Impact of Dividend Policy on Stock Price Volatility: Evidence from Pakistan Textile & Sugar Sector

Nargis Batool Subhan

Abstract

The purpose of this study is to analyze the link between dividend policy and stock price volatility in non-financial firms listed on the Pakistan stock exchange. This study used a quantitative approach. The sample was drawn from two industries: textile and sugar. Data is collected from 30 firms that are retrieved from organizational balance sheet analysis for the 2010-2019
fiscal years. This study used a random effect model to test the relationship between dividend policy and stock price volatility of non-financial firms listed on the Pakistan stock exchange. Based on the Dividend Policy Theories, this study shows the various results between variables. The dividend payout ratio negatively influences stock price volatility while other variables show a positive and significant relationship between dividend policy and stock price volatility. Empirical results signify that dividend policy is a strong interpreter of stock price volatility of non-financial firms of the Pakistan stock exchange. These findings are important for managers, future research, and investors. Investors should focus on dividend strategy when making investment decisions whereas managers should follow the same practice when formulating appropriate dividend policies for their firms. This is the first study that elaborates on the influence a of firm’s dividend policy on the organizational stock value of sugar and textile companies in Pakistan.
Keywords: Dividend strategy, share price fluctuations, dividend yield, dividend payout ratio, emerging markets.