The Impact of Dividend Policy on Stock Price Volatility: Evidence from the Chemical and Pharmaceutical Sectors of Pakistan

Abstract

This study examines how dividend rules affect Pakistan's competitive chemical and pharmaceutical companies' share prices. In this market, investors worry about market value and economic uncertainty is rampant. This study employs Fixed Effect and Random Effect models to examine how dividend policy affected ten KSE-100 Index companies' stock prices from 2020 to 2024. It measures dividend policy impact. To study how cash and stock dividends affect market price per share, market price, earnings per share, return on equity, and retention ratio will be utilised as controls. This study evaluates cash and equity dividends on share prices. The study indicated that dividend policy strongly affects stock price volatility for chosen companies.Cash dividends, stock dividends, and EPS minimise inventory price volatility, according to data. Retained earnings and return on equity increase stock price volatility. Investors value dividends in riskier emerging economies. Dividend investors can make informed decisions. Using the study's findings, companies can design a high-quality dividend policy that decreases share price volatility and increases shareholder value. Conclusions from the study will allow this. Its empirical evidence from emerging capital markets challenges the Dividend Relevance Theory, making it important. The study reveals that retention ratios affect stock values.