Growth Opportunities, Information Asymmetry, and Dividend Payout: Evidence from Mandatory IFRS Adoption
64 Pages Posted: 13 Mar 2020
Date Written: December 20, 2019
We study changes in firms’ dividend policies in response to an exogenous improvement in the information environment, enabled by IFRS adoption, between investors and firms. We document that the relationship between information asymmetry reduction and dividend payout policy is not monotonic but in fact depends upon a firm’s underlying growth opportunities. Following mandatory adoption of IFRS, firms with low growth opportunities exhibit a higher propensity to pay dividends. Conversely, those firms with high growth opportunities exhibit reduced propensity to pay dividends. These results are also consistent for dividend payout ratio. Together, they suggest that a firm’s growth rate plays a key role in determining the effect of an improved information environment on the firm’s dividend policies.
Keywords: Information asymmetry; dividend; growth opportunities; IFRS
JEL Classification: M41, G35
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