Effect of Dividend Policy on Share Price Volatility in Nairobi Securities Exchange

Harwood Kajirwa Isabwa¹

Section:Research Paper, Product Type: Journal-Paper
Vol.8 , Issue.1 , pp.40-47, Jan-2022

Online published on Jan 31, 2022

Copyright © Harwood Kajirwa Isabwa . This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.
 

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Abstract :
Share price volatility has been a major concern in the financial sector around the world. There has been an increase in the risk of investor suffering losses that has resulted in the rise in concerns about the stability of the market and the wider economy if share price volatility levels go beyond a certain threshold. Dividend policy being a major decision in financial management remains an unresolved issue in corporate finance. This study therefore sought to ascertain the effect of dividend policy on share price volatility in Nairobi Securities Exchange. The researcher gathered data of 35 companies between 2014 and 2019. Predictor variables were dividend payout and dividend yield while the outcome variable was share price volatility. In addition to descriptive statistics both correlation and regression analysis were conducted using E-views. Fixed effect model results revealed that the dividend yield has a significant positive effect on share price volatility (? = 0.2704, p < 0.000). Firm Size has a significant negative effect on share price volatility (? = -0.0478, p < 0.000). Dividend payout ratio had a significant positive effect on share price volatility (? = 0.8319, p < 0.000) while leverage had a non-significant positive effect on share price volatility (? =0.0028, p> 0.000). The study concluded that dividend policy has a significant effect on share price volatility. The study recommended that corporate managers of the firms listed on Nairobi Securities Exchange can use dividend policy as a tool to control or manage share price volatility.

Key-Words / Index Term :
Dividend Policy, Share Price Volatility, Fixed Effect Model, Random Effect Model

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