The Effects of Dividend Policy on Share Prices: Empirical Evidence from the Zimbabwe Stock Exchange

This study examined the effects of dividend policy on the share price of a firm. The research was motivated by the fact that firms on the Zimbabwe Stock Exchange (ZSE) are changing their dividend policies to conservative/stringent dividend policies as a result of the unpredictable and turbulent business environment hence the need to determine whether it is still profitable to invest on the stock market. The period covered by the research was 2003 to 2011. The main objective of the study was to determine whether shareholder value is eroded as dividend policies change and also to determine whether it was still profitable to invest on the stock market. The findings showed that i) there is no relationship between dividend policy and share price of a firm ii) there is no relationship between earnings per share and the share price. The study concluded that dividend policy does not affect share price and that shareholder value is maintained even though firms have adopted conservative dividend policies. The study also concluded that it is still profitable to invest on the ZSE as the potential for investors to create wealth remains high.