Political Uncertainty and Dividend Policy: Evidence from International Political Crises
Journal of International Business Studies, Forthcoming
68 Pages Posted: 6 Feb 2013 Last revised: 16 Jan 2015
Date Written: January 15, 2015
We examine the impact of political uncertainty on firms' payout policy. Using a large international sample across 35 countries over the period from year 1990 to 2008, we find that past dividend payers are more likely to terminate dividends and that non-payers are less likely to initiate dividends during periods of high political uncertainty. These findings suggest a precautionary incentive of managers in response to political shocks. Nevertheless, the impact of political shocks seems to be attenuated by stable political systems. In addition to identifying this precautionary incentive, we also document that firms with lower market valuation or less liquidity are more likely to initiate dividends during periods of high political uncertainty, which is consistent with the catering theory of dividends.
Keywords: Political crisis, Dividend policy, Political uncertaincy
JEL Classification: G15, G35
Suggested Citation: Suggested Citation