Growth Opportunities, Information Asymmetry, and Dividend Payout: Evidence from Mandatory IFRS Adoption

Forthcoming, European Accounting Review

50 Pages Posted: 13 Mar 2020 Last revised: 1 Jun 2021

See all articles by Arkaja Chakraverty

Arkaja Chakraverty

International College of Economics & Finance, HSE; National Research University Higher School of Economics

Nishant Agarwal

The University of Western Australia - UWA Business School

Date Written: May 29, 2021

Abstract

We study how the relationship between a firm’s growth opportunities and its dividend policies shifts in response to a reduction in information asymmetry between investors and firms. Existing literature suggests a negative relationship between growth opportunities and dividend payouts in the presence of information asymmetry. Using the mandatory adoption of IFRS (International Financial Reporting Standards) as an exogenous shock to the information environment of a firm, we document that the negative relationship between growth opportunities and dividend payout strengthens. This suggests IFRS adoption improves capital allocation by shifting dividend demand towards low-growth firms and reducing dividend demand from high-growth firms.

Keywords: Information asymmetry; dividend; growth opportunities; IFRS

JEL Classification: M41, G35

Suggested Citation

Chakraverty, Arkaja and Agarwal, Nishant, Growth Opportunities, Information Asymmetry, and Dividend Payout: Evidence from Mandatory IFRS Adoption (May 29, 2021). Forthcoming, European Accounting Review, Available at SSRN: https://ssrn.com/abstract=3549662 or http://dx.doi.org/10.2139/ssrn.3549662

Arkaja Chakraverty (Contact Author)

International College of Economics & Finance, HSE ( email )

26 Shabolovka
Moscow
Russia

National Research University Higher School of Economics ( email )

Myasnitskaya street, 20
Moscow, Moscow 119017
Russia

Nishant Agarwal

The University of Western Australia - UWA Business School ( email )

Crawley, Western Australia 6009
Australia

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