The signalling effect of dividends in Pakistan: executive and analyst perspectives

Purpose – The purpose of this paper is to investigate the views of company executives and investors regarding the signalling impact of dividends in Pakistan. Quantitative research in the area has been scant, but recent large sample evidence suggests a number of noteworthy idiosyncrasies exist in terms of the market reaction and these require further analysis. Design/methodology/approach – The study involves interviews with 16 financial analysts and 23 company officials regarding the impact of dividends on share prices in Pakistan. Recent work in the nation suggests that the market reaction to dividends in Pakistan is characterised by pre‐announcement leakage and interaction with the attendant earnings signal – these issues were thus central to the discussions. Findings – The results suggest that individual perceptions both support and contradict the earlier quantitative findings in specific ways. The interviewees, particularly the company executives, were sceptical about the scope for information leakage to occur in Pakistan. In contrast, the interaction between earnings and dividend numbers was acknowledged, with – as in the earlier quantitative studies – the former figure dominating. Originality/value – This is the first detailed study of perspectives about the impact of dividends on share prices in Pakistan; for reasons outlined above, this represents a major gap in the literature regarding firm‐market communication. The work follows the publication of the first large‐sample study of share price movements in Pakistan; it thereby allows a pervasive conclusion to be drawn about the over‐riding importance of earnings figures in the nation's markets and in the attitudes of the firms listed on them. The study demonstrates the importance of mixed methods research in a developing market context.