Original Research

The role of dividend policy in share price volatility

Lydia Pelcher
Journal of Economic and Financial Sciences | Vol 12, No 1 | a221 | DOI: https://doi.org/10.4102/jef.v12i1.221 | © 2019 Lydia Pelcher | This work is licensed under CC Attribution 4.0
Submitted: 21 May 2018 | Published: 29 April 2019

About the author(s)

Lydia Pelcher, Department of Commercial Accounting, University of Johannesburg, Johannesburg, South Africa

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Orientation: A key objective of a company is to maximise shareholder wealth. Distribution of created wealth is achieved either through reinvestment in the company, which increases share value, or through dividend payouts. This encapsulates the dividend policy of a company. In order to realise a cash return, the former requires an investor to liquidate part of the investment, while the latter provides an immediate cash return.

Research purpose: The objective was to establish whether relationships exist between share price volatility and dividend policy for shares listed on the Johannesburg Stock Exchange Limited (JSE).

Motivation for the study: Dividend policy is an important consideration in the wealth creation process, particularly whether or not to distribute dividends to shareholders. Dividend policy is often structured to cater for shareholders’ expectations.

Research design, approach and method: Panel data analysis was employed on a sample of the top 40 JSE-listed shares from 2007 to 2016.

Main findings: The results indicated that the association between share price volatility and dividend yield is positive and significant but that between share price volatility and payout ratio is insignificant.

Practical/managerial implications: Dividends were proven to be relevant to shareholders and have an association with share price volatility.

Contribution/value-add: Dividend policy for the top 40 companies listed on the JSE is a contributor to share price volatility. In order to minimise share price volatility, managers of dividend-paying companies should structure the dividend policy to have consistent dividend payments but also able to reinvest excess cash within the company.


dividend policy; dividends; JSE; volatility; dividend payout ratio; panel data analysis


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