Dividend Policy and Share Price Volatility in Nigerian Banking Industry

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College of Management and Social Sciences, Fountain University, Osogbo, Nigeria


Dividend policy influences the share price movement and volatility of share price are important to investors because the lesser the volatility of a given share, the greater the desirability to investors. The study examines the effect of dividend policy on share price volatility covering two categories of firms in the Nigerian banking industry; firms that declared dividend and those that retained their earnings, covering a period between 2008 and 2013. Three firms were randomly selected for each category, the study also used panel data analysis and the choice of the six banks was ranked based on their contribution to Gross Domestic Product. The result for firms that declare dividend shows that there is a positive relationship between dividend payout ratio, '"' " earnings per share, size of the bank and share price volatility, while there exist a negative - relationship between earnings volatility and share price volatility, also the result for the firms that retained their earnings shows that there is negative relationship between retained earnings, earnings volatility and share price volatility and also a positive relationship between earnings per share, size of the bank and share price volatility. The study concludes that declaration of dividend by banks causes more volatility in share price movement while retained earnings causes less volatility in share 'price movement of banks in Nigeria .. It is recommended that banks. should concentrate more on retaining all their earnings and making judicious use of the funds by committing it in a profitable and viable investment opportunities while, the Investors should also concentrate more on capital gains as a return for their investment in a share of a company instead of collection of dividend.



Dividend Policy, Retained Earnings, Share Price