which considered the impact of dividend policy on stock price movement in the emerging economy of Malaysia. This study primarily focused on the industrial product market.
The fundamental reason for choosing the industrial firms was that larger standard deviation was noticed among firms in terms of the dividend payout ratio. Form specific variables were also incorporated in the analysis i.e., income, volatility, size, leverage and growth in assets. Lastly the impact of global financial crisis on the relationship between stock price and dividend policy were also gauged by looking into the pattern of ASEAN-5 countries. The study employed 10-year data for the period 2003 to 2012 with an objective of establishing the relationship between dividend policy and stock price in the Malaysian market.
Malaysian market has a distinct attribute being an emerging market in comparison to the developed world. Emerging markets would generally be smaller in size, more prone to volatility and generally has less information efficiency. Firms must have some certain attributes in order for the firm to be taken in sample size i.e., it must continuously be listed on stock exchange for the period under consideration and data must be readily available. Taking into account aforementioned characteristics, a total of 166 out of 238 firms were selected from the industrial sector. Based on the tests performed, it was concluded that there was a significant inverse relationship between dividend payout and stock price and considerable negative relationship between stock price and dividend yield.
The results showed that dividend policy is an important predictor of the stock price in the industrial product sector. The higher the dividend pay-out and dividend yield, the lower the uncertainty regarding the stock price volatility will be. Among other variables taken, entity’s income volatility has a significant positive relationship with the stock price volatility which implies that the more stable earning potential of the company is, the less uncertainty regarding its stock price would be.