Does Information Asymmetry Affect Dividend Policy? Analysis Using Market Microstructure Variables

Seonhyeon Kim, Jin-young Jung and Sung-woo Cho
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Seonhyeon Kim: Business School, Korea University, Seoul 02841, Korea
Jin-young Jung: College of Business Administration, Inha University, Incheon 22212, Korea
Sung-woo Cho: College of Computing, Sungkyunkwan University, Suwon 16419, Korea

Sustainability, 2021, vol. 13, issue 7, 1-19

Abstract: This study analyzes the relationship between information asymmetry and dividend policy in an emerging market, Korea. We adopt several proxies for information asymmetry, such as the Glosten–Harris and Hasbrouk–Foster–Viswanathan models, drawn from market microstructure literature. This study finds a negative relationship between information asymmetry and dividend yields, which appears to be particularly strong when firms have difficulty raising external capital because they have high systematic risk, financial constraints, or low stock liquidity. This result, based on an analysis using market microstructure variables that provide direct measures of information asymmetry, suggests that the pecking order theory holds for the Korean stock market and that information asymmetry is a strong determinant of dividend policy decisions in an emerging market.

Keywords: dividend yield; information asymmetry; pecking order theory; cost of capital; internal financing (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2021
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