Dividend Policy and Share Price Volatility: A Case of Nepalese Commercial Banks

Abstract

This study examines the impact of dividend policy on share price volatility of Nepalese commercial banks. The share price volatility, change in market price per share and stock return change are dependent variables. Dividend yield, dividend payout, debt ratio, size, growth and earning volatility are independent variables. The study is based on 18 commercial banks of Nepal from 2009-2014, leading to a total of 108 observations. The data are collected from various issues of Banking and Financial Statistics and Bank Supervision Report published by Nepal Rastra Bank, annual Report of Nepal Stock Exchange and the annual reports of the selected banks. The regression models are estimated to test the significance and impact of dividend policy on share price volatility of Nepalese commercial banks. The study reveals that dividend payout is negatively related to share price volatility (price volatility, change in MPS and stock return volatility). It indicates that increase in dividend payout leads to decrease in share price volatility. However, earning volatility is positively related to share price volatility indicating that higher the earning volatility, higher would be share price volatility. The regression result shows that dividend yield and size have significant positive impact on share price volatility. The beta coefficients for growth and dividend yield are significant at 5 percent level of significance.