From Stock to Cash: How the Balanced Dividend Policy Reshaped Corporate Dividends?

Abstract

We evaluate the impact of Taiwan's 2000 Balanced Dividend Policy (BDP) on corporate dividend behavior using a quasi-natural experiment. Employing a difference-in-differences method, we find that BDP significantly decreases stock dividends while increasing cash dividends, reflecting a shift in corporate payout preferences. Heterogeneity analyses reveal that firms with larger size, higher market-to-book ratios, greater growth opportunities, and lower cash flow volatility respond more significantly to the policy. Mediation analyses further indicate that the reduction in stock dividends is partially mediated by the increase in cash dividends and vice versa. Our findings demonstrate that non-mandatory disclosure requirements can effectively influence corporate financial practices.

Keywords: Balanced Dividend Policy, Stock Dividends, Cash Dividends