Relationship Between Dividend Policy And Share Price Volatility

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3.1 INTRODUCTION The following describes the process used in an attempt to analyze the impact of dividend policy on share price volatility for companies listed in the Egyptian stock exchange throughout the period 2008-2012, including a detailed description of the model to be followed along with a specific definition for the variables to be used and how the data shall be analyzed. 3.2 PROBLEM STATEMENT After years of theoretical and empirical researches, the association between dividend policy and share price volatility still remains a source of controversy with absence of general consensus regarding that relation, were different studies have shown contradicting results using different models, and sometimes using the same model but on…show more content…
His assumptions for the control variables were as follows: Earnings volatility is to be added to the equation since the market risk faced by any given firm could have an impact on both its dividend policy and share price volatility, companies with volatile earnings are perceived as risky investments and consequently would have a more volatile stock price. Size is to be added to the equation since smaller firms would usually have less diversified activities as well as less information available to their investors about their activities, he also assumed that a smaller firm’s stock would be more liquid than that of a larger firm and consequently would have a more volatile market price compared to that of a larger firm. Also a firm with a larger and more scattered body of shareholders would have their dividends being used as a signaling method by those shareholders which would impact the choice of a dividend policy. Growth is to be added to the equation for the assumption of its negative relationship with dividend policy, mainly due to the
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