The Shift of a Dividend Policy and a Leverage Policy during the 2008 Financial Crisis

Kwangsoo Lim
Additional contact information
Kwangsoo Lim: PhD. Faculty at Central Connecticut State University, USA

International Journal of Finance & Banking Studies, 2016, vol. 5, issue 6, 09-14

Abstract: This paper investigates how firms shifted their dividend policies and leverage policies in response to the economic shock caused by the 2008 financial crisis. The sample countries are United States, Great Britain, France, Germany, Australia, Japan, China, and Korea. The empirical relationship of firms’ dividend policies with their capital structures and earnings was likely to undergo a major change around the 2008 financial crisis, as firms adjusted their capital structures and dividend policies in responseto the extreme credit crunch caused by the financial crisis. The extent and the speed that firms deleverage themselves and reduce their dividends were likely to be influenced by countries’ cultural and social norms. This paper finds a significant reduction in dividends across sample countries except Great Britain and France after the 2008 crisis. This finding supports the free cash flow theory that dividends are paid to dissipate free cash flow to address agency conflicts between managers and shareholders.This paper finds a higher correlation between dividends and leverages before the 2008 crisis, and that it strengthened after the crisis except Great Britain and Korea. This finding isconsistent more with the pecking order theory than with the trade-off theory of leverage.

Keywords: Dividend; Leverage; Financial Crisis; Cultural Norm (search for similar items in EconPapers)
Date: 2016
References: Add references at CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
https://www.ssbfnet.com/ojs/index.php/ijfbs/article/view/333/307 (application/pdf)
https://www.ssbfnet.com/ojs/index.php/ijfbs/article/view/333 (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:rbs:ijfbss:v:5:y:2016:i:6:p:09-14

Access Statistics for this article

International Journal of Finance & Banking Studies is currently edited by Prof.Dr.Hasan Dincer

More articles in International Journal of Finance & Banking Studies from Center for the Strategic Studies in Business and Finance IJFBS Editorial Office, IMU, School of Business. Contact information at EDIRC.
Bibliographic data for series maintained by Hasan Dincer ().