The Impact of Dividend Policy on Share Price Volatility: Empirical Evidence with Colombo Stock Exchange in Sri Lanka

Abstract

Dividend policy comprises the decisions, whether to retain earnings for capital investment and other purposes orto distribute earnings as dividend among shareholders. In advance effect on market prices deemed to be a main determinant of dividend policy. On that concern, the main purpose of this study would be to examine the relationship between dividend policy and share price volatility in Sri Lankan context. Dividend payout ratio and dividend yield deliberated as independent variables after controlling with growth in assets, firm size and debt while share price volatility considered as a proxy of dependent variable. Data were collected through annual reports of 30 selected companies listed in Colombo Stock Exchange for four-year time period from 2014 to 2017 according to the market capitalization on the date of 31^st December 2017. Descriptive analysis and correlation analysis were used to perform the data analysis while regression model was expanded by adding control variables. While confirming the empirical results; findings of this study showed a negative insignificant relationship between dividend yields with share price volatility. Moreover, price volatility has negative correlation with firm size and positive correlation with growth in assets and debt. Based on the findings of this study, dividend payout ratio and dividend yield have negative impact on share price volatility.