Stock price synchronicity and dividend policy: evidence from an emerging market

Omar Farooq and Mona Elbannan

Accounting Research Journal, 2019, vol. 32, issue 4, 627-641

Abstract: Purpose - The purpose of this paper is to document the impact of stock price synchronicity (SYNCH) on the dividend payout ratio. Design/methodology/approach - The authors use data from India for the period between 2000 and 2012 and the panel regression approach to test their arguments. Findings - This paper documents that the relationship between synchronicity and dividend payout ratio is positive until a turning point is reached. After that point, synchronicity has a negative impact on dividend payout ratio. The authors argue that firms with low synchronicity have higher information asymmetries. As a result, they have an incentive to develop a reputation as better-governed firms by paying high dividends. However, as synchronicity increases further, information asymmetries go down and as a result incentive to use dividend payouts as a mechanism to reduce information asymmetries goes down. Therefore, positive relationship between synchronicity and dividend payout ratios breaks down at high levels of synchronicity. Originality/value - The authors provide evidence regarding the role played by SYNCH – a publicly available measure – on dividend polices adopted by firms within the context of emerging markets.

Keywords: Dividend policy; Information environment; Emerging markets; Corporate governance; Stock price synchronicity (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eme:arjpps:arj-02-2018-0036

DOI: 10.1108/ARJ-02-2018-0036

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