Dividend policy and share price volatility: UK evidence

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.