Profitability, Dividend Policy and Stock Prices
A Case Study on Kuwaiti Insurance Companies
DOI:
https://doi.org/10.20525/ijfbs.v13i1.3293Keywords:
Kuwait Stock Exchange, Insurance companies, Dividend policy, Retention ratio, Dividend yield, Risk premiumAbstract
There has always been controversy among researchers over how dividend policies affect share prices, and this equivocal relationship varies throughout international markets. This study is set to examine the relation between share prices and number of dividend policy and profitability variables. Based on the information from five insurance companies that are listed on Kuwait Stock Exchange (KSE) over the period 2014 and 2022, findings indicates that 55.3% of stock prices could be explained by factors related to profitability and dividend policy. The relationship between stock price, as a dependent variable, and earnings per share (EPS), dividend yield (DY), earning to price ratio (EP), risk premium (RP), and retention ratio (RR), as independent variables, was investigated in this study using OLS regression approach. The results of the regression analysis demonstrated a significant direct relationship between stock price and earnings per share (EPS), suggesting that investors choose highly profitable shares. At the 99% confidence level, the earnings to price ratio (EP) likewise revealed a statistically significant direct relationship with the stock price. At 90% confidence level, risk premium (RP) also shown a substantial direct relationship. The only variable that significantly correlated negatively with share prices was dividend yield (DY), suggesting that investors choose more stable payouts over uncertain future capital gains. Conversely, the retention ratio (RR) demonstrated a negligible direct impact on share prices.
Downloads
References
Akbar M and Baig H. H. (2010). Reaction of Stock Prices to Dividend Announcements and Market Efficiency in Pakistan. The Lahore Journal of Economics, 15(1), 103-125.
AlAli, M. S. (2020). Investors Attitude toward Dividend Policy: A Case Study on Kuwaiti Banks, The International Journal of Business Quantitative Economics and Applied Management Research, 6(6), 15-19.
AlAli, M. S., Al-Yatama, S. K., AlShamali, N. M., & AlAwadhi, K. M. (2019). The impact of dividend policy on Kuwaiti insurance companies share prices. World Journal of Finance and Investment Research, 4(1), 34-39.
Allen, D. E., and Rachim, V. S. (1996). Dividend Policy and Stock Price Volatility: Australian Evidence. Applied Financial Economics, 6(2), 175-188.
Amidu, M. (2007). How does dividend policy affect performance of the firm on Ghana Stock Exchange. Investment Management and Financial Innovations, 4(2), 104 – 112.
Arsal, M (2021) Impact of earnings per share and dividend per share on firm value. ATESTASI: Jurnal Ilmiah Akuntansi, 4(1), 11-18. DOI : https://doi.org/10.33096/atestasi.v4i1.594
Black, F. (1976). The dividend puzzle, Journal of Portfolio Management, 2(2), 5-8.
Black, F., and Scholes, M. (1974). The Effects of Dividend Yield and Dividend Policy on Common Stock Prices and Returns. Journal of Financial Economics, 1(1), 1-22. https://doi.org/10.5897/AJB2014.13811
Campbell, J. Y., and Shiller, R. J. (1988). The dividend-price ratio and expectations of future dividends and discount factors. The review of financial studies, 1(3), 195-228.
Demirguc-Kunt, A., and Maksimovic, V. (1996). Stock market development and corporate finance decisions. Finance and Development-English Edition, 33(2), 47-49.
Ejigu, S. N. (2016). E-banking service quality and its impact on customer satisfaction in State Owned Banks in East Gojjam Zone; Ethiopia. Journal of Economics and Sustainable Development, 7(21), 100-111.
Fauza, M. S., and Mustanda, I. (2016). Pengaruh Profitabilitas, Earning Per Share (EPS) Dan Dividend Payout Ratio (DPR) Terhadap Harga Saham. E-Jurnal Manajemen Unud, 5(12), 8015-8045.
Gordon, M. J. (1959). Dividends, earnings, and stock prices. The review of economics and statistics, 41(2), 99-105. http://www.jstor.org/stable/1927792
Hunjra, A. I., Ijaz, M., Shahzad, M., Chani, S., Hassan, U., and Mustafa, U. (2014). Impact of Dividend Policy, Earning per Share, Return on Equity, Profit after Tax on Stock Prices. International Journal of Economics and Empirical Research, 2(3), 109-115. Online at https://mpra.ub.uni-muenchen.de/60793/
Innafisah, L. (2019). Pengaruh Earning per Share (EPS), Price Earning Ratio (PER) Dan Dividend Payout Ratio (DPR) Terhadap Nilai Perusahaan Property dan Real Estate yang Terdaftar Di Bursa Efek Indonesia (BEI) Periode 2014-2017. E-JRA, 8(7), 37-52. DOI : https://doi.org/10.54076/juket.v3i2.405
Jakata, O. and Nyamugure, P. (2014). The effects of dividend policy on share prices: Empirical evidence from the Zimbabwe stock exchange. International Journal of Science and Research, 4(10), 674 – 683. Retrieved. From https://www.ijsr.net/archive/v4i10/SUB158636.pdf.
Kganyago, T., and Gumbo, V. (2015). An Empirical Study of the Relationship between Money Market Interest Rates and Stock Market Performance: Evidence from Zimbabwe (2009-2013). International Journal of Economics and Financial Issues, 5(3), 638-646.
Khan, K. I., Aamir, M., Qayyum, A., Nasir, A., and Khan, M. I. (2011). Can dividend decisions affect the stock prices: A case of dividend paying companies of KSE. International Research Journal of Finance and Economics, 76(68), 69-74.
Klein, A. (1998). Firm performance and board committee structure. The Journal of Law and Economics, 41(1), 275-304. https://doi.org/10.1086/467391
Kramaric, T. P., Miletic, M., and Pavic, I. (2017). Profitability determinants of insurance markets in selected central and eastern European countries. International Journal of Economic Sciences, 6(2), 100-123. https://doi.org/10.20472/ES.2017.6.2.006
Miller, M. H., & Modigliani, F. (1961). Dividend Policy, Growth, and the Valuation of Shares. The Journal of Business, 34(4), 411–433. http://www.jstor.org/stable/2351143
Ohiaeri, N., Ogumeru, B., and Akinbowale, F. (2019). The Impact of Dividend Policy on the Share Price of Quoted Companies in Nigerian Stock Exchange. International Journal of Economics and Management Studies, 6(8), 1-12.
Okafor, C. A., Mgbame, C.O., and Chijoke-Mgbame, A. M. (2011). Dividend policy and share price volatility in Nigeria. Journal of Research in National Development, 9(1), 202 – 210.
Osakwe, A. C., Ezeabasili, V. N., & Chukwunulu, J. I. (2019). Effect of dividend policy on stock prices: Evidence from Nigeria. International Journal of Economics and Financial Management, 4(3), 31-45.
Pani, U. (2008, August 11). Dividend Policy and Stock Price Behaviour in Indian Corporate Sector: A panel data approach. Retrieved from Indian Institute of Technology: http://ssrn.com/abstract=1216171
Veterina, I., Destiana, DE, Pratiwi, EY, & Shafira, PN (2020). The Effect of Dividend Policy, Earning per Share, Return on Equity, and Profit after Tax on Stock Price on Stocks Listed on the IDX in 2016–2019. Research Results Report.
Downloads
Published
How to Cite
Issue
Section
License
Copyright (c) 2024 Musaed Sulaiman AlAli, Tarek N. AlQamlas , Saif R. AlHajri , Naser S. AlBasri , Abdulaziz S. AlSalem

This work is licensed under a Creative Commons Attribution 4.0 International License.
Authors contributing to IJFBS agree to publish their articles under the Creative Commons Attribution- 4.0 license, allowing third parties to share their work (copy, distribute, transmit) and to adapt it, under the condition that the authors are given credit, that the work is not used for commercial purposes, and that in the event of reuse or distribution, the terms of this license are made clear. Authors retain copyright of their work, with first publication rights granted to IJFBS. However, authors are required to transfer copyrights associated with commercial use to the Publisher. The authors agree to the terms of this Copyright Notice, which will apply to this submission if and when it is published by this journal
Submission of an article implies that the work described has not been published previously( except in the form of an abstract or as part of a published lecture or academic thesis), that it is not under consideration for publication elsewhere, that its publication is approved by all authors and tacitly or explicitly by the responsible authorities where the work was carried out, and that, if accepted, it will not be published elsewhere in the same form, in English or in any other languages, without the written consent of the Publisher. The Editors reserve the right to edit or otherwise alter all contributions, but authors will receive proofs for approval before publication.