Dividend policy and share price volatility: UK evidence

Abstract

PurposeThe purpose of this paper is to examine the relation between dividend policy and share price changes in the UK stock market.Design/methodology/approachMultiple regression analyses are used to explore the association between share price changes and both dividend yield and dividend payout ratio.FindingsA 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 implicationsThe 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/valueTo 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.