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Firm-Level Political Risk and Dividend Payout

Oskar Kowalewski (), Muhammad Farooq Ahmad (), Saqib Aziz () and Rwan El-Khatib ()
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Oskar Kowalewski: IESEG School of Management, Univ. Lille, CNRS, UMR 9221 - LEM - Lille Économie Management, F-59000 Lille, France
Muhammad Farooq Ahmad: SKEMA Business School – Université Côte d'Azur, Avenue Willy Brandt, Euralille, Lille, 59777 France
Saqib Aziz: Rennes School of Business, 2 Rue Robert d'Arbrissel Cedex, Rennes, 35065 France
Rwan El-Khatib: College of Business, Zayed University, United Arab Emirates

Authors registered in the RePEc Author Service: Piotr Śpiewanowski

No 2022-ACF-04, Working Papers from IESEG School of Management

Abstract: We use a novel measure of firm-level political risk based on a textual search technique on firms’ quarterly earnings conference transcripts to explain dividend payouts in publicly listed U.S. firms. We find a positive and significant effect of firm-level political risk on dividend payouts, particularly in uncertainties related to economics, institutions, technology, trade, and security. The effect is more pronounced in firms with better corporate governance, less analyst follow-up, and higher growth opportunities. These results support the signaling role of dividends rather than the role of agency theory in explaining dividend payouts when firms are associated with higher levels of political risk. We also find the effect to be prominent after controlling for an aggregate measure of economic policy uncertainty and in poor and recessionary economic conditions. We address endogeneity concerns and selection bias by running placebo tests and performing propensity score matching technique.

Keywords: : Dividends; Firm-Level Political Risk; Agency Theory; Signaling Theory; Economic Policy Uncertainty (search for similar items in EconPapers)
JEL-codes: G30 G35 G38 (search for similar items in EconPapers)
Pages: 38
Date: 2022-08
New Economics Papers: this item is included in nep-bec and nep-cfn
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