Dividend Policy and Stock Price Volatility: Empirical Evidence from Non Financial and Financial Listed Firms of Pakistan

Abstract

CuITent study is caiTied-out to observe behavior of share price in response to fim1 's dividend policy, for non-financial and financial listed firm's evidence from Pakistan stock exchange (PSX). Analysis encompasses period from 2009 - 2018. The Stock price volatility (SPY) is taken as dependent variable, whereas regressor includes firm's dividend policy. Two proxies (dividend pay-out and dividend yield) are taken to represent dividend policy. In addition control variables taken are Size of the firm, Asset growth and Net income. Data is taken for 20 Non-financial and 20 financial listed firms. Non-financial 20 fitms consist of Cement, Textile, Oil & Gas Exploration, Refinery, Power Generation & Distribution, Technology & Communication, Tobacco, and Food sectors of PSX. Twenty financial Finns consist of commercial banks, insurance companies, modarabas, investment companies and leasing sector of PSX. All 40 firms are carefully selected on the basis of dividend payout basis. Those firms who did not paid di vided for 4 consecutive years are excluded from the analysis. The results obtained after applying fixed effect regression model on the data revealed that for Non-financial firms, the relation between SPY and dividend payout is significant negative and a significant positive relationship between dividend yield and SPY. While the result for control variables i.e finn size predict insignificant relation with regressed. Results are consistent with the finding of Baskin, ( 1989), Allen and Rachim, (1996). Nazir et al, (2010) and the findings of Husseini, (20 11 ). The Asset growth has significant positive influence on SPY. Moreover the last control variable Net income has significant negative impact on SPV. On the other side for Financial firms, the finding of our study suggest that, SPY and dividend payout shows significant positive relationship, result obtained found consistent with the Memon et al, (2017), Moreover an insignificant relation is witnessed between dividend yield and SPY. These results are contrary to the Baskin, (1989), Allen & Rachim, (1996) and Husseini, (2011) research findings. While among control variable firm size has significant positive association with SPY. The Net income has insignificant impact on SPY and Asset growth has significant negative influence on SPY. The overall results for Non financial and financial sector's listed films are consistent with the dividend relevance theories whereas contradict with the M & M, (1961) theory of dividend irrelevance. Overall study concluded that dividend policy have significant influence on SPY.