Political institutions, stock market liquidity and firm dividend policy: Some international evidence

Karen M.Y. Lai, Walid Saffar, Zhu, Xindong (Kevin) and Yiye Liu

Journal of Contemporary Accounting and Economics, 2020, vol. 16, issue 1

Abstract: In this cross-country study, we draw on the dividend liquidity hypothesis and the political economy literature to examine whether political institutions affect the relationship between stock market liquidity and a firm’s dividend policy. In countries with weak political institutions, we expect that investors are less able to demand higher dividends for stocks with low liquidity. Using a sample of 52 countries, we show that the negative association between stock market liquidity and dividends is more pronounced in countries with sound political institutions, consistent with the “outcome” model of dividends. These results are stronger in countries with better legal institutions and weaker for firms with financial constraints.

Keywords: Political institutions; Legal institutions; Dividend policy; Stock market liquidity (search for similar items in EconPapers)
JEL-codes: G12 G18 G35 G38 P16 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jocaae:v:16:y:2020:i:1:s1815566919301201

DOI: 10.1016/j.jcae.2019.100180

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