Does stock ownership impact liquidity and dividends?

Abstract

This study investigates the interactions among stock ownership, liquidity and dividends in the UK stock market over the period [2002][2003][2004][2005][2006][2007][2008][2009][2010][2011][2012][2013][2014][2015][2016]. Using different liquidity measures, it is shown that stocks with higher levels of free float (institutional ownership) are associated with higher (lower) levels of liquidity. In addition, a positive and significant relation is found between institutional ownership and dividend payout policy, which, as a result, highlights the comparative tax advantages that UK institutions have for dividend income. These relations hold even after controlling for firm-specific characteristics. Finally, a negative relation is found between dividends and liquidity, implying that investors with less (more) liquid stocks are more (less) likely to receive dividend payments.