Does earnings distribution policy influence corporate stock price instability? Empirical evidence from Tanzanian listed industrial firms

Abstract

This paper primarily aims at examining the impact of dividend policy on stock price volatility of industrial firms listed in the Dar es Salaam Stock Exchange employing data collected from audited published financial statements for the period 2009–2019. The paper utilized a panel data regression estimation method, and the results show that both measures of dividend policy—dividend yield and dividend payout ratios—have negative significant relationship with stock price volatility. This may indicate that the increase in firm’s dividend yield and dividend payout lowers the stock price volatility, which in return, improves corporate stock price stability. The results, therefore, provide important implications for risk management practices, financial securities valuation and government policy towards stock market development. Also, since both management and investors are concerned about the volatility of stock price, the findings of this paper shed light on the path way to discovering what moves stock price and important factors to be considered by investors before making investment decisions, and managements by establishing their ability to utilize dividend policy as a mechanism of controlling the stock price volatility.