Dividend Policy and the COVID-19 Crisis
27 Pages Posted: 4 Nov 2020 Last revised: 25 Oct 2021
Date Written: October 2020
This paper examines dividend payment behavior of the S&P1500 firms during the COVID-19 crisis characterized by the stock market crash and a V-shaped stock price recovery propelled by technology stocks. We find that the great majority of firms either maintain or increase the level of dividend payment during the crisis period. Yet, the relationship between the dividend payout and bottom-line earnings available to common shareholders is significantly negative. This relationship holds even for dividend-increasing firms whose earnings streams should be relatively higher (or increasing) compared to other firms in the sample. We also find that forecast earnings of up to one year in the future are negatively associated with the current dividend level implying that the existing payout policies are unsustainable. Interestingly, we document similar patterns for stock repurchases.
Keywords: Dividend, Dividend Policy, COVID-19, Pandemic, Share Repurchases, Payout Policy, Agency Conflict
JEL Classification: G35; G32
Suggested Citation: Suggested Citation