Does the information content of payout initiations and omissions influence firm risks?

Eije, Henk von; Goyal, Abhinav; Muckley, Cal B.

doi:10.1016/j.jeconom.2014.05.012

Cited by 13 publications

(4 citation statements)

References 29 publications

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“…Dividend payment events are negatively associated with total risk. This result is consistent with the risk reduction hypothesis (Grullon et al 2002;Von Eije et al 2014;Tripathy et al 2021), suggesting that firms use these events to convey information to market participants about the reduction in their riskiness. Leverage, however, amplifies total risk.…”

Section: Resultssupporting

confidence: 86%

The Effects of ERM Adoption on European Insurance Firms Performance and Risks

Jurdi

AlGhnaimat

2021

JRFM

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We investigate the effects of adopting enterprise risk management (ERM) on the performance and risks of European publicly listed insurance firms. Using a dataset for 24 years, we report new results which show that ERM adopters realize significant ERM premiums after controlling for other covariates and endogeneity. Several firm characteristics such as size, opacity, and the choice of external monitoring agents such as auditors are significant determinants of adopting ERM. We fill a gap in the literature by assessing the impact of adopting ERM on firm risks and report new findings for our sample, which show that ERM adopters effectively reduce firm total and systematic risks and, to a greater extent, idiosyncratic risk. Firm-level variables such as size, leverage, dividend payments events, and diversification impact firm total risk. Insurers use corporate events such as dividend payments to signal information about reducing risk. Industry and international diversification reduce firm total risk and idiosyncratic risk, respectively.

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Section: Resultssupporting

confidence: 86%

The Effects of ERM Adoption on European Insurance Firms Performance and Risks

Jurdi

AlGhnaimat

2021

JRFM

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“…In corporate finance, two opposing views consider the impact of dividend payout strategies on firm risk within non-financial industries. On the one hand, Eije et al (2014) document a lower market risk for US firms with dividend initiations and a higher one for those with dividend omissions. They also report different risk-taking behaviours between these two types.…”

Section: Theories and Literaturementioning

confidence: 99%

“…1 While the extant literature focused on the determinants of the dividend payout policy including default risk (Caliskan and Doukas, 2015;Buchanan et al, 2017;Duqi et al, 2020), little attention is devoted to the plausible effect of dividend policy on financial stability indicators, such as the survival likelihood of firms. Previous studies only investigated the dividend payouts of nonfinancial firms particularly focused on firm and market risk (Eije et al, 2014;Grullon et al, 2002;Pástor and Veronesi, 2003;Bartram et al, 2012). They find that a rise in dividend payouts marks a firm's transition to a more mature life cycle stage, with diminishing growth opportunities and lower risk-taking.…”

Section: Introductionmentioning

confidence: 99%

Dividend payout strategies and bank survival likelihood: A cross-country analysis

Trinh

Kara

Elnahass

2022

International Review of Financial Analysis

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“…This pressure is expected to be higher for stocks with no or low dividends due to their higher uncertainty and greater information asymmetry. More specifically, when market liquidity is low, risk-averse investors mitigate risk by selling stocks with high levels of uncertainty, such as those with no or low dividend payouts (e.g., Grullon et al, 2002;Hoberg and Prabhala, 2009;Eije et al, 2014 ). Furthermore, as dividend payments help investors who need cash to avoid the trading costs associated with the homemade dividends, investors would be more attracted to dividend paying firms and firms with high dividends when market liquidity is low (Banerjee et al 2007;Kuo et al 2013).…”

Section: Introductionmentioning

confidence: 99%

Dividend policy, systematic liquidity risk, and the cost of equity capital

Mazouz

Ebrahim

et al. 2022

Rev Quant Finan Acc

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This paper examines a new channel through which dividend policy can affect firm value. We find that firms that pay dividends exhibit lower systematic liquidity risk than those that do not.We also report a significant negative relationship between dividend payment and systematic liquidity risk. The liquidity improvement associated with dividend payments translates into an economically meaningful reduction in the cost of equity capital. Our results are robust to endogeneity concerns, to alternative measures of liquidity risk and dividend payouts, and to alternative model specifications. Further analysis suggests that the reduction in liquidity risk associated with dividend payouts is more pronounced for weakly governed firms and firms with opaque informational environment. Finally, we find that the recent financial crisis led to a greater increase in systematic liquidity risk for firms with no or low dividend payouts. Overall, our study implies that dividend policy can be used by corporate managers to shape liquidity risk and mitigate the adverse impact of economic downturns on the value of their firms.

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Does the information content of payout initiations and omissions influence firm risks?

Cited by 13 publications

References 29 publications

The Effects of ERM Adoption on European Insurance Firms Performance and Risks

The Effects of ERM Adoption on European Insurance Firms Performance and Risks

Dividend payout strategies and bank survival likelihood: A cross-country analysis

Dividend policy, systematic liquidity risk, and the cost of equity capital

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