Corporate Governance Mechanisms and Stock Price Volatility: The Mediating Role of Dividend Policy: Evidence From Emerging Markets

Abstract

This study is novel research aims to investigate the impact of corporate governance mechanisms on stock price volatility in the Egyptian stock exchange through the role of the dividend policy as a mediating variable. The study examines certain corporate governance mechanisms such as: board independence, board size, number of board meetings, CEO duality, and audit committee. The study used quarterly data on EGX 30 for the period 2012-2021. It was based on a sample of 25 stocks traded in the Egyptian stock exchange, not including the stocks of the financial sector. Leverage and size used as a controllable variables. Results revealed that corporate governance has an impact on stock price volatility and dividend policy. Board independence, board size, board meetings and audit committee have a significant negative impact on stock price volatility of listed Egyptian companies. A good corporate governance practices is a good sign to reduce the fluctuations in stock prices. However, CEO duality and size has no impact on stock price volatility. Leverage has a positive significant impact on stock price volatility. Accordingly, CEO duality and leverage is a sign of poor corporate governance. Egyptian investors need to consider the issue of corporate governance practices alongside with the risk associated with expected return when taking investment decisions. A new dimension which added to investigate the interrelationship between corporate governance mechanisms and stock price volatility is dividend policy as mediator factor. Dividend policy is the outcome of good corporate governance practices and has an impact on stock price volatility. Corporate governance is important for stimulating the dividend payments which in turn affect stock price volatility.