Abstract
M.Com. (Financial Management)
The relationship between the dividend policy of a company and the volatility of its share price is significantly important to managers in order to optimise shareholders’ wealth. Research on the relationship between dividend policy and share price volatility has provided conflicting results in different parts of the world.
During the research for this study, the researcher addressed the question whether dividend policy has an effect on share price volatility in South Africa. The FTSE Top 40 Index companies were used as sample for the period from 2009 to 2013.
A quantitative approach was applied to establish the relationship between the dependent variable share price volatility (SPV) and independent variables dividend yield (DY) and dividend pay-out ratio (DPR). The study also considered asset growth (AG), leverage (L), earnings volatility (EV) and company size (FS) to account for other factors that could affect share price volatility in companies. Secondary data from the FTSE Top 40 Index companies were used as a sample for the period from 2009 to 2013 and the data were analysed by means of panel regression analysis.
It was concluded that both the dividend policy and asset growth and leverage did affect the share price volatility of the sample of South African companies.
Results also indicate that specific dividend decisions can be manipulated by management to get a more desired impact on share price volatility.