The Study to Check the Applicability of Arnott and Asness Model on KSE 100 Index from 2005-2015

Abstract

The purpose of this research is to find out the impact of dividend payments on the earnings of companies listed on Pakistan Stock Exchange. The sample includes firm listed on the Karachi Stock Exchange 100 index for a time period of 2005-2015. The model was applied where they refuted the conventional theory that said dividend payments do not affect future earnings of the company, on the aggregate U.S. Market (S&P 500). Our variables include size, return of asset, payout ratio, leverage taken by the company, earnings over price, past earnings growth, exchange rate and annual growth. This study holds importance in respect to finding out whether our results will vary after applying the model studied in the developed economy or it holds same results in the developing economies. One important insight that we aim to find out is whether companies, in order to maximize shareholder’s wealth, should pay dividend or retain it back for further reinvestments.