Abstract:
Dividend policy continues to generate endless debate despite years of theoretical and empirical research. These include the linkage between dividend policy and stock price risk. Provious studies have produced mixed results in different countries. This study sought to determine the effect of dividend policy on stock price volatility in listen firms in Nairobi Stocks Exchange. The objectives of the study were to determine the effect of dividend yield on the stock price volatility of shares in the listed companies at NSE, establish the effect of payout ratio on the stock price volatility of shares in the listed companies at NSE and to assess the effect of size of the firm on the stock price volatility of shares in the listed companies at NSE. The study employed descriptive researcher design in which the study targeted all the listed firms in the NSE. The study employed purposive sampling to select 38 firms which have been consistently trading since 1994. The study used secondary data collected from the NSE website. Data was analysed using panel data analysis. Regression analysis was performed to determine the relationship between the variables. Prior to performing the regression analysis, the study performed diagnostic tests to ensure the data achieved regression assumptions. These included tests for multicolliniarity, heteroskedasticity test, panel unit root test and Hausman specification test. The findings were presented in tables and figures. The study established that dividend policy affected the stock price volatility of the firms listed at the NSE. The study results revealed that two dividend policy indicators (dividend, yield and payout ratio) depicted a negative insignificant relationship with the stock price volatility. The study established that the relationship between the firm size and stock price volatility was positive and significant. The study concluded that dividend yield and payout ratio all had negative insignificant effect on stock price volatility among firms listed in NSE in Kenya. The study recommended that every firm listed in NSE should provide the information regarding its activities and performance, so that investors can analyze the situation and invest their money in the best firms. Listed firms should take seriously the effects of the dividend policy indicators (no matter how insignificant) is still one of the determining variables of the market price of shares. The listed firms at the NSE should endeavour to formulate dividend policies that will maximize shareholders wealth.
