The Effect of Dividend Yield on Stock Prices: The BRICS-T Case

Özet

Purpose – This study aims to investigate the empirical relationship between dividend yield and annual stock price changes (ΔSP) by examining core financial statement data of enterprises domiciled in BRICS economies and Turkey.

Design/methodology/approach – To address this objective, a balanced panel dataset comprising annual financial disclosures from 90 prominent firms spanning the 2015–2025 period was constructed. Accounting for cross-sectional dependence among panel units, second-generation panel unit root procedures were implemented. The baseline estimations were conducted utilizing Panel-Corrected Standard Errors (PCSE) regression to effectively rectify group-wise heteroskedasticity and contemporaneous correlation across panels. Furthermore, the validity and robustness of the empirical outcomes were corroborated through winsorization protocols, alternative fixed-effects specifications, Driscoll-Kraay standard errors, and Dumitrescu-Hurlin panel Granger causality evaluations.

Findings – The PCSE regression estimations indicate that the price-to-earnings ratio (PE), earnings per share (EPS), revenue growth (RG), and asset size (AS) exert statistically significant and positive impacts on annual stock price fluctuations (ΔSP). Conversely, dividend yield (DY) and return on equity (ROE) remain statistically insignificant within the baseline framework. The Dumitrescu-Hurlin causality checks identify unidirectional predictive flows running from PE, RG, ROA, and AS toward ΔSP, alongside a bidirectional causal feedback loop between EPS, ROE, and ΔSP. Moreover, interactive modeling confirms that the marginal effects of these financial indicators diverge significantly for Turkish corporations relative to their international counterparts.

Discussion – The empirical evidence strongly aligns with the Dividend Irrelevance Theory posited by Modigliani and Miller, demonstrating that capital markets prioritize fundamental growth and profitability metrics over cash dividend distributions. While the statistical significance of valuation and performance multiples—such as PE, EPS, and RG—lends robust support to Signaling Theory, the positive contribution of asset size (AS) is rationalized through the lens of Agency Cost Theory. Consequently, market participants and portfolio strategists are advised to prioritize operational earnings and growth signals over dividend yields when forecasting asset price trajectories.