Firm Uncertainty and Corporate Policies: The Role of Stock Return Skewness

58 Pages Posted: 29 May 2018 Last revised: 25 Jun 2021

See all articles by John C. Easterwood

John C. Easterwood

Virginia Polytechnic Institute & State University - Pamplin College of Business

Bradley S. Paye

Virginia Polytechnic Institute & State University - Department of Finance, Insurance, and Business Law

Yutong Xie

The College of New Jersey - School of Business

Date Written: June 23, 2021

Abstract

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

Suggested Citation

Easterwood, John C. and Paye, Bradley S. and Xie, Yutong, Firm Uncertainty and Corporate Policies: The Role of Stock Return Skewness (June 23, 2021). Available at SSRN: https://ssrn.com/abstract=3180196 or http://dx.doi.org/10.2139/ssrn.3180196

John C. Easterwood

Virginia Polytechnic Institute & State University - Pamplin College of Business ( email )

Dept. of Finance
Blacksburg, VA 24061
United States
540-231-5904 (Phone)
540-231-4487 (Fax)

Bradley S. Paye (Contact Author)

Virginia Polytechnic Institute & State University - Department of Finance, Insurance, and Business Law ( email )

1016 Pamplin Hall (0221)
Blacksburg, VA 24060-0221
United States

Yutong Xie

The College of New Jersey - School of Business ( email )

Ewing, NJ 08628-0718
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
106
Abstract Views
681
rank
317,050
PlumX Metrics