Share price behaviour around dividend announcements in Pakistan

This paper investigates the information content (signalling) of dividend announcements by firms listed on the Karachi Stock Exchange (KSE) over the period 2005 to 2009. This sample period was selected in order to avoid contamination of the dividend signal with a capital gains tax effect since a capital gains tax was introduced in Pakistan from 2010 onward. The paper contributes significantly to literature about the Pakistani market which has a unique institutional background. The findings show that no significant unexpected returns can be earned on the announcement date by trading on dividend news in Pakistan. It supports the semi-strong form of the efficient market hypothesis. The results also show that earnings are the dominant signal rather than the dividend announced. Moreover, there is some evidence of information leakage as significant unexpected returns were uncovered two days before the dividend announcements.