Political Freedom and Corporate Payouts

45 Pages Posted: 2 Jun 2016

See all articles by Omrane Guedhami

Omrane Guedhami

University of South Carolina - Moore School of Business

Chuck C.Y. Kwok

University of South Carolina - Darla Moore School of Business

Liang Shao

Hong Kong Baptist University (HKBU) - Department of Finance and Decision Sciences

Date Written: June 1, 2016

Abstract

We study the effect of a country’s political freedom status on corporate payouts around the world. In both OLS and two-stage regressions, we find that firms in less free countries pay out more cash, suggesting that low political freedom is associated with a less friendly investment environment. Consistent with this view, we further find that firms reduce payouts when a country’s political freedom status improves, while they tend to pay out past excess cash and cut future investment in the face of a deterioration in political freedom. In additional analysis, we also find that firms in less free countries do not pay out cash mainly to ease agency concerns: cash payouts in these countries are more volatile and hence less valuable.

Keywords: Political Institutions, Freedom, Payout Policy

JEL Classification: G35, P16

Suggested Citation

Guedhami, Omrane and Kwok, Chuck C.Y. and Shao, Liang, Political Freedom and Corporate Payouts (June 1, 2016). Available at SSRN: https://ssrn.com/abstract=2788075 or http://dx.doi.org/10.2139/ssrn.2788075

Omrane Guedhami (Contact Author)

University of South Carolina - Moore School of Business ( email )

Columbia, SC
United States

Chuck C.Y. Kwok

University of South Carolina - Darla Moore School of Business ( email )

1705 College St
Francis M. Hipp Building
Columbia, SC 29208
United States
803-777-3606 (Phone)
803-777-3609 (Fax)

Liang Shao

Hong Kong Baptist University (HKBU) - Department of Finance and Decision Sciences ( email )

Hong Kong

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