Impact of Dividend Policy on Stock Price Volatility and Market Value of the Firm: Evidence from Sri Lankan Manufacturing Companies

15 Pages Posted: 6 Dec 2015

See all articles by Deepa Gunaratne

Deepa Gunaratne

Wayamba University of Sri Lanka

W.A.N. Priyadarshanie

Wayamba University of Sri Lanka

S.M.R.K. Samarakoon

Wayamba University of Sri Lanka

Date Written: December 7, 2015

Abstract

The impact resulted from the dividend policy of a firm, on the volatility of the market value of stocks, is the major concern of this study, which is an issue bearing an utmost significance, when considering the objectives of a corporate. The focus of an entity should be aligned, on the maximization of stock holders’ wealth and this necessitates the selection of an optimum dividend policy. The present study, thus, attempts to shed a light on the above fact, within the Sri Lankan context. Data was collected from a sample of companies listed under the manufacturing sector of the Colombo Stock Exchange from year 2006 to 2014. The study occupied panel data regression model for analysis. The outcome revealed that, the dividend yield of the current year has a negative impact on the share price volatility, while the dividend payout ratio of both the current and previous years has a positive impact. In addition, the impact of dividend yield is negative on the market value of the firm, where the dividend payout ratio of the current year is also depicts the same impact. The findings of the study reassure the findings of the previous researchers within the Sri Lankan context, in case of the market value of the firm, while being contrary in case of the share price volatility. Accordingly, the firms’ ability of utilizing the dividend policy as a mechanism of controlling the volatility of share prices is established. However, it will not be effective in altering the market value of the firm.

Keywords: Dividend Policy, Market Price Volatility, Panel Data Regression

JEL Classification: G35

Suggested Citation

Gunaratne, Deepa and Priyadarshanie, W.A.N. and Samarakoon, S.M.R.K., Impact of Dividend Policy on Stock Price Volatility and Market Value of the Firm: Evidence from Sri Lankan Manufacturing Companies (December 7, 2015). 12th International Conference on Business Management (ICBM) 2015, Available at SSRN: https://ssrn.com/abstract=2699697 or http://dx.doi.org/10.2139/ssrn.2699697

Deepa Gunaratne (Contact Author)

Wayamba University of Sri Lanka ( email )

Kuliyapitiya
Sri Lanka

W.A.N. Priyadarshanie

Wayamba University of Sri Lanka ( email )

Kuliyapitiya
Sri Lanka

S.M.R.K. Samarakoon

Wayamba University of Sri Lanka ( email )

Kuliyapitiya
Sri Lanka

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
785
Abstract Views
2,288
Rank
58,659
PlumX Metrics