dc.description.abstract |
Stock price volatility is broadly considered to be one of the components that impact the
confidence of investors in global money markets. Market value ratios have been found
to have a predictive power on ensuing stock prices, which influence information on
firm performance and ultimately reduces stock price volatility. The riddle remains
unsolved in reference to the factors which have greater effect on stock price volatility.
This study examined the association between each of the five selected market value
ratios namely; market to book value ratio, book value per share, earnings per share,
dividend yield and price earnings ratio on volatility of share price of listed firms on
NSE. The study also determined institutional ownership’s moderation on the
association between market value ratios variables and volatility of share price. The
study was guided by Efficient Market Hypothesis Theory, seconded by the theory of
Value Relevance, Signalling Theory and Agency Theory. Positivism research
philosophy and explanatory research design was adopted by the study to source
secondary data from 39 listed firms at NSE from 2008 to 2019. Secondary data used in
the study was sourced from the NSE Handbook and published annual reports of the
listed firms. The data analysis approaches adopted were descriptive, correlation and
panel data regression to evaluate the association between market value ratios variables
and stock price volatilities. The findings indicated that control variables firm size and
firm growth were significant to affect volatility of share price. R-square was 29%,
Market value to book value (β = −.0161, p = .000 < .05), Earnings per share (β =
−.002, p = .000 < .05), Book value per share (β = −.0003, p = .000 < .05)
Dividend yield (β = −.476, p = .000 < .05) and institutional ownership structure
(β = −.071, p = .006 < .05) negatively and significantly influenced stock price
volatility. Further institutional ownership structure moderated the relationship between
Market price to book value (β = 0.01, ρ = 0.01 <.05, R2Δ =.01), Price earnings ratio
(β=.003, p = 0.00 <.05, R2 Δ =.01), Dividend yield (β=1.470, p = 0.006 <.05, R2Δ =.01)
and volatility of share price. However, there was insignificant moderation of
institutional ownership on the association between earnings per share and volatility of
share price (β = 0.00, ρ=0.497>0.05) and an insignificant moderating effect on the
relationship between book value per share and volatility of share price (β = 0.00,
ρ=0.07>.05). The study concluded that market value ratios influence volatility of share
price. Also, institutional ownership structure moderates the relationship between
market to book value ratio, price earnings ratio, dividend yield and volatility of share
price. The findings of this study comprise the information ingredients that are suggested
in the efficient market theory, theory of value relevance, signaling theory and agency
theory thus supporting these theories. The study recommended that Central Bank of
Kenya should come up with effective policies to curtail the impact they have on
the the stock market. Firms listed on NSE should also maintain an acceptable dividend
policy to both prospective and existing investors. Management should also formulate a
dividend policy that minimizes stock price volatility. Further studies should be carried
out on other possible variables and their influence on the stock price volatility. Other
studies should also carried out within other time frames and other stock exchanges, or
on the association between manipulated market value ratios or irregular or inconsistent
dividend policy and stock prices volatility. |
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