Analyzing the Influence of Dividend Policy and Earnings Per Share on Stock Price Volatility: A Comparative Study between Financial and Non-Financial Sectors

Abstract

This research paper illustrates the impacts of dividend strategy and earnings per share on the volatility of stock prices in Pakistan’s financial and non-financial sectors, with a particular emphasis on insurance companies, banks, textile, and cement industries. This study investigates the effect of payout ratio and earnings per share on the stock value. A detailed examination of the correlation of dividends, earnings per share, and volatility of stock prices is presented in this literature review. In this research, the payout ratio and earnings per share are independent variables, while volatility in stock prices is the dependent variable. Various theories of dividend policies are examined to provide a theoretical foundation for the investigation. Using EViews 11 software, the multicollinearity regression model, correlation analysis, unit root tests, and fixed random effects models are utilized in the data analysis. The findings indicate that the ratio at which dividends are paid relative to earnings influences the stock price’s volatility negatively, whereas earnings per share have a crucial role, showing a significant positive effect. The data includes only four industries over 10 years for 20 selected companies, and certain industries were excluded from the analysis, including government savings institutions, modaraba companies, leasing companies, power generation, fertilizers, oil & gas, pharmaceuticals, automobiles, and technology companies. Therefore, the results must be interpreted considering these restrictions.