Impact of Dividend Policy on Share Price Volatility: US Evidence

This study attempts to reveal the latest linkage between dividend policy and the volatility of stock price in the USA since the researches focusing on this topic in the USA are stale. An association between dividend policy and share price volatility from 2011 to 2018 have been found by utilising the fixed effect model which controls the time invariant unobserved heterogeneity. In addition, several control variables are employed in the fixed effect model to deal with the joint effect to dividend policy and the volatility of share price. However, when running the estimation completely including time and industry dummies, we got the following relationship between stock price volatility and independent variables. The dividend payout has significant negatively impact on stock price volatility. And the dividend yield shares no relationship with price volatility which is contradictory with the previous researches of Baskin (1989),Nishat and Irfan (2004) and Rashid and Rahman (2008). The previous studies did not control time dummy variable; thus, the results they got may be questioned. Additionally, we found that market capitalization, GDP growth rate and inflation rate affect the volatility of stock price significantly. While the logarithm of market capitalisation has positive effect on price volatility, the GDP growth rate and inflation rate have inverse impact on price volatility. On the whole, this study has observed that dividend policy has inverse impact on stock price volatility. Thus, the signalling effect has been proved by this study. The signalling effect means that the dividends distribution will provides the signals to the public about the firm’s future prospects and leads to the changing in stock prices. Besides, the macroeconomic determinants, GDP growth rate and inflation rate are normal changes in economic condition which will lead to recession and recovery and have an impact on stock price volatility. Thus, it is important to focus on these macrocosmic variables because they would have significant effects on the fluctuation of stock price