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ABSTRACT

This paper examines the effect of institutional ownership on stock volatility, returns, and dividend policy in Egypt. It also investigates the impact of dividend policy on the direction of the relation between institutional ownership and stock volatility and returns. Our main results show that private institutional ownership has significant and positive effect on stock volatility while it has no effect on returns. We find that private institutional ownership has negative effect on dividend payout ratio. Finally, we show that private institutional ownership significantly increases volatility for non-dividend paying stocks only because these stocks are more subject to institutional herding than dividend paying stocks.

JEL Classification: G32, G35

Keywords: Institutional Investors; Volatility; Dividend Policy; Egypt

(ProQuest: ... denotes formulae omitted.)

I. INTRODUCTION

We study the relation between institutional ownership and stock volatility, returns, and dividend policy in Egypt. We also investigate the impact of the dividend policy on the direction of the relation between institutional ownership and stock volatility and returns. We control for the firm's characteristics and financial variables. There is a general debate in literature on the direction of the relation between institutional ownership and stock volatility. Using US data for the period 1999-2003, Rubin and Smith (2009) find that dividend policy plays a crucial role in determining the direction of the relation between institutional ownership and stock volatility. The sign of the correlation between institutional ownership and volatility depends on the firm's dividend policy: institutional ownership is negatively (positively) related to volatility among non-dividend (dividend) paying stocks.

We contribute to this debate on literature by examining the effect of dividend policy on the direction of the relation between institutional ownership and stock volatility in Egypt as one of the emerging markets that have been ignored in literature. We extend the analysis of Rubin and Smith (2009) by decomposing the institutional ownership to insurance companies, employee associations, public and private banks, holdings, and companies. In addition, this paper examines the effect of dividend policy on the relation between ownership concentration, by largest three public and private blockholders, and stock volatility. We also examine the effect of dividend policy on the relationship between institutional ownership and stock returns, not only volatility.

We now try to explain in which respects Egypt, as a...

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