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ABSTRACT Impact of Dividend Policy on Shareholders’ Wealth: A Case of Karachi Stock Exchange

Business firms exist to do business, business that is profitable and is able to share the profits with its owners. Business firms need to generate excessive profits to be able to pay dividends to its shareholders. These dividends could be paid from earnings that are retained by firms over a period of time or from current financial year profits. There are many countries in the world that do not bind its listed business to distribute earnings as dividends. Firms have to have dividend policies which cover the distribution of profits and the ratio of profits to be retained for future business. Dividend policies are designed by firms to cater to the business needs of a firm. Dividends in the form of cash are conventionally paid after a quarter, two quarters or a year to current shareholders. The practice of paying annual dividends in cash or stock form is common in Pakistan. Dividends can take the form of stock dividends that lessens the value of a unit share for shareholders whereas in a stock split form the share is divided in pieces by management. Share repurchase is yet another form of dividend in which the shares can be repurchased by the share selling firm. A constant payout ratio can be employed as a tool by firms to pay a percent of earnings as dividends to existing shareholders whereas another tool used is a regular dividend payment policy-the one in which firms pay their shareholders some fixed amount in each consecutive period. There is another mechanism called the low-regular and extra future dividend policy, in this arrangement firms pay small cash dividends and pay more dividends once money is sufficiently saved from further investment projects. Companies have competing ends to meet, should they offer dividends or should they retain every penny in the business or should it be an in between arrangement? The whole idea comes to the point that can dividend policies be used for adding value towards wealth of the shareholders. This is a heavily researched area and many authors have come up with a variety of conclusions. The study is carried out with the same motivation that for listed businesses in Pakistan what findings can be added to the existing body of knowledge. It could be an interesting study to investigate the impact of dividend policies on the wealth increment of shareholders. This current section termed Section.1 introduces the topic, Section.2 summarizes the literature review, Section. 3 gives the theoretical framework, Section. 4 presents the methodology, Section. 5 presents statistical findings, Section.6 gives summary & conclusions.