The Effect of Dividend Policy on Share Price Volatility of Some Selected Companies on the Nigerian Exchange

Abstract

Share Price volatility has exhibited different patterns in different global exchange markets including the Nigerian exchange. Various attempts have been made to unravel the possible causes of this volatility and how they can be mitigated, but there have been fewer studies in this regard, especially in developing economies like Nigeria. Hence the study examined the effect of dividend policy on share price volatility of selected companies listed on the Nigerian Exchange. The study adopted ex-post facto research design and EGARCH for volatility measure. A sample of 49 companies out of 162 companies listed on the Nigerian Exchange during the study period (2010-2020) was randomly selected for the panel data. The study found that the dividend policy had significant relationship with share price volatility (SPV) with Adjusted R2 = 0.116, Wald (3, 2156) = 32.89, p = 0.000 < 0.05; Specifically, Dividend Payout Ratio (DPR) has significant effect on SPV (DPR = 0.0036, t(2156) = 4.7237, p < 0.05); dividend yield (DY), dividend per share (DPS) and financial leverage (LEV) had a negative and no significant effect on SPV (DY = -0.0003, t(2156) = -2.713, p > 0.05; DPS = -0.0508, t-test = -1.8952, p > 0.05; and LEV = -0.2066, t-test = -1.4742, p > 0.05 respectively). The study concluded that dividend policy have significant effect on share price volatility. The study recommended that companies should focus more on the payout while investors should go for corporate entities with constant payout ratio.