Asymmetric Information and Dividend Policy

35 Pages Posted: 9 Feb 2007

See all articles by Kai Li

Kai Li

University of British Columbia (UBC) - Sauder School of Business; China Academy of Financial Research (CAFR)

Xinlei Shelly Zhao

Government of the United States of America - Office of the Currency Comptroller - Risk Analysis Division

Date Written: July 2007

Abstract

We examine how informational asymmetries affect firms' dividend policies. We find that firms that are more subject to information asymmetry are less likely to pay, initiate, or increase dividends, and disburse smaller amounts. We show that our main results are not driven by our sample, and that our results persist after accounting for the changing composition of payout over the sample period, the increasing importance of institutional shareholdings, and catering incentives. We conclude that there is a negative relation between asymmetric information and dividend policy. Our results do not support the signaling theory of dividends.

Keywords: asymmetric information, dividend initiation, dividend increase, dividend payout, repurchase, information environment

JEL Classification: G35

Suggested Citation

Li, Kai and Zhao, Xinlei, Asymmetric Information and Dividend Policy (July 2007). Available at SSRN: https://ssrn.com/abstract=960974 or http://dx.doi.org/10.2139/ssrn.960974

Kai Li (Contact Author)

University of British Columbia (UBC) - Sauder School of Business ( email )

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604-822-8353 (Phone)
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HOME PAGE: http://finance.sauder.ubc.ca/~kaili

China Academy of Financial Research (CAFR)

1954 Huashan Road
Shanghai P.R.China, 200030
China

Xinlei Zhao

Government of the United States of America - Office of the Currency Comptroller - Risk Analysis Division ( email )

250 E Street, SW
Washington, DC 20219
United States

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