Dividend decisions and market reflections: Unveiling the financial signals driving stock prices in Pakistan’s chemical sector

Abstract

This research examines the influence of dividend policies on stock prices in the chemical industry in Pakistan, an economically significant and ESG-relevant sector. Using balanced panel data of seven PSX-listed chemical firms over a decade from 2015 to 2024, the objective is to identify the connection between major dividend decisions and the stock prices of these companies. A dummy variable of COVID-19 was included to check the pandemic effect. Data was analyzed using SAS software, utilizing the robust fixed effect panel regression model. The results show that DPR and DPS are both strongly and positively influencing stock prices. This confirms existing theories such as signaling theory and the bird-in-hand theory. Conversely, DY and the COVID-19 variable did not significantly affect the stock price. This shows that, within Pakistan's emerging market setting, real dividend payments and policy decisions around them have a greater influence on investors' perceptions compared to yield-driven measures. The model explained a very high level of the variation in the DV with an R² of 93.55%, further suggesting the robustness of these findings. This study reaffirms the applicability of classic dividend theories, even in an ESG-conscious industry. The study also highlights the need to have stable and transparent dividend policies to gain the confidence of investors and improve share value. This also urges policymakers to develop financial governance policies that give priority to stable dividends. Finally, this study fills an important void in Pakistan's finance literature and speaks to the larger global discourse on dividend strategies.