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Do dividends mitigate bad news hoarding, overinvestments, and stock price crash risk?

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  • Jeong‐Bon Kim
  • Le Luo
  • Hong Xie

Abstract

Using a large sample of US firms over the period of 1991–2015, we examine the economic benefits of paying dividends. We find that dividend payments mitigate stock price crash risk. We show that dividend payments reduce bad news hoarding (overinvestments) while bad news hoarding (overinvestments) is (are) positively associated with stock price crash risk, suggesting that curbing bad news hoarding and curtailing overinvestments are two channels through which dividends mitigate crash risk. Finally, our main results are robust to a battery of sensitivity checks including controls for potential endogeneity concerns.

Suggested Citation

  • Jeong‐Bon Kim & Le Luo & Hong Xie, 2024. "Do dividends mitigate bad news hoarding, overinvestments, and stock price crash risk?," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 64(4), pages 3999-4038, December.
    • Handle: RePEc:bla:acctfi:v:64:y:2024:i:4:p:3999-4038
    DOI: 10.1111/acfi.13297
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