Dividend Payout Policy, Investor Perceptions and Stock Price Stability on the Lusaka Securities Exchange: A Qualitative Study

Abstract

This study set out to determine the relationship between dividend payout ratios and investors’ perceptions and expectations of price stability of the shares of selected non-financial firms listed on the Lusaka Securities Exchange (LuSE) between 2015 and 2024. Prior research on dividend policy has mostly been quantitative, exploring associations between dividend-related indicators and variables related to firms’ financial performance using secondary data. There is limited understanding of how investors in emerging capital markets make sense of dividend announcements and utilise the information in their decision-making processes. This study was guided by Signalling Theory, Behavioural Finance Theory, and Corporate Communication Theory. A qualitative descriptive case study design was used to explore the phenomenon. Twenty-four (24) participants were interviewed using a semi-structured protocol. The respondents included retail and institutional investors, stockbroking agents, analysts, and corporate finance managers who had experience interacting with investments on the LuSE. Dividend announcements, reports, company releases, and disclosures on LuSE were also reviewed to provide background information on the general context surrounding dividend payments and investor behaviours in the study area and to complement the interview data. Thematic analysis was performed on the interview transcripts using Braun and Clarke’s framework. The following five themes were identified: dividend payout ratios as an indicator of financial performance and stability, regular dividends as a key to sustaining investor confidence, variance in perceptions and expectations based on the nature of the firms, dividend-related announcements as a means of communicating information to investors, and the influence of general economic conditions on investors’ perceptions and expectations. Interviewees noted that stable and consistent dividends provided information on the general state of the firm and inspired trust among shareholders. On the other hand, cuts or inconsistencies in dividend payments bred uncertainty and mistrust about the firm’s prospects and operations. The documentary evidence reviewed also revealed similar indications about dividend policies, with information on the financial status and outlook, strategic considerations, conditions affecting the business, and economic environment accompanying the announcements. The study demonstrated the applicability of Signalling, Behavioral Finance, and Corporate Communication theories in a context with limited information using LuSE as a frontier market for investments. It also provides recommendations for firms listed on the LuSE to consider in developing their dividend policies, including the need to utilise dividends to build trust with investors and maintain price stability by disclosing relevant information to the shareholders. This study concludes that dividend payouts on the LuSE promote the dissemination of corporate information, build trust, and help maintain the confidence of investors.