Received: 2019-03-18  |  Accepted: 2019-09-15  |  Published: 2019-12-15

Title

Dividend policy and stock price volatility in Indian capital market


Abstract

As argued by Modigilani & Miller, the dividends are irrelevant only in perfect markets but in an emerging market like India, the dividends are expected to show its relevance. Indian capital market have surpassed a sea change in the recent past including demonetization, implementation of new tax regimes, political controversies and the like. Despite these facts, the Indian capital markets soars at many a times due to its active trading. Against this backdrop, this research paper seeks to examine the relationship between dividend policies and share price volatility. The motivation behind this research is to first time employ a powerful unbiased volatility estimator, created by Yang and Zhang that is 14 times as efficient as close to close estimate. A sample of 116 textiles companies, listed and actively traded in Bombay Stock Exchange of India (BSE) from 2008 to 2017 selected for the study. In examining the impact of dividend policy on share price volatility in Indian capital market, multiple least squares regressions is employed. Empirical results shows that dividends are affecting stock prices variations in India which fits in with the bird in hand and signaling theories of dividends. Due to the volatile nature of the market, Indian investors’ prefer demanding more dividends from firms rather keeping retained earnings on reinvestment. The outcomes of this study supports the fact that dividends policy influence stock price variations in Indian capital market. The results of this study provides an insight to the financial managers in developing their dividend policies to maximizing the shareholders wealth.


Keywords

dividends, share price volatility, dividend payout


JEL classifications

G35 , G40


URI

http://jssidoi.org/jesi/article/408


DOI


Pages

862-874


Funding


This is an open access issue and all published articles are licensed under a
Creative Commons Attribution 4.0 International License

Authors

Kumaraswamy, Sumathi
University of Bahrain, Isa Town, Bahrain http://www.uob.edu.bh
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Ebrahim, Rabab Hasan
University of Bahrain, Isa Town, Bahrain http://www.uob.edu.bh
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Wan Mohammad, Wan Masliza
University of Bahrain, Isa Town, Bahrain http://www.uob.edu.bh
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Journal title

Entrepreneurship and Sustainability Issues

Volume

7


Number

2


Issue date

December 2019


Issue DOI


ISSN

ISSN 2345-0282 (online)


Publisher

VšĮ Entrepreneurship and Sustainability Center, Vilnius, Lithuania

Cited

Google Scholar

Article views & downloads

HTML views: 1334  |  PDF downloads: 557

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