Dividend Policy Determinants and Stock Price Volatility in Selected African Stock Markets

Abstract

The study examined the impact of dividend policy determinants on stock price volatility in Sub Sahara Africa. Three (3) economies (Nigeria, Kenya and South Africa) were selected from among the 51 economies in the region, and data spanning 9 years (2011-2019) were obtained and subjected to econometric analyses. The Generalized Autoregressive Conditional Heteroskedacity (GARCH) was used to ascertain and generate the volatility properties of the stock prices, while the panel Autoregressive Distributed Lag (ARDL) technique was used to capture the relationship between dividend policy determinants and stock price volatility. The independent variables analyzed in this study are leverage (LEV), firm size (FSIZE), dividend yield (DY), earnings per share (EPS) and dividend payout (DPO) while the dependent variable was the volatility in stock price (SPV). Findings show that all of the variables considered have varying degree of relationships with stock price volatility both in the long run and short run in the three countries. The pooled result indicated that DPO, LEV, FSIZE, DY and EPS had a significant relationship with stock price volatility within the study period in the long run but no short run relationship could be confirmed for the combined samples. The study concluded that dividend payout, dividend yield and earnings per share are significant factors that can be used for predicting the volatile movement in stock price in the African stock markets. The study recommended that dividend payment should be consistent and smoothed to disrupt volatility of stock prices since dividend payment is found to be significant determinant of stock price volatility.

The Influence of Internal and External Variables on Stock Price Volatility in the Manufacturing Sector in Indonesia

“…The results of this study are in line with research conducted by Setiyanto, et al (2020) and Vu, Pham and Din (2022) which state that the dividend payout ratio has no significant effect on stock price volatility. However, the results of this study are not in line with Ajao and Fredrick (2022) and Phan and Tran (2019) who state that the dividend payout ratio has a positive and significant effect on stock price volatility.…”

“…According to Ajao and Fredrick (2022) the dividend yield shows the percentage of payment based on the current stock price. Dividend yields can be used directly to compare different stocks.…”

“…This ratio is a valuable tool for measuring and assessing a company's financial health. There are various factors that affect the debt to equity ratio, as well as various ways to calculate the ratio (Ajao and Fredrick, 2022).…”

“…Investors assume that dividend policy is the distribution of profits to shareholders and affects the return on the investment they have made. According to Ajao and Fredrick (2022) dividend payment is a strategy within a company, this is because dividend policy is an important choice for companies to take advantage of the profits that have been obtained by the company in order to be able to maintain the viability of a company in a sustainable manner. Ayuda and Purwohandoko (2021) argue that investors certainly choose a lower level of risk in investing activities and transactions in the capital market.…”

Annual Accounting Information and Stock Price Reactions: Evidence from Nigeria Deposit Money Banks in West Africa

“…The change in stock prices tends to upsurge when new information is unconstrained into the stock market. The extent to which it increases is determined by the importance of the released new information together with the degree at which the news astonishes the investors (Ajao, 2012). The change of ordinary stock price is the systematic and organized risk faced by investors who possess ordinary stock investments (Guo, 2012).…”