The Relationship Between Dividend Policy and Stock Price Volatility: a Case of Companies Listed at Nairobi Securities Exchange

Abstract

The objective of the study was to determinethe relationship between dividend policy and share price volatility and also to determine other factors which may have potential influence on share price volatility for firms listed at Nairobi securities exchange. The study covered the period 2008-2012. A sample of 30 companies which were continuously listed and paid dividends continuously for the five year period was used to make generalization about the population. The study employed correlational descriptive research design to deduce the relationship between dividend policy (measured by dividend yield and payout ratio) and share price volatility after controlling for long term debt, firm size and growth in assets. The study used the multiple linear regression model and from the analysis of the modelthere was no evidence of significant relationship between dividend policy and share price volatility at 5% level of significance. Also none of the control variables used had a significant relationship with share price volatility at 5% level of significance.