The Relationship Between Dividend Payouts and Systematic Risk: A Mathematical Approach (Table‪)‬

ABSTRACT The traditional approach to evaluating dividend policy centers on how the payment of dividends ultimately affects a firm's stock price. The theoretical and empirical work in this area provides mixed results because firms have different motives for paying, not paying, or changing their dividends. In order to better understand how the dividend affects the firm, this paper focuses on how dividends affect a firm's level of systematic risk. Previous studies have used empirical analysis to show an inverse relationship between the payment of dividends and systematic risk. These studies, however, lack a theoretical explanation to accompany their findings. We provide a mathematical model that illustrates the relationship between dividends and systematic risk. In addition, we provide a further empirical analysis that is consistent with our model as well as previous studies.