Dividend Suspensions and Cash Flows During the COVID-19 Pandemic: A Dynamic Econometric Model

58 Pages Posted: 24 Sep 2020 Last revised: 29 Dec 2020

See all articles by Davide Pettenuzzo

Davide Pettenuzzo

Brandeis University - International Business School

Riccardo Sabbatucci

Stockholm School of Economics; Swedish House of Finance

Allan Timmermann

University of California, San Diego (UCSD) - Rady School of Management

Multiple version iconThere are 2 versions of this paper

Date Written: December 28, 2020

Abstract

Firms suspended dividend payments in unprecedented numbers and at unparalleled speed in response to the outbreak of the COVID-19 pandemic. We develop a dynamic econometric model that allows dividend suspensions to affect the conditional mean, volatility, and jump probability of growth in daily dividends and demonstrate how the parameters of this model can be estimated using Bayesian Gibbs sampling methods. We find that dividend suspensions had a sharp and immediate impact on the conditional mean and volatility of daily dividend growth. Information embedded in daily dividend suspensions proves valuable in monitoring and predicting the trajectory of broader measures of economic activity during the pandemic.

Keywords: Corona virus, COVID-19, high-frequency cash flow news, dividend suspensions, dividend growth dynamics, event study methodology

JEL Classification: G14, G35

Suggested Citation

Pettenuzzo, Davide and Sabbatucci, Riccardo and Timmermann, Allan, Dividend Suspensions and Cash Flows During the COVID-19 Pandemic: A Dynamic Econometric Model (December 28, 2020). Swedish House of Finance Research Paper No. 20-18, Available at SSRN: https://ssrn.com/abstract=3628608 or http://dx.doi.org/10.2139/ssrn.3628608

Davide Pettenuzzo

Brandeis University - International Business School ( email )

Mailstop 32
Waltham, MA 02454-9110
United States

Riccardo Sabbatucci (Contact Author)

Stockholm School of Economics ( email )

PO Box 6501
Stockholm, 11383
Sweden

Swedish House of Finance

Drottninggatan 98
111 60 Stockholm
Sweden

Allan Timmermann

University of California, San Diego (UCSD) - Rady School of Management ( email )

9500 Gilman Drive
Rady School of Management
La Jolla, CA 92093
United States

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