Author(s)

Asma Tariq¹, Mina Kharal², Muhammad Abrar^3*, Alishba Ahkam², Muhammad Sarfraz Khan¹

¹Heritage International College, University of South Asia, Lahore, Pakistan.
²Department of Business Administration, Faculty of Management Sciences, National Textile University, Faisalabad, Pakistan.
³Department of Business Administration, Faculty of Management Sciences, National Textile University, Faisalabad, Pakistan.

Despite the growing debate on the stock price valuation, it has become a complex puzzle. Various theories, models and explanations have been provided to solve this confusing riddle. This study contributes to this debate by determining the relative importance of stock dividends and retained earnings regarding stock price valuation in Karachi Stock Exchange. Data for the analysis of this study were collected from the 66 nonfinancial companies that were included in KSE-100 index for a period from 2007 to 2010. This study found the evidence that dividends are more important variable than the retained earning regarding the explanatory power of stock prices in Karachi Stock Exchange. Practical implications are also provided in the study.

Dividends, Retained Earnings, Stock Valuation, Karachi Stock Exchange

Tariq, A. , Kharal, M. , Abrar, M. , Ahkam, A. and Khan, M. (2014) Solving the Puzzle of Relative Importance of Dividends and Retained Earnings in Stock Valuation: A Case of Karachi Stock Exchange. Theoretical Economics Letters, 4, 681-690. doi: 10.4236/tel.2014.48086.