The paper is authored by Naimat Ullah Khan in collaboration with Bruce

Burton and David Power. It investigates the signaling impact of dividends on

share prices in Pakistan. The study has adopted semi-structured interview for
interaction with participants. The study involves interaction with 16 financial
analysts and 23 company executives.
Dividend signaling theory argues that dividend bears either positive or
negative impact with the prospects of future earnings. Concomitantly the
impact leads to increase or decrease in share prices. This paper looks into
signaling effects of dividends in Pakistani market in the light of a well-placed
executives and experienced analysts. Studies have been carried out before,
some endorsed the correlation while others rejected the presence of any
relation between the two.
Findings from the responses of the participants are listed below:

A study in this regard suggested earlier the possibility of leakage of

dividend information before official announcements manipulating share
value. Opinions of respondents were divided on the issue. Some
emphatically rejected, terming the abnormal activity in market before
the announcement as guesswork of professionals. Others did not rule

out the possibility but opined that the probability was abysmally low.
Interviewees strongly supported the view that an increase in dividend
results in rise of share prices. In case of dividend cut different methods
are employed to educate customers about the reasons to avert any

negative impact on stock prices.

Prior studies suggested that earning per share play dominant role in
signaling with dividend relegated to secondary position. Views of the
respondents suggested the inter relation between the two but majority
of them vouched for the earning per share being the primary player.

Little evidence was found for any deliberate or accidental leakage of

sensitive information prior to the official announcement. Further, the study

found out that among dividends and EPS, the later was believed to play an
instrumental role.