Dividend Payout Ratio (Dpr) and the Current Ratio (Cr) Against the Growth of Share Prices in the Service Sector Companies the Period 2011 – 215, in Indonesia," INA-Rxiv 63vhe, Center for Open Science.

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    More about this item

    Keywords

    Dividend policy; Stock price; Dividend irrelevance theory;
    All these keywords.

    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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