Information disclosure, product market competition and payout policy

Kung-Cheng Ho, Shih-Cheng Lee and Lee-Hsien Pan

Pacific-Basin Finance Journal, 2024, vol. 86, issue C

Abstract: The extant literature studying the impact of information asymmetry and agency problems on corporate payouts found that a lower level of information asymmetry and agency problems contributes to higher corporate payouts. However, it is unclear through which corporate governance mechanisms would information asymmetry and agency problems be reduced, thereby affecting payout policies. In this paper, we examine how information disclosure, an internal corporate governance mechanism that reduces information asymmetry, and product market competition, an external corporate governance mechanism that mitigates agency problems, affect payout policies. Using a unique information rating scheme as a measure of information disclosure for Taiwanese public firms from 2005 to 2014 and the timeliness of financial reports as an alternative measure of information disclosure for Taiwanese public firms from 2005 to 2022, we examine the interactive effects of information disclosure and product market competition on payout policy. We find that information disclosure and product market competition positively affect firms' decisions to distribute dividends and repurchase shares. In particular, information disclosure increases dividend payouts only for firms in competitive industries. Our results suggest that governance mechanisms for information disclosure are more effective for firms in competitive industries.

Keywords: Corporate governance; Information disclosure; Product market competition; Payout policy; Information asymmetry (search for similar items in EconPapers)
JEL-codes: G30 G35 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:86:y:2024:i:c:s0927538x24001872

DOI: 10.1016/j.pacfin.2024.102436

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