Peer effect on dividends and return comovement

Sung Won Seo and Jong Hwa Lee

The North American Journal of Economics and Finance, 2023, vol. 67, issue C

Abstract: This study investigates the stock return comovement of dividend-paying and nonpaying firms induced by peer effects of dividend payout policies. We consider peer effect as a channel that links a firm’s dividend initiation to firms that did not change dividend status. Dividend initiation attracts investors to the industry and puts pressure on peer firms to change their dividend policy, which leads to return comovement between nonpaying peers and paying firms. Using matched peer firms that resemble dividend initiators, we find that return comovement can be induced through an indirect channel without changes in style or category. Excess return comovement for firms without dividends is observed with dividend payers of the market and their industries through peer influence.

Keywords: Peer effect; Dividend policy; Initiation; Return comovement; Category investing (search for similar items in EconPapers)
JEL-codes: C31 D22 G14 G35 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:67:y:2023:i:c:s1062940823000657

DOI: 10.1016/j.najef.2023.101942

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