Dividend policy and share price volatility: UK evidence

Purpose – The purpose of this paper is to examine the relation between dividend policy and share price changes in the UK stock market.

Design/methodology/approach – Multiple regression analyses are used to explore the association between share price changes and both dividend yield and dividend payout ratio.

Findings – A positive relation is found between dividend yield and stock price changes, and a negative relation between dividend payout ratio and stock price changes. In addition, it is shown that a firm's growth rate, debt level, size and earnings explain stock price changes.

Practical implications – The paper supports the fact that dividend policy is relevant in determining share price changes for a sample of firms listed in the London Stock Exchange.

Originality/value – To the best of the authors' knowledge, this paper is the first to show that corporate dividend policy is a key driver of stock price changes in the UK.