Dividend policy and share price volatility: UK evidence

Purpose - The purpose of this paper is to examine the relation between dividend policy and share price changes in the UK stock market.Design methodology approach - Multiple regression analyses are used to explore the association between share price changes and both dividend yield and dividend payout...

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Bibliographic Details
Published in:The journal of risk finance 2011-01, Vol.12 (1), p.57-68
Main Authors: Hussainey, Khaled, Oscar Mgbame, Chijoke, Chijoke-Mgbame, Aruoriwo M
Format: Article
Language:English
Subjects:
Analysis
Capital gains
Capital stock
Cash flow forecasting
Conflicts of interest
Dividend distributions
Dividend policy
Dividends
Drivers
Finance
Investments
Investors
Markets
Multiple regression analysis
Policies
Prices
Profits
Raw materials
Retained earnings
Securities markets
Stock exchanges
Stock markets
Stock prices
Stockholders
Studies
Volatility
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Summary:Purpose - The purpose of this paper is to examine the relation between dividend policy and share price changes in the UK stock market.Design methodology approach - Multiple regression analyses are used to explore the association between share price changes and both dividend yield and dividend payout ratio.Findings - A positive relation is found between dividend yield and stock price changes, and a negative relation between dividend payout ratio and stock price changes. In addition, it is shown that a firm's growth rate, debt level, size and earnings explain stock price changes.Practical implications - The paper supports the fact that dividend policy is relevant in determining share price changes for a sample of firms listed in the London Stock Exchange.Originality value - To the best of the authors' knowledge, this paper is the first to show that corporate dividend policy is a key driver of stock price changes in the UK.
ISSN:1526-5943
2331-2947
DOI:10.1108/15265941111100076