The Effect of Dividend Bubble on Share Price: Evidence from KSE-30 Index

Abstract

This paper examines the impact of dividends on share price of Karachi Stock Exchange 30-Index companies. To achieve the purpose of research ordinary least square method is used. The secondary data for period 2002 to 2012 is considered in which share price is considered as controlled variable and another seven variables specifically return on equity, profitability ratio, dividend payout, dividend yield, price earning ratio, earning per share and price earning ratio as control variable. The study reveals that 97.16% variation in market price is explained by the model. Study reveals that all variables has significant positive impact on share price except dividend yield and price earning ration which has significant negatively influencing in the change of share price of firm. Overall conclusion indicating that model is significant and dividend irrelevance theory is not applicable in case of KSE 30-Index companies.

Keywords: Dividend, share price, dividend yield, dividend payout, return on equity