Abstract
This study aims to test the relationship between dividend policy decisions on the share price Volatility of Modaraba Companies quoted in the Pakistan stock exchange. The data for empirical analysis was collected from the Pakistan stock exchange, Recorder archive, and Ksestocks.com. By using the sampling technique, a sample of 19 Modaraba Companies was taken from 2010 to 2018. The empirical analysis was conducted using multiple regression techniques by employing a fixed effect model on panel data. This study also incorporated four control variables (size, growth, operating earning & level of debt) in empirical analysis to avoid multicollinearity problems between dividend policy measures and spurious regression. The results of the study validate the theory of relevance of dividend policy decisions on share price Volatility. Dividend policy has a negative and significant bearing on Stock price volatility. Higher leverage (debt level) leads to higher instability in stock prices. Firm earning volatility is positively associated with share price volatility. Firm size and firm's growth in terms of assets also has a negative but insignificant impact on share price Volatility
Highlights
The long-term goal of investors investing in stocks is to maximize their wealth while mitigating the associated risk
dividend yield (DY) and dividend payout ratio (DPR) are considered as two basic independent variables of that study
This study is carried out with aim of testing the association between dividend policy decisions (DP) on share price Volatility (SPV) of Modaraba Companies quoted in Pakistan Stock Exchange (PSX)
Summary
The long-term goal of investors investing in stocks is to maximize their wealth while mitigating the associated risk. Active participation of investors in the market makes it attractive and viable. Investors are by default risk-averse and react in response to the information flowing into the market. Investors are found with the tendency to overreact towards the news of dividends, earnings, and waves of positivism and negativism (De bondt, 1987; Hu, Ni, & Wen, 2020). One major decision the financial manager is bound to make is related to the earnings distribution among shareholders. Financial managers continually strive to find optimal dividend payout ratio and retained earnings to maximize the shareholder's wealth (Al-Sharif, 2020). Despite extensive research on dividend policy, consensus could not be achieved about its relevance to stock price volatility
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