Does Dividend Policy Relate to Cross-Sectional Variation in Information Asymmetry? Evidence from Returns to Insider Trades

Khang, Kenneth; King, Tao‐Hsien Dolly

doi:10.1111/j.1755-053x.2006.tb00160.x

Cited by 66 publications

(45 citation statements)

References 28 publications

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“…SEO announcements usually lead to negative market reactions due to the existence of information asymmetry (Korajczyk et al, 1991;Bayless and Chaplinsky, 1996). The dividend literature provides compelling evidence that relative to non-payers, information asymmetry is a less serious problem for dividend payers (Howe and Lin, 1992;Khang and King, 2006;Li and Zhao, 2008). Therefore, the market reacts less negatively to SEO announcements made by dividend payers than those made by non-payers (Booth and Chang, 2011).…”

Section: A Twist By the 2008 Regulationmentioning

confidence: 99%

“…It is well documented in the literature that seasoned equity offering (SEO) announcements lead to negative market reactions due to the existence of information asymmetry (Korajczyk et al, 1991;Bayless and Chaplinsky, 1996). However, it is found that dividend announcements can serve to reduce potential information asymmetry (Howe and Lin, 1992;Gunasekarage and Power, 2002;Khang and King, 2006;Li and Zhao, 2008;Cheng et al, 2009).…”

Section: Introductionmentioning

confidence: 95%

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External finance and dividend policy: a twist by financial constraints

Zhong

Chen

Huang

et al. 2016

Accounting & Finance

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This study assesses distorting effect of financial constraints on the inverse relationship between internal and external finance by examining impact of an exogenous financing shock (i.e. a regulation released in China in 2008) on dividend policies in a quasi-natural experimental setting. Our result shows that in the absence of the regulation, the inverse relationship holds. However, the relation is twisted by the 2008 regulation. Compared with unconstrained firms, financially constrained firms are more willing to pay dividends and are more restrained to reduce cash dividends after the regulation, despite the fact that their external financing capacities are further constrained.

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Section: A Twist By the 2008 Regulationmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 95%

External finance and dividend policy: a twist by financial constraints

Zhong

Chen

Huang

et al. 2016

Accounting & Finance

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show abstract

“…Thus, this model suggests a plus relationship between an asymmetric information and dividend policy. Khang & king (2002) tested the relationship between asymmetric information and gained profit by personals during 1982 to 1995 for public corporation that SEC reported their internal exchanges. The examples showed dividend ascertained by personals profit and asymmetric information.…”

Section: Literature Reviewmentioning

confidence: 99%

Asymmetric Information and Dividend Policy in Emerging Markets: Empirical Evidences from Iran

Valipour¹,

Rostami²,

Salehi³

2009

IJEF

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Purpose-this study investigates the effect of asymmetric information on dividend policy in listed companies in Tehran Stock Exchange.Methodology-four main hypothesis have designed by theoretical framework, and tested on 111 listed companies in Tehran stock exchange during 2003 to 2007. The statistic analysis had done by malt-variable regression analysis.Findings-the study findings show that there is a meaningful and reverse relationship between asymmetric information and dividend policy. Some other findings show there is a meaningful relationship between dividend policy and return on stock but there is no meaningful relationship between dividend policy with firm size and book value to market value of equity ratio.Practical implementation-the finding of the study could be helpful for university students and users of financial information and other financial analysts in capital market.

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“…Prior studies find that that SEO announcements are usually associated with negative market reactions due to the existence of information asymmetry (Korajczyk, et al (1991); Bayless and Chaplinsky (1996)). The dividend literature provides compelling evidence that relative to non-payers, information asymmetry is less acute for dividend payers (Howe and Lin (1992); Khang and King (2006); Li and Zhao (2008)). …”

Section: Financing Capacity and Dividend Policy In Financially Constrmentioning

confidence: 99%

“…32 Hereinafter, by the term "financing capacity", we refer to the capacity to obtain public financing in the secondary market. 73 information asymmetry, seasoned equity offering (SEO) announcements are usually associated with negative market reactions (Korajczyk, Lucas and McDonald (1991); Bayless and Chaplinsky (1996)), while dividend announcements could reduce potential information asymmetry (Howe and Lin (1992); Khang and King (2006); Li and Zhao (2008)). Therefore, firms have incentives to utilize dividend payments to mitigate future financing costs (via the reduction of information asymmetry).…”

mentioning

confidence: 99%

Essays on corporate dividend policy: Chinese evidence

Pan¹

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The thesis examines the dividend puzzle in the context of the Chinese capital market and further investigates the factors that significantly affect dividend policy in Chinese listed firms. In Chapter two, we examine the announcement effects of dividends in the Chinese capital market, with an emphasis on stock dividends. We begin by separately investigating the cumulative abnormal returns around the announcements of cash, stock and combined dividends. Because earnings are announced concurrently with dividend decisions in China, and therefore the estimated abnormal returns could be confounded by the earnings effect, we attempt to examine the dividend announcement effect under different earnings signals. We find a strong announcement effect of stock dividends even after controlling for concurrent earnings surprises. In contrast, pure cash dividend stocks experience no significant price run-up around the announcements. In addition, we examine the difference in market reactions to a positive or negative earnings announcement as firms initiate, maintain or switch to different forms of payouts. It appears that switching from other types of dividends to stock dividends reinforces the earnings signal.Chapter three examines the effect of corporate governance and stock liquidity on corporate payout policy in the context of the split-share structure reform initiated in China in 2005. Under this reform, non-tradable shares were compulsorily converted into tradable shares. The reform removed a liquidity constraint; it also facilitated better alignment of the interests of controlling shareholders with those of outside investors. These changes led to significant improvements in firms' share liquidity and governance. We investigate the implications of share reform-induced governance and liquidity improvements for corporate dividend policy. First, we examine how listed firms' dividend policy responds to a governance and liquidity shock (i.e., the split-share structure reform) by comparing corporate dividend policy before and after the reform. Second, we explore the channels through which the reform affects corporate dividend policy by considering the effect of corporate governance and stock liquidity. We find that the average cash dividend payout decreases in the post-reform period and that the reduction in cash payouts is more pronounced among firms with higher growth rates and higher liquidity. Given the fundamental difference in controlling shareholders between state-controlled and privately controlled firms, the reduction in cash payouts appears to be more substantial in state-controlled firms. Our results are robust to different time horizons surrounding the reform. We also investigate whether the reform affects the decisions of firms to pay cash dividends. The results indicate that the propensity to pay cash dividends

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Does Dividend Policy Relate to Cross-Sectional Variation in Information Asymmetry? Evidence from Returns to Insider Trades

Cited by 66 publications

References 28 publications

External finance and dividend policy: a twist by financial constraints

External finance and dividend policy: a twist by financial constraints

Asymmetric Information and Dividend Policy in Emerging Markets: Empirical Evidences from Iran

Essays on corporate dividend policy: Chinese evidence

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