A firm raising its dividends often experiences an increase in its stock price and a firm lowering its dividends has a falling stock price. This seems to suggest that dividends affect stock price. But several empirical works on the ground that dividends per se do not affect stock prices have refuted this causal relationship; rather it is the informational content of dividends that affects both stock prices and volume of trading as well. Investors` trading responses to the differing characteristics of management-generated earnings forecast has been a topic of concern for a number of years. Among the means of assessing potential investor interest in the firm`s earnings, the most appropriate one is to investigate investor reactions to voluntarily disclosed executive forecasts. It is urgently necessary to investigate trading volume reaction associated with earnings announcements and the effect of predisclosure information on trading volume. The public announcements change investors` beliefs and induce them to engage in a new round of trade. Based on different theories and assumptions this paper theoretically hypothesizes and finds trading volume reactions surrounding dividend announcement. Moreover, empirical analysis of trading volume claims the superiority over theoretical analysis to proof the hypotheses.