 The impact of insider trading laws on dividend payout policyPaul Brockman, Jiri Tresl and Emre Unlu Journal of Corporate Finance, 2014, vol. 29, issue C, 263-287 Abstract: We posit that firms use dividend payout policy to reduce information asymmetry and agency costs caused by country-level institutional weaknesses. Firms operating in countries with weak insider trading laws attempt to mitigate this institutional weakness by committing themselves to paying out large and stable cash dividends. We test this central hypothesis (among others) using an international sample of firms across 24 countries, as well as by conducting a case study during an enforcement action. The results show that weak insider trading laws lead to a higher propensity of paying dividends, larger dividend amounts and greater dividend smoothing. We also show that the market's valuation of dividend payouts is significantly higher when insider trading protection is weak. It is important to note that these insider trading results are not due to cross-country variations in investor or creditor protection, nor are they contingent on the enforcement of insider trading laws. Overall, our evidence supports the view that dividend payouts serve as a substitute bonding mechanism when country-level legal protections fail. Keywords: Insider trading laws; Payout policy; Agency costs (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:29:y:2014:i:c:p:263-287 DOI: 10.1016/j.jcorpfin.2014.09.002 Access Statistics for this article Journal of Corporate Finance is currently edited by A. Poulsen and J. Netter More articles in Journal of Corporate Finance from Elsevier |
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