Dividend Policy and Share Price Volatility: Evidence from Commercial Banking Sector

Abstract

Purpose: Share price volatility is a matter of concern for management and investors. Hence, this study seeks to establish association between dividend policy and share price volatility of banks listed in Nepal Stock Exchange.

Design/ Methodology/ Approach:The sample consists of 19 commercial banks covering a time span of 12 years from 2009 to 2020. On the basis of Baskin’s basic model, we used three multiple panel data regression models by adopting 3 explanatory variable of dividend policy such as dividend per share, dividend payout ratio and dividend yield separately and controlling for bank size, asset growth, financial leverage and earning volatility.

Findings:The empirical finding evidenced that dividend yield appears to the most significant predictor of share price volatility in commercial banking sector along with their size and earning volatility. There is inverse prediction of dividend yield and bank size whereas earning volatility has the positive effect on share price volatility.

Originality/Value:The study is original and valuable as it explores the banking firm’s share price volatility and dividend policy in a developing country for recent and new data set focusing on commercial banks listed in Nepal Stock Exchange.