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Political Uncertainty and Dividend Policy: Evidence from International Political Crises

63 Pages Posted: 15 Mar 2014  

Jin Yu

Monash University -Department of Banking and Finance

Bohui Zhang

University of New South Wales (UNSW) - School of Banking and Finance; Financial Research Network (FIRN)

Fei Wu

Shanghai Jiao Tong University (SJTU) - Shanghai Advanced Institute of Finance (SAIF)

Tao Huang

Xi’an Jiaotong Liverpool University

Multiple version iconThere are 2 versions of this paper

Date Written: August 14, 2013

Abstract

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 crises, uncertainty, dividend policy

JEL Classification: G35, G15

Suggested Citation

Yu, Jin and Zhang, Bohui and Wu, Fei and Huang, Tao, Political Uncertainty and Dividend Policy: Evidence from International Political Crises (August 14, 2013). Available at SSRN: https://ssrn.com/abstract=2309743 or http://dx.doi.org/10.2139/ssrn.2309743

Jin Yu (Contact Author)

Monash University -Department of Banking and Finance ( email )

Melbourne
Australia
+61 3 99034590 (Phone)

HOME PAGE: http://sites.google.com/site/jinyufinecon/

Bohui Zhang

University of New South Wales (UNSW) - School of Banking and Finance ( email )

Australian School of Business
Sydney NSW, 2052
Australia
61293855834 (Phone)
61293856347 (Fax)

HOME PAGE: http://www.banking.unsw.edu.au/nps/servlet/portalservice?GI_ID=System.LoggedOutInheritableArea&maxWn

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Fei Wu

Shanghai Jiao Tong University (SJTU) - Shanghai Advanced Institute of Finance (SAIF) ( email )

Shanghai Jiao Tong University
211 West Huaihai Road
Shanghai, 200030
China

Tao Huang

Xi’an Jiaotong Liverpool University ( email )

26 Xianning W Rd.
Suzhou Industrial Park
Suzhou, Jiangsu 215123
China

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