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Does stock market liquidity affect dividends?

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  • Michaely, Roni
  • Qian, Meijun

Abstract

Using two exogenous shocks, we examine the causal impact of stock liquidity on firms' dividend policy. Both the first shock, the reduction of the minimum tick size from 1/16 to decimals in the US, and the second shock, the mandatory conversion of non-traded stocks to traded stocks in China, changed the liquidity of affected stocks. We find, in both experiments, that increased stocks liquidity results in a significant reduction in dividends. Our empirical design enables us to control for asset liquidity, investment changes, and other omitted factors that might affect firms' dividend policy. We conclude that when firms set dividend policies, satisfying investors' liquidity needs is a significant factor.

Suggested Citation

  • Michaely, Roni & Qian, Meijun, 2022. "Does stock market liquidity affect dividends?," Pacific-Basin Finance Journal, Elsevier, vol. 74(C).
    • Handle: RePEc:eee:pacfin:v:74:y:2022:i:c:s0927538x2200083x
    DOI: 10.1016/j.pacfin.2022.101788
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    Cited by:

    1. Huang, Ying Sophie & Guo, Feng & Ma, Lina, 2023. "Do M&A funds create value in Chinese listed firms?," Pacific-Basin Finance Journal, Elsevier, vol. 79(C).
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    More about this item

    Keywords

    Liquidity; Dividends; Clientele; Governance; Payout policy;
    All these keywords.

    JEL classification:

    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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