Dividend policy and price volatility: theory vs practice

Dividend policy is one of the most important element to measure changes in stock prices. The relationship between dividend policy and stock price volatility shows different results based on different studies. This paper focuses on the relationship between dividend policy and stock price volatility through seminal literature on both theoretical and empirical evidences from 1989 to 2016. The various consequences of this relationship depend upon each country specific characteristics, different data sample and different methodology techniques which utilized by researchers in developed and developing countries. Most of the studies found negative relationship between dividend policy and stock price volatility, while developed countries have more impact on this relationship as compared to developing countries. Based on the prior literature, this paper argues that the relationship between dividend policy and stock price volatility is inconsistent and the organization needs to decide the dividend policy according to their capability and organizational culture