Firm’s Growth and Share Price Volatility: Evidence from Pakistan
Keywords:
Firm’s Growth, Share Prices, Dividend, Gearing ratio, Size, Profitability ratio.Abstract
Purpose: This research aims to determine how the growth of non-financial dividend-paying companies affects stock prices. This study investigates the impact of growth of the firm on stock prices using different statistical tools and models.
Design and Methodology: A decade of research will be conducted from 2011 to 2020. Dividend announcements, gearing ratios, firm size, and profitability ratios—all growth indicators—are significant drivers of stock price volatility, according to the findings of this study.
Findings: The results support Lintner's and Gorden's "Bird in Hand theory". Companies can earn the trust of long-term investors by maintaining a consistent dividend policy and growth rate. Investors may find more excellent value in the stocks of companies that consistently report significant dividend increases and have a high profitability ratio. Companies that announce high dividends, gearing ratios, and profits typically have promising futures and rising earnings. The study's findings suggest that, from a shareholder's standpoint, shareholders should prefer stocks of companies that pay a high and stable dividend, are large, and generate significant profits.
Implications: Findings are providing information to investors that companies' stock prices are so sensitive to dividend volatility and low profitability ratios because these factors directly impact those metrics.
References
Ahmed, H. and Javid, A. (2009). The Determinants of Dividend Policy in Pakistan. International Research Journal of Finance and Economics, 14 (9), 110-12.
Allen, D. E., and Rachim, V. S. (2016). Dividend policy and stock price volatility: Australian evidence. Applied Financial Economics, 6 (2),175-188.
Amidu, M. (2007). How does dividend policy affect performance of the firm on Ghana stock Exchange. Investment Management and Financial Innovations,4 (2), 104-112.
Baker, H. K., Powell, G. E., &Veit, E. T. (2002). Revisiting Managerial Perspectives on Dividend Policy. Journal of Economics and Finance, 14 (26), 267-283.
Black, F. (2017). The dividend puzzle. Journal of Portfolio Management,2 (1), 1-22.
Black, F., & Scholes, M. (2014). The effects of dividend yield and dividend policy on common stock prices and returns. Journal of Financial Economics,1(1), 1-22.
Booth, L., and Cleary, W. S. (2010). Dividend Policy. In Introduction to Corporate Finance, 8 (14), 57-75.
Brittain, J. (2018). The Tax Structure and Corporate Dividend Policy. American Economic Review, 54 (6), 272-87.
Dhanani, A. (2015). Corporate dividend policy: The Views of British Financial Managers. Journal of Business Finance and Accounting, 32 (13),1625-72.
Gordon, M. J. (2021). Optimal Investment and Financing Policy. The Journal of Finance, 28 (5),264-272.
Balli, F., Agyemang, A., Gregory-Allen, R., & Balli, H. O. (2022). Corporate dividend smoothing: The role of cross-listing. Journal of Corporate Finance, 72, 102151.
Black, F., Schulze, P., & Unger, B. (2020). Projection-based model reduction with dynamically transformed modes. ESAIM: Mathematical Modelling and Numerical Analysis, 54(6), 2011-2043.
Cheffins, B. R. (2020). What Jensen and Meckling Really Said About the Public Company. Research Handbook on Corporate Purpose and Personhood, University of Cambridge Faculty of Law Research Paper(29).
Farooq, O., Saoud, S., & Agnaou, S. (2012). Dividend policy as a signaling mechanism under different market conditions: Evidence from the Casablanca Stock Exchange. International Research Journal of Finance and Economics, 83, 187-198.
Grennan, J. (2019). Dividend payments as a response to peer influence. Journal of Financial Economics, 131(3), 549-570.
Haidar, S. (2023). The Egg Between the Two Rocks: How Bhutan Has Engaged India and China in Very Different Ways. Coping With China-india Rivalry: South Asian Dilemmas, 29.
Iqbal, A., Ahmed, F., & Shafi, A. R. (2014). The effect of dividend bubble on share price: Evidence from KSE-30 index. Research Journal of Finance and Accounting, 5(13), 83-87.
Jaros, J., & Bartosova, V. (2015). To the capital structure choice: Miller and Modigliani model. Procedia Economics and Finance, 26, 351-358.
Khan, F. A., & Ahmad, N. (2017). Determinants of dividend payout: An empirical study of pharmaceutical companies of Pakistan Stock Exchange (PSX). Journal of Financial Studies & Research, 2017, 1-16.
Mbulawa, S., Okurut, N., Ntsosa, M., & Sinha, N. (2020). Determinants of Corporate Dividend Policy under Hyperinflation and Dollarization by Firms in Zimbabwe. Journal of Applied Finance and Banking, 10(2), 1-24.
Miller, D., Wright, M., Breton-Miller, I. L., & Scholes, L. (2015). Resources and innovation in family businesses: The Janus-face of socioemotional preferences. California Management Review, 58(1), 20-40.
Munawar, A. (2019). The effect of leverage, dividend policy, effectiveness, efficiency, and firm size on firm value in plantation companies listed IDX. International Journal of Science and Research (IJSR), 8(10), 244-252.
Nurchaqiqi, R., & Suryarini, T. (2018). The effect of leverage and liquidity on cash dividend policy with profitability as moderator moderating. Accounting Analysis Journal, 7(1), 10-16.
Okpara, J. O. (2011). Factors constraining the growth and survival of SMEs in Nigeria: Implications for poverty alleviation. Management research review, 34(2), 156-171.
Rajesh Kumar, B., & Sujit, K. (2018). Determinants of dividends among Indian firms—An empirical study. Cogent Economics & Finance, 6(1), 1423895.
Rane, A., & AnjanaRaju, G. (2018). Dividend smoothing and implications of Lintner model-A study of Indian consumer goods sector using panel data.
Raza, H., Ramakrishnan, S., Gillani, S. M. A. H., & Gillani, S. M. A. H. (2020). FIRM-SPECIFIC FACTORS OF SHARE PRICES: AN EMPIRICAL EVIDENCE FROM AUTOMOBILE SECTOR IN PAKISTAN. International Journal of Management, 11(08), 1690-1698.
Safitri, J., Fuady, M., Wahyudi, S., Mawardi, W., & Utomo, M. N. (2020). The influence of dividend policy, investment opportunity and capital adequacy to firm value: Evidence in Indonesia banking companies. International Journal of Scientific and Technology Research, 9(2), 764-767.
Sarwar, B., Kutan, A., Ming, X., & Husnain, M. (2020). How do talented managers view dividend policy? Further evidence from Chinese equity market. International Journal of Emerging Markets, 15(3), 559-586.
Siegel, J. J. (2016). The Shiller CAPE ratio: A new look. Financial Analysts Journal, 72(3), 41-50.
Skinner, D. J., & Soltes, E. (2011). What do dividends tell us about earnings quality? Review of Accounting Studies, 16, 1-28.
SYED, K. B. S., ZAINIR, F. B., ISA, M., & KATPER, N. K. (2018). Integrating Reputational Considerations in the Empirical Analysis of Dividend Smoothing Policy of Emerging Market Firms-A Quantile Regression Approach. Journal of Applied Economic Sciences, 13(2).
Taleb, L. (2019). Dividend Policy, Signaling Theory: A Literature Review. Signaling Theory: A Literature Review (March 24, 2019).
Tekin, H., & Polat, A. Y. (2021). Do market differences matter on dividend policy? Borsa Istanbul Review, 21(2), 197-208.
Venkata, R. J. (2022). A Study on Impact of Dividend Policy and Stock Price Volatility on Health Care Market. Academy of Marketing Studies Journal, 26(4).
