Open PDF in Browser. Add Paper to My Library. Copy URL. Copy DOI. Samarakoon Wayamba University of Sri Lanka. Abstract The impact resulted from the dividend policy of a firm, on the volatility of the market value of stocks, is the major concern of this study, which is an issue bearing an utmost significance, when considering the objectives of a corporate.
Abstract: We examine the hypothesis that dividend taxes are capitalized into share prices by focusing on investors' implicit valuations of retained earnings versus paid-in equity.
Often when we discuss the effects of taxes, we focus on the effects on the mean of firm value and de-emphasize the effects on the variance of the distribution. We re-examine the extent to which personal taxes on dividends are capitalized into the equity prices of domestic firms, using data from around the time of the U. This paper uses British data to examine the effects of dividend taxes on investors' relative valuation of dividends and capital gains. For this purpose, … Expand.
The objective of this research is to investigate the relationship between dividend policy and share price volatility of manufacturing companies in Malaysia. For this purpose, A sample of 35 dividend … Expand. View 2 excerpts, cites results and background. This paper examines the dividend policy related literature in order to find evidence by looking at the impact of dividend policy on share price volatility through an analysis of licensed commercial … Expand.
The prime objective of this research is to investigate the impact of dividend policy on share price volatility in Colombo Stock Exchange CSE. A sample of 81 listed non -financial firms from CSE in … Expand. View 1 excerpt. Managerial Finance. Purpose The purpose of this paper is to investigate the relationship between the share price volatility of Mediterranean banks and their dividend policies, with particular emphasis on the variation … Expand.
Investors are risk averse by nature, hence their investments volatility is imperative to them. Embarking on dividend policy decision is a sensitive area that most often investors are mindful of in … Expand. Assessment of financial performance and the effect on dividend policy of the banking companies listed on the Indonesia Stock Exchange. Banks and Bank Systems. This study aims to determine the assessment of financial performance and the effect on dividend policy of banking companies listed on the Indonesia Stock Exchange in the period of — The … Expand.
View 1 excerpt, cites background. Dividend policy and stock price volatility of industrial products firms in Malaysia. They applied fixed effect and random effect models on panel data. They reported that share price volatility has significant negative association with dividend yield and dividend payout.
They also reported that size and leverage have non-significant negative effect on share price volatility. Suleman et al. They extracted data from Karachi Stock Exchange regarding five important sectors for the period of to They used multiple regressions model for their analysis.
They also reported that share price volatility has significant negative relationship with growth. Hussainey et al. They selected English companies and the period of their study was from to Their work was based on Baskin, Similar to Baskin , they used multiple regression analyses for exploring the relationship of share price with dividend yield and dividend payout ratio. They added size, level of debt, Earning volatility and level of growth as control variables to their model.
They also found a negative relationship between share price volatility and dividend yield. Their findings discovered that the payout ratio is the predominant determinant of the share price volatility and size and debt have the strongest relationship with price volatility amongst control variables.
They also reported a debt has significant positive impact on share price volatility. Methodology 3. H1: There is a significant association between share price volatility and dividend yield. It is expected that share price volatility is being affected negatively by dividend yield.
Baskin, explained negative impact of dividend yield on share price volatility based on the duration effect, the rate of return effect, the arbitrage effect and the information effect. He used Gordon growth model for demonstrating the duration effect. So it is expected that dividend yield has negative impact on share price volatility. Baskin, used some assumptions for demonstrating the rate of return effect in order to explain the negative impact of dividend yield and dividend payout on share price as depicted below: a.
The firm has constant payout ratio of 1-B. B is the retention ratio. The firm does not have new common stock issues. The discount rate is constant. Baskin, also explained negative impact of dividend yield on share price volatility based on the arbitrage pricing effect.
The arbitrage pricing effect is based on the assumption that the financial market is inefficient and investors with superior information can enjoy profit from mispricing. Lastly, the information effect suggests that dividend policy transmits signals about the future of firm. H1: There is a significant association between share price volatility and payout ratio. Baskin, explained negative impact of dividend payout on share price volatility based on the rate of return and the information effect.
He argued that divided pay out can be used as a proxy for predicted growth and investment opportunities so that firms with higher dividend payout have less volatility in their share price. He also explained that high dividend payout can be interpreted as stability of a firm and reduce the fluctuation in share price of that firm.
By applying correlation analysis and multiple least square regressions, the association between share price volatility and dividend policy is analyzed. The regression model which primarily links volatility of share price to dividend yield and payout ratio has been expanded by the control variables that were recommended by Baskin Their study also showed dividend payout has significant negative impact on share price volatility.
Baskin, proposed that size, earning volatility, debt and growth affect the both share price volatility and dividend policy. The market risk faced by firm can affect the both dividend policy and share price volatility so a control variable as a measure of earning volatility E. Moreover, it is possible that small firms have less information available to investors about their stock market. Baskin, proposed that firms which have more scatter body of shareholders are more likely to use dividend as a signaling device, so the size can affect the dividend policy too.
For counting the size, a control variable Size is added to primarily regression equation IX. Moreover, dividend policy may have an inverse relationship with growth because firms in their growth stage are more likely to keep their income for investing in new investment opportunities. Based on arbitrage effect and equation VIII , the level of growth and share price volatility could be inversely related.
So, a control variable Growth is added to primarily regression equation as a measure of growth. Furthermore, because of operating risk, leverage could have negative impact on share price volatility.
Furthermore, if there is asymmetric information, borrowing and dividend policy can be related. So, leverage is DEBT added to primarily regression equation as a control variable. For calculating share price volatility, firstly, the annual range of stock price is divided by average of the highest and lowest adjusted price for each year and the result is raised to second power. Then the average of this amount is computed for all 6 years and the square root transformation is used to achieve a variable comparable to standard deviation.
This calculation method for share price volatility is consistent with Baskin, For computing this variable, the sum of cash dividends paid to common shareholders is divided by the market value of each company at the end of the year. Then the average for 6 years is utilized. The formula for computing this variable is as follows: D. For computing this variable, the sum of cash dividend paid to common share holders is divided by the net income after tax for each year.
Then the results are averaged for 6 years. For calculation, the market value of firm is averaged for six years. Then a transformation of natural logarithm is used. For calculation of earnings volatility, firstly, the ratio of operating income to total asset is calculated for each year and then the results are averaged for six years. Finally, the average of second power deviation from overall average is computed and a square root transformation is used. This variable is calculated based on following formula: E.
For calculating this variable, firstly, the ratio of long-term debt obligations of firm with maturity greater than one year to total asset is computed for each year. Then the average of results is utilized. For calculation, firstly, the ratio of change in total asset at the end of the year to total asset at the beginning of the year is computed for each year.
These companies are represented in appendix A. The companies selected for this study have the following properties: a. They have at least one cash dividend payment during to They do not have stock split during to SPSS Statistics software version Data analysis and Results 4. It indicates the range, the mean and standard deviation of variables used in this study. Table 4. Size also has the highest standard deviation amongst variables with value of 1. Moreover, size has the highest range maximum-minimum amongst variable with value of 6.
By applying Parkinson, formula, for estimating the standard deviation of stock market returns, the mean of our calculated share price volatility of 0. The value of correlation coefficient between P. The results presented in Table 4. Because large-sized firms are usually more diversified and small firms may have less public information, larger firms are expected to be less risky and have less share price volatility. It can also be seen from Table 4. This positive correlation implies that larger size firms may have more dividend payout.
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