Relationship between Firm’s Dividend Policy and Share Price Volatility

Abstract

This study has an aim to explain the relationship between firm’s dividend policy and share price volatility. In this review paper critical literature review of sixteen papers related to dividend policy and share price volatility is done. There are difference of opinions about the impact of decisions related to dividend policy of any firm, that are they impact on the value of firm. One school of thought said that decisions related to dividend policy have impact on the value of the firm. On the other side the other school of thought said that decisions related to dividend policy does not affect the value of firm and per share market price. As per our consensus the Payout ratio, dividend yield and size of the firm would be negatively related to stock Price Volatility. On the other side earning volatility and debt would be positively related to stock price volatility.

Keywords: Dividend Policy, Share Price Volatility, Stock Price Volatility