The Effects of Dividend Policy on Stock Price Volatility: A Review Study

Abstract

Dividend policies are among the most critical financial decisions for companies, significantly influencing stock price volatility. These policies play a vital role in shaping investor behavior and assessing the financial stability of companies. Stock price volatility, a key factor in investment decisions, is affected by various elements, including dividend policies. This study aims to examine the impact of dividend policies on stock price volatility across different markets. This study is a narrative review utilizing descriptive analysis. Relevant academic sources were collected from various databases, focusing on empirical and theoretical studies that analyze the impact of dividend policies on stock price volatility. Studies from both emerging and developed markets were reviewed to provide a comprehensive understanding of the effects of dividend policies. The results show that companies with stable dividend policies tend to experience lower stock price volatility. Conversely, companies with inconsistent or irregular dividend policies generally witness higher volatility. These effects vary depending on the market type, with emerging markets showing a stronger correlation between dividend policies and stock price volatility due to lower information transparency. Stable dividend policies can help reduce stock price volatility and enhance investor confidence. Additionally, factors such as profitability, liquidity, and macroeconomic conditions also play a crucial role in shaping these impacts.