The Effect of Dividend Policy, Profitability, and Leverage on Share Price Volatility of Service Sector Enterprise Indexed on the Indonesia Stock Exchange During 2015–2019

Shieryn Fiorenza, Liliana Inggrit Wijaya () and Bertha Silvia Sutejo
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Shieryn Fiorenza: University of Surabaya
Liliana Inggrit Wijaya: University of Surabaya
Bertha Silvia Sutejo: University of Surabaya

A chapter in Proceedings of the 19th International Symposium on Management (INSYMA 2022), 2023, pp 126-133 from Springer

Abstract: Abstract This research analyzes the effect of dividend payout ratio, dividend yield, earnings volatility, and debt-to-equity ratio on share price volatility in service sector enterprise indexed on the Indonesia Stock Exchange during the 2015–2019 period. This study used a quantitative approach with multiple linear regression. The findings of this study indicate that observations on the Indonesia Stock Exchange show that the dividend payout ratio has a compelling positive effect on share price volatility. This is because the higher the dividend yield, or the more enterprise pay dividends each year, the more volatile the stock price will be because the demand for the company’s shares increases [1]. However, the dividend yield has no compelling adverse effect on share price volatility because investors prefer capital gains over dividends. After all, the tax imposed on dividends is higher. Then earnings volatility has a compelling positive effect. This is because, traditionally, profit has been used as an indicator to measure a company’s financial performance [2]. Enterprise with consistent earnings are less likely to surprise investors with unexpected earnings announcements. The debt-to-equity ratio has a marginally favorable impact on stock price volatility. This is because, according to the trade-off hypothesis, the company’s decision to employ debt can be viewed as a way to avoid tax on loan interest payments and financial distress expenses produced by the growth of company debt.

Keywords: Share price volatility; Dividend payout ratio; Dividend yield; Return on equity; Debt-to-equity ratio (search for similar items in EconPapers)
Date: 2023
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DOI: 10.2991/978-94-6463-008-4_17

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