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Stock Price Volatility and Role of Dividend Policy: Empirical Evidence from Pakistan

Author

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  • Syed Akif Shah

    (Department of Management Sciences, COMSATS Institute of Information Technology, Attock Campus, Islamabad, Pakistan)

  • Umara Noreen

    (Department of Finance, Prince Sultan University, Women Campus, Riyadh, Kingdom of Saudi Arabia)

Abstract

Despite years of empirical research, the linkage between dividend policy and stock price volatility (SPV) remains controversial among the researchers and scholars. This research endeavors to figure out the relationship between SPV and dividend policy of listed companies in Pakistan. A sample of 50 firms, based upon consistent dividend paying behavior, listed on Karachi Stock Exchange (KSE) has been selected from non-financial sectors, for the period of 2005-2012. Multiple regressions analyses have been carried on by applying random effect model on panel data i.e., for empirical estimation and robustness, panel estimated generalized least squares methods is used for finding relationship between dividend policy (dividend payout [DP] and dividend yield [DY]) and SPV after controlling for firm size (FS), asset growth (AG), long-term debt (LD), earning volatility (EV) and earnings per share (EPS). The study has found significant negative relationship between SPV and dividend policy variables i.e., DP and DY. Study has also found significant positive relationship between control variables (AG, EV and EPS) and SPV in KSE. But in case of the remaining two control variables i.e., FS and LD, these were found to be negatively related to SPV. The findings of this research are expected to contribute to dividend policy literature by providing evidence from Pakistani stock market to prior studies done in developed and developing countries

Suggested Citation

  • Syed Akif Shah & Umara Noreen, 2016. "Stock Price Volatility and Role of Dividend Policy: Empirical Evidence from Pakistan," International Journal of Economics and Financial Issues, Econjournals, vol. 6(2), pages 461-472.
    • Handle: RePEc:eco:journ1:2016-02-14
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    References listed on IDEAS

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    2. Grassetti, Francesca & Mammana, Cristiana & Michetti, Elisabetta, 2022. "Nonlinear dynamics in real economy and financial markets: The role of dividend policies in fluctuations," Chaos, Solitons & Fractals, Elsevier, vol. 160(C).
    3. Mustafa Cayir & Nasuh Oguzhan Altay, 2021. "Direct and Indirect Effects of Cash Dividend Policies on Firms’ Capital Accumulation in Selected Developed Markets," Istanbul Business Research, Istanbul University Business School, vol. 50(2), pages 235-254, November.
    4. Sufian Radwan Almanaseer, 2019. "Dividend Policy and Share Price Volatility: Evidence from Jordan," Accounting and Finance Research, Sciedu Press, vol. 8(2), pages 1-75, May.
    5. Suwanhirunkul, Prachaya & Masih, Mansur, 2018. "Effect of dividend policy on stock price volatility in the Dow Jones U.S. index and the Dow Jones islamic U.S. index: evidences from GMM and quantile regression," MPRA Paper 93543, University Library of Munich, Germany.

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    More about this item

    Keywords

    Stock Price Volatility; Dividend Policy; Karachi Stock Exchange; Random Effect Model;
    All these keywords.

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy

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