Stock market liquidity and firm dividend policy
Abbreviated Journal Title
J. Financ. Quant. Anal.
DISAPPEARING DIVIDENDS; TRANSACTIONS COSTS; TRADING ACTIVITY; PAYOUT; POLICY; CROSS-SECTION; RETURNS; REPURCHASES; MICROSTRUCTURE; ILLIQUIDITY; INFORMATION; Business, Finance; Economics
We provide evidence of a link between firm dividend policy and stock market liquidity. In the cross section, owners of less (more) liquid common stock are more (less) likely to receive cash dividends. Predictions of the proportion of dividend payers based on 19631977 cross-sectional estimates account for most of the declining propensity of firms to pay dividends as documented by Fama and French (2001). Furthermore, historic liquidity is an important determinant of dividend initiations and omissions. Finally, we show that sensitivity of firm value to aggregate liquidity declines after dividend initiations, suggesting that investors view stock market liquidity and dividends as substitutes.
Journal of Financial and Quantitative Analysis
"Stock market liquidity and firm dividend policy" (2007). Faculty Bibliography 2000s. 6848.