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Political institutions, stock market liquidity and firm dividend policy: Some international evidence

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  • Lai, Karen M.Y.
  • Saffar, Walid
  • Zhu, Xindong (Kevin)
  • Liu, Yiye

Abstract

In this cross-country study, we draw on the dividend liquidity hypothesis and the political economy literature to examine whether political institutions affect the relationship between stock market liquidity and a firm’s dividend policy. In countries with weak political institutions, we expect that investors are less able to demand higher dividends for stocks with low liquidity. Using a sample of 52 countries, we show that the negative association between stock market liquidity and dividends is more pronounced in countries with sound political institutions, consistent with the “outcome” model of dividends. These results are stronger in countries with better legal institutions and weaker for firms with financial constraints.

Suggested Citation

  • Lai, Karen M.Y. & Saffar, Walid & Zhu, Xindong (Kevin) & Liu, Yiye, 2020. "Political institutions, stock market liquidity and firm dividend policy: Some international evidence," Journal of Contemporary Accounting and Economics, Elsevier, vol. 16(1).
    • Handle: RePEc:eee:jocaae:v:16:y:2020:i:1:s1815566919301201
    DOI: 10.1016/j.jcae.2019.100180
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    More about this item

    Keywords

    Political institutions; Legal institutions; Dividend policy; Stock market liquidity;
    All these keywords.

    JEL classification:

    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • P16 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Capitalist Institutions; Welfare State
    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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