The effect of dividend policy on the share price of companies listed on the Malta Stock Exchange

Abstract

Dividend policy remains a contentious issue in modern finance, notwithstanding the vast amount of literature and empirical studies carried out over the years. This study sets out to investigate the relationship between dividend policy and the share price of companies listed on the Malta Stock Exchange, as well as determine whether this can be statistically predicted. To obtain a thorough understanding of the main arguments surrounding dividend policy, reference was made to past literature. Data for all listed companies, excluding Santumas plc, for the period 2006 – 2013 (where applicable) was collected from various sources and used to analyse this relationship through a multiple regression model, based on Baskin’s 1989 Model. The results obtained are presented and compared to those of similar foreign studies, the majority of which were carried out in more liquid markets such as the US, UK and Australia. From the contrasting results obtained, no statistically significant evidence emerged to prove that dividend policy affects the share price of Maltese listed companies; however, possible factors leading to this outcome are put forward. These include the sample size, specific market characteristics (i.e. a young and illiquid market), and inconsistent dividend payouts. This outcome suggests that sentiment may predominate in the local market. As a result, this study sheds much needed light on the puzzle surrounding dividend policies in the local scenario. Furthermore, it puts forward some recommendations for improvement and maps out areas for further study.