Dividend policy and its impact on firm valuation : A study of the relationship between dividend policy and stock prices on the Swedish market

Sammanfattning: The issue of dividends and what role it plays, has been the subject of discussion for decades. The main reason for this is that the chosen dividend policy for a company affects several different stakeholders, with shareholders being the most affected party. Determining dividend policy is influenced by multiple factors such as capital structure, potential stakeholder signaling and corporate culture concerning payouts. This study will investigate how the relationship between firm performance and stock price is affected by the level of dividends a firm pays. To explore this relationship, the authors will conduct a correlation and regression analysis that is performed on data collected on middle and large capitalization firms listed on the Stockholm stock exchange. The chosen time frame for this study is year 2007-2017. Several variables are included in the regression model in order to explore a potential relationship.  The findings of this study indicate that the stock price of high dividend yield firms are more dependent on financial performance compared to low dividend yield firms. However, an overall positive correlation is found between financial performance and stock price for both samples.