Abstract:
This study aims to determine the effects of dividend policy on the
relationship between institutional ownership and stock price volatility, based on a
sample of 36 firms listed on the Karachi Stock Exchange over a seven-year period
(2005–11). We use a fixed-effects model applied to panel data to investigate this
relationship and find that institutional ownership has a negative relation with
stock price volatility and a positive relation with the dividend payout ratio. The
results also show that dividend payouts significantly affect the relationship
between institutional ownership and stock price volatility. The mediating role of
dividend policy between institutional ownership and stock price volatility reveals
that institutional investors prefer to invest in low-volatility dividend-paying stock.
