Dividend policy and share price volatility in Kenya

Abstract

This paper seeks to determine the impact of dividend policy on share price volatility in Kenya. A number of theoretical mechanisms have been suggested that dividend policy vary inversely with share price volatility like the duration effect. The study used data from the actively trading companies listed in the Nairobi Securities Exchange for a period of ten (10) years from 1999 – 2008. The estimation is based on multiple regression analysis between dividend policy measures (dividend payout ratio and dividend yield) and Share price volatility. From the regression results showed dividend is the major determinants of share price volatility in NSE (β =- 0.470, ρ<0.05). Dividend yield negatively positively affect share price volatility (β =0.124, ρ<0.05). Thus, the higher the payout ratio the less the share price volatility, and the higher the dividend yield the lower the share price volatility.