Firm Uncertainty and Corporate Policies: The Role of Stock Return Skewness
58 Pages Posted: 29 May 2018 Last revised: 25 Jun 2021
Date Written: June 23, 2021
We study the interaction between firm uncertainty and corporate policies, emphasizing the role of skewness in the distribution of performance shocks reflected in stock returns. Conditional on volatility and other characteristics, firms with more negatively skewed performance shocks adopt more conservative policies, including greater cash holdings, a lower likelihood of dividend payments and increases in payout levels, and less financial leverage. These relationships are significant and robust for asymmetry proxies constructed from stock return innovations, in contrast to results for measures based on accounting performance shocks. This disparity highlights the importance of asymmetries in long-run performance shocks for corporate policy choices.
Keywords: Corporate policies, cash flow news, asymmetries, volatility, skewness, leverage, cash holdings, payout, dividends
JEL Classification: G32, G35
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