Studying the Dividend Policy and Share Price Volatility: Iran Evidence

Explaining dividend policy has been one of the most difficult challenges facing financial economists. Despite decades of study, we have yet to completely understand the factors that influence dividend policy and the manner in which these factors interact.The aim of this paper is to examine the relation between dividend policy and share price volatility in Tehran Stock Exchange (TSE). The analyses are performed using data derived from the financial statements of 100 firms listed on the Tehran Stock Exchange during a six-year period from 2006 to 2011. Multiple regression analyses are used to discover the association between share price changes and both dividend yield and dividend payout ratio. The empirical findings suggest that there is a significant negative relationship between the dividend policy of a firm and the volatility of its stock price. In addition, it is shown that a firm’s growth rate, debt, size and earnings explain stock price changes. The study found that dividend policy is relevant in determining share price changes for a sample of firms listed in Tehran Stock Exchange.