Firm-level political risk and dividend payout

Muhammad Farooq Ahmad, Saqib Aziz, Rwan El-Khatib and Oskar Kowalewski ()

International Review of Financial Analysis, 2023, vol. 86, issue C

Abstract: We use a novel measure of firm-level political risk based on a textual search technique on firms' quarterly earnings conference transcripts to explain dividend payouts in publicly listed U.S. firms. We find a positive and significant effect of firm-level political risk on dividend payouts, particularly in uncertainties related to economics, institutions, technology, trade, and security. The effect is more pronounced in firms with better corporate governance, less analyst follow-up, and higher growth opportunities. These results support the signaling role of dividends rather than the role of agency theory in explaining dividend payouts when firms are associated with higher levels of political risk. We also find the effect to be prominent after controlling for an aggregate measure of economic policy uncertainty and in poor economic conditions and in major political event periods. We address endogeneity concerns by running placebo tests and conducting instrumental variable analysis and we alleviate self-selection bias by performing propensity score matching technique.

Keywords: Dividends; Firm-level political risk; Agency theory; Signaling theory; Economic policy uncertainty (search for similar items in EconPapers)
JEL-codes: G30 G35 G38 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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Related works:
Working Paper: Firm-level political risk and dividend payout (2023)
Working Paper: Firm-Level Political Risk and Dividend Payout (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:86:y:2023:i:c:s1057521923000625

DOI: 10.1016/j.irfa.2023.102546

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