Stock market liquidity and firm dividend policy

    Authors

    S. Banerjee; V. A. Gatchev;P. A. Spindt

    Comments

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    Abbreviated Journal Title

    J. Financ. Quant. Anal.

    Keywords

    DISAPPEARING DIVIDENDS; TRANSACTIONS COSTS; TRADING ACTIVITY; PAYOUT; POLICY; CROSS-SECTION; RETURNS; REPURCHASES; MICROSTRUCTURE; ILLIQUIDITY; INFORMATION; Business, Finance; Economics

    Abstract

    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 Title

    Journal of Financial and Quantitative Analysis

    Volume

    42

    Issue/Number

    2

    Publication Date

    1-1-2007

    Document Type

    Article

    Language

    English

    First Page

    369

    Last Page

    397

    WOS Identifier

    WOS:000246929300005

    ISSN

    0022-1090

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