Journal of Islamic Business and Management

Does the Dividend Policy Matter in Stocks Prices in Economic Recession? Evidence from Karachi Stock Exchange

Shahid Iqbal, Faisal Abbas & Bilal Aziz
Published Online: December 2016
DOI: 10.1111/jibm

The focus of this paper is to find the relationship between dividend policy and stocks prices during economic recession based on Karachi Stock Exchange in Pakistan. As investment in stocks is a crucial part of the portfolio of Islamic finance institutions, this study is significant with regard to promoting Islamic capital market in the country. The data on dividends were collected for the period 2001 – 2014 dividing in three economic phases: 1st phase from 2001 – 2006 (before economic recession), 2nd from 2007 – 2009 (the recession period) and 3rd from 2010 – 2014 (after economic recession). Secondary data were collected from balance sheet analysis, Karachi stock exchange and the ‘Business Recorder’. Market prices of selected corporations stocks was used as dependant variables while Dividend Payout Ratio (DPOR), Dividend Yield (DY), Earning Per Share (EPS), Size, Leverage (LVRG) and Assets Growth (AG) were taken as explanatory variables. The results showed that in period of 2001 – 2006 (before economic recession) EPS, Size and AG were found significant and had positive impact on market price (MP), while LVRG and DY were found significant but had negative association with Market Prices(MP). During economic recession period (2007 – 2009), DPOR, EPS and LVRG were found significant and had positive impact on Market Price (MP) whereas DY and SIZE found significant having negative relationship with market price (MP). In the period 2010 – 2014 (after economic recession) DPOR and Size were found significant and had positive impact on market price (MP), while DY had significant negative relationship with market price.


Stocks Prices; Economic Recession; Dividend Payout Ratio; Dividend Yield; Dividend Policy.