Dividend-Payout Policy and Share-Price Volatility in Islamic Banks: Evidence from Jordan

Abstract

This study aims to examine the relationship between dividend-payout policy (cash dividends, share dividends, and retained earnings), and volatility in the share price of Islamic banks, using regression methods such as SPSS. This study uses data from Jordan Islamic Bank and Al-Safwa Bank during 2009–2018. According to the results, there is a negative correlation between dividend-payout policy and volatility in share price. In addition, the dividend-payout policy of Islamic banks as it relates to volatility in share price has a positive correlation with retained earnings. Cash dividends had a greater effect than shares dividends on the stability of the market value of the share. This study also confirms that the effect of the dividend-payout policy is attributable to mediator variables (debt ratio, net profits, the size of the bank), and the amount of shares dividends was statistically insignificant. This research has provided about 70% of the independent variables explaining share volatility, and these variables are mostly mediator variables. Based on these findings, dividend payout policies should be examined carefully before making investment decisions about the distribution of profits.