The Impact of Dividend Policy on Share Price Volatility: A case of Pharmaceutical Companies of Listed in Pakistan Stock Exchange Companies

Abstract

Dividend policy is unresolved issue with stock prices relationship since 1960 after the development of the theory of dividend irrelevance MM (1960). Study purpose is to evaluate the effect of dividend policy on stock price volatility in listed pharmaceutical corporations in Pakistan Stock exchange using the data from the period 2009-2022. The corporate sector in Pakistan is facing fierce competition as a result of global economic downturn. This research will contribute to improving company-sector dividend decisions to implement Dividend Policy in this competitive and unreliable economic environment. To analyze the relationship between payout policy of dividend, with prices of stocks volatility including dividend yield, dividend per share and payout ratio taken as independent variable whereas, EPS, ROE and PAT as control variable.  This study utilized the panel data as data shows large entities as well long time period. Panel regression techniques such as random as well fixed effect model applied to the data set analyzing the effect of dividend dimensions on stock prices. Findings also show that fixed effect results are appropriates for the study as Hausmann test result support with sig value less than 0.05. Data findings showed that DPS as well as dividend payout ratio have positive significantly association among stock value volatility; dividend yield has insignificant relation with share price volatility as these results supported by Bird in hand theory share which supports higher payout of dividend to those shareholders as well as management of the firms which leads towards increase in the stock prices as a result. EPS or Profits on each stock as well as profit excluding tax (PAT) of corporate has inverse non-significant association on stock return on PSX listed firms while return on equity has associated positive significant on stock price volatility. The f- statistics shows that model is good fit and also explains 65% overall variation by model in stock prices volatile. Implication of the study is that managers must focus on dividend policy as investor is more concerned about the stock price where they gain or loss from the capital invested.