Impact of Dividend Policy on Stock Price Volatility and Market Value of the Firm : Evidence From Sri Lankan Manufacturing Companies

The impact resulted from the dividend policy of a firm on the volatility of the market value of stocks is the major concern of this study, which is an issue bearing the utmost significance, when considering the objectives of a corporate. The focus of an entity should be aligned on the maximization of stockholders’ wealth and this necessitates the selection of an optimum dividend policy. The present study, thus, attempts to shed a light on the above fact within the Sri Lankan context. Data was collected from a sample of companies listed under the manufacturing sector of the Colombo Stock Exchange from the year 2006 to 2014. The study occupied panel data regression model for analysis. The outcome revealed that the dividend yield of the current year has a negative impact on the share price volatility, while the dividend payout ratio of both the current and previous years has a positive impact. In addition, the impact of dividend yield is negative on the market value of the firm, where the dividend payout ratio of the current year also depicts the same impact. The findings of the study reassure the findings of the previous researchers within the Sri Lankan context in case of the market value of the firm while being contrary in case of the share price volatility. Accordingly, the firms’ ability to utilizing the dividend policy as a mechanism of controlling the volatility of share prices is established. However, it will not be effective in altering the market value of the firm