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Does stock market liquidity affect dividends?

Roni Michaely () and Meijun Qian

Pacific-Basin Finance Journal, 2022, vol. 74, issue C

Abstract: Using two exogenous shocks, we examine the causal impact of stock liquidity on firms' dividend policy. Both the first shock, the reduction of the minimum tick size from 1/16 to decimals in the US, and the second shock, the mandatory conversion of non-traded stocks to traded stocks in China, changed the liquidity of affected stocks. We find, in both experiments, that increased stocks liquidity results in a significant reduction in dividends. Our empirical design enables us to control for asset liquidity, investment changes, and other omitted factors that might affect firms' dividend policy. We conclude that when firms set dividend policies, satisfying investors' liquidity needs is a significant factor.

Keywords: Liquidity; Dividends; Clientele; Governance; Payout policy (search for similar items in EconPapers)
JEL-codes: G35 G38 (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1016/j.pacfin.2022.101788

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Pacific-Basin Finance Journal is currently edited by K. Chan and S. Ghon Rhee

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