Igan, Deniz and de Paula, Aureo and Pinheiro, Marcelo (2006): Liquidity and Dividend Policy.
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We document the association between a firm's payout policy and its stock's liquidity. In particular, we show that dividend-paying firms have a more liquid market for their stock and measures of a stock's liquidity is positively linked to its probability of being a dividend payer. Furthermore, this link between dividends and liquidity is stronger when shareholders are more powerful. This is consistent with a mechanism in which payout decisions act as a commitment not to invest: by distributing cash, the firm reduces its potential for internal equity financing, raising its cost of capital and leading to less investment. Such a mechanism may lead to less volatile stock prices and potentially to a decrease in the adverse selection costs faced by liquidity-constrained shareholders, increasing stock price liquidity. When shareholders have more power, liquidity would be more strongly linked with dividends as managers would be more likely to pay dividends to meet shareholders�preference for liquidity.
|Item Type:||MPRA Paper|
|Original Title:||Liquidity and Dividend Policy|
|Keywords:||Liquidity; Dividend Payers; Adverse Selection Costs; Corporate Governance; Shareholder Power; Informed Trading|
|Subjects:||G - Financial Economics > G1 - General Financial Markets > G14 - Information and Market Efficiency ; Event Studies ; Insider Trading
G - Financial Economics > G3 - Corporate Finance and Governance > G31 - Capital Budgeting ; Fixed Investment and Inventory Studies ; Capacity
G - Financial Economics > G3 - Corporate Finance and Governance > G34 - Mergers ; Acquisitions ; Restructuring ; Corporate Governance
|Depositing User:||Deniz Igan|
|Date Deposited:||10. Mar 2011 12:21|
|Last Modified:||11. Mar 2015 00:43|
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