Title

Stock market liquidity and firm dividend policy

Authors

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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