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Dividend policy and share price volatility: UK evidence

Khaled Hussainey, Chijoke Oscar Mgbame and Aruoriwo M. Chijoke-Mgbame

Journal of Risk Finance, 2011, vol. 12, issue 1, 57-68

Abstract: Purpose - The purpose of this paper is to examine the relation between dividend policy and share price changes in the UK stock market. Design/methodology/approach - Multiple regression analyses are used to explore the association between share price changes and both dividend yield and dividend payout ratio. Findings - A positive relation is found between dividend yield and stock price changes, and a negative relation between dividend payout ratio and stock price changes. In addition, it is shown that a firm's growth rate, debt level, size and earnings explain stock price changes. Practical implications - The paper supports the fact that dividend policy is relevant in determining share price changes for a sample of firms listed in the London Stock Exchange. Originality/value - To the best of the authors' knowledge, this paper is the first to show that corporate dividend policy is a key driver of stock price changes in the UK.

Keywords: United Kingdom; Dividends; Business policy; Share prices (search for similar items in EconPapers)
Date: 2011
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