The relationship between dividend policy and stock price volatility : a Canadian study

Abstract

The objective of this study is to explore the relationship between the stock price volatility and dividend policy (dividend yield and dividend payout ratio) for the Canadian stock market. According to the studies of Baskin (1989) and Allen and Rachim (1996), the multiple least squares regression model is applied in this paper. The sample of data is composed of 100 public firms which are listed on the Toronto Stock Exchange and paid dividends continuously from 2001 to 2011. The results indicate that the dividend yield and the dividend payout ratio both have significantly negative relationship with the stock price volatility. In addition, earnings volatility is positively related to the stock price volatility and it is a statistically significant relationship. As a result, managers can partly control the stocks’ risks and thus affect investors’ investment decisions through a firm’s dividend policies.