Stock Price Risk and Payout Policy: Evidence from East Asian Countries
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This paper investigates factors that explain cross-sectional variation in dividend payout ratios in East Asian countries. While the explanatory power of the proxies for investment opportunities and agency costs is generally weak, the proxy for risk emerges as the most powerful cross-sectional determinant of dividend payouts in each of the four East Asian countries studied in this paper. The evidence as a whole suggests that cross-sectional variation in dividend payouts in East Asia can best be explained by managers’ collective conservatism and aversion to potential penalty for dividend reduction.
Abstract
This paper investigates factors that explain cross-sectional variation in dividend payout ratios in East Asian countries. While the explanatory power of the proxies for investment opportunities and agency costs is generally weak, the proxy for risk emerges as the most powerful cross-sectional determinant of dividend payouts in each of the four East Asian countries studied in this paper. The evidence as a whole suggests that cross-sectional variation in dividend payouts in East Asia can best be explained by managers’ collective conservatism and aversion to potential penalty for dividend reduction.