Impact Of Dividend Policy On Stock Price Volatility: Evidence From Selected Companies Of Financial and Non-Financial Sector Of Pakistan

Abstract

The dividend policy is regarded as a key decision of a corporate since it may impact the perception of investors of a firm and the behavior of its share price in the market. The paper assesses the correlation between the dividend policy and stock price volatility using pay attention to selected financial and non-financial companies that are listed on the Pakistan Stock Exchange. It is analyzed using panel data, which is five-year based enabling the research to regulate both firm-specific and time variation in stock price movements. The dependent variable is the stock price volatility whereas the dividend policy is gauged by the dividend payout and dividend yield. Besides, control variables are also firm-specific, like the earnings per share, the size of the firm, leverage, and taxation, to enhance a more descriptive share price behavior. The data are analyzed by using panel regression techniques after carrying out pertinent diagnostic tests to determine the reliability of the analysis results. The results reveal that dividend policy is significantly related to stock price volatility, which signals that stock dividends are considered to affect the stability of share prices. Other control variables are also significant in their effects, indicating stock price runs by the effect of several firm specific factors as opposed to dividend policy alone. On the whole, the findings suggest that dividend policy is an important factor that should not be neglected by investors and corporate executives of Pakistani capital market. The research provides a contribution to the existing literature by presenting empirical evidence in an emerging market and giving information that can help companies in formulating dividend policies in order to minimize excessive price fluctuations.