Abstract
Dividend policy is one of the most debated topics in corporate finance and, at the same time, it represents an important issue from the perspective of both the managers of the firm and the investors. To the best of our knowledge, the literature regarding establishing the relationship between dividend policy and share price volatility of non-financial companies listed on Romanian stock market remains inexistent. This study attempts to identify how the share price volatility of non-financial companies listed on the Bucharest Stock Exchange for a period of sixteen years from 2002 and 2017 is influenced by corporate dividend policy. Results from a cross sectional multiple regression analysis revealed a negative effect of the two components of the dividend policy on the share price volatility. The results support the idea that the lower the dividend yield, the higher the risk to be faced by the shareholder. Growth in assets and share price were negatively related. Positive relationship between firm size and debt ratio to price volatility were identified. However, there was no significant relationship found between earning volatility and price volatility in the Romanian stock market.
Highlights
Dividend policy is one of the most debated and challenging topics in modern financial economics both in emerging and developed economies [1]
Following [19], if it is assumed that share prices follow a normal distribution and the effect of company’s going exdividend is not took into consideration, the standard deviation of stock market returns correspond to the determined volatility of this study [14]
This paper examines the relationship between dividend policy and the volatility of stock price by applying multiple regression
Summary
Dividend policy is one of the most debated and challenging topics in modern financial economics both in emerging and developed economies [1]. Corporate finance research has investigated why corporations pay dividends, referred to as the “Dividend Puzzle” by [2]. Notwithstanding the comprehensive research on dividend policy over the past decades, no universally accepted explanation is acquired [3]. Dividend policy represents an important decision, usually made by top managers, which demands the final agreement of the board of directors. Managers have to take into account which dividend policy will lead to maximization of shareholder’s wealth, how much of company’s earnings are needed for investment, and last, but not least they have to analyze the impact of their decision on stock’s price [4]
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