- Should dividend payments be maintained at its current level or changed?
- Would investors prefer stable dividend payouts, or those that fluctuate with earnings?
- Should dividend policy favor older or young investors?
The dividend policy of companies has, thus been a common subject of research for more than half of a century (Litner, 1959; Gordon, 1959; Modigliani, 1982; etc) and it has been related to several vital corporate matters ranging from agency problems to share valuation. The volatility of ordinary stock is a measure used to define risk, and represents the rate of change in the price of a security over a given time. The greater the volatility, the greater the chances of a gain or loss in the short run is. Volatility has to do with the variance of a security’s price. Thus, if a stock is labeled as volatile, its price would greatly vary over time, and it is more difficult to say in certainty what its future price will be. Investors’ preference is for less risk. The lesser the amount of risk, the better the investment is (Kinder, 2002). In other words the lesser the volatility of a given stock, the greater its desirability is.
Theoretical framework is very important to conceptualize a concept in detail. There are number of theories associated with dividend policy and stock movement which will be detail down under the next heading.