The impact of the COVID-19 pandemic on dividends

Abstract

This paper examines the impact of the COVID-19 pandemic on the dividend payouts of publicly traded firms in the U.S. Out of nearly 1,400 dividend paying firms, 213 cut dividends and 93 omitted dividends entirely in the second quarter of 2020. This proportion of cuts and omissions is three to five times higher than any other quarter since 2015. The 2008 financial crisis was characterized by a high proportion of financial firms cutting dividends without much change in dividends for non-financials. Conversely, we find evidence of increased dividend cuts across all industries. The most common industry grouping, industrials, experienced one out of every six firms cutting dividends. Regression results indicate that net income and debt are determinants of firms cutting dividends in all periods, but the economic significance is much greater during the pandemic.

The Effect of Pandemic News on Stock Market Returns During the Covid-19 Crash: Evidence from International Markets

“…Several studies focus on the effect of Covid-19 on financial markets, such as the impact on stock market returns and volatility (Al-Awadhi et al, 2020;Albulescu, 2020;Ali et al, 2020;Ashraf, 2020bAshraf, , 2020cBahrini & Filfilan, 2020;Contessi & Pierangelo, 2020;Gu et al, 2020;Harjoto et al, 2020;Kartal, Kılıç-Depren, & Depren, 2020;Mazur, Dang, & Vega, 2020;Rababah et al, 2020;Sergi et al, 2021;Thorbecke, 2020;Topcu & Gulal, 2020), trade volume (Chiah & Zhong, 2020;Harjoto et al, 2020), stock repurchases (Pirgaip, 2021), government responses or interventions (Ashraf, 2020a;Chen et al, 2020;Zaremba et al, 2020;Zaremba et al, 2021), contagion effect (Okorie & Lin, 2020), market illiquidity (Baig et al, 2020), tourism and leisure sectors (Karabulut et al, 2020;Ghosh, 2020;Kaczmarek et al, 2021), herding behavior (Chang, McAleer, & Wang, 2020;Espinosa-Méndez & Arias, 2020), cryptocurrencies (Conlon & McGee, 2020Corbet, Larkin, & Lucey, 2020;, mutual funds (Mirza et al, 2020;Yarovaya et al, 2021), dividends (Krieger, Mauck, & Pruitt, 2020;Mazur, Dang, & Vo, 2020), uncertainty (Jeris & Nath, 2020), housing prices (Qian, Qiu, & Zhang, 2021) and oil prices (Corbe...…”

Impact of Elimination of Dividend Distribution Tax on Indian Corporate Firms Amid COVID Disruptions

“…For analyzing the impact of DDT and COVID-19 pandemic, the direction of increases and decreases in, cuts to, and the omission of, dividend payouts were considered, as used by Krieger et al (2020). Firms were classified (via an indicator variable DivCut) as enacting a dividend cut when the dividend payout percentage in the year t declined relative to the previous year t − 1; DivCut = 0, if the change in the DivPer ≥ 0; otherwise, 1.…”

“…Explanatory variables potentially predictive of dividend change, cuts or omissions: free cash flows, profitability, leverage, market premium, growth rates, firm size, log assets, market capitalization, and sales were used to analyze the change in dividends and dividend cuts. Earlier studies (Krieger et al 2020;Fama and French 2002;Brav et al 2005) used these controls.…”

“…However, with the advent of the economic crisis, dividend cuts were the flexible sources of managing the liquidity crunch and uncertainty (Iyer et al 2017). The economic disruption of COVID-19 was pervasive across all the sectors, bar a few (Laing 2020), and the dividend cuts behavior was logical and in vogue across economies (Wang and Guarino 2020; Krieger et al 2020). With the resurgence of COVID-19, with more severity than the previous wave, the investors may foresee more dividend changes in the coming years.…”

“…The unfavorable consequences of DDT often make it a legitimate rationale for conservative payout decisions (Brennan 1970 The literature studies are replete with evidence authenticating dividend cuts as signaling firms' dimmed growth prospects. Therefore, managers are often reluctant for dividend reductions and appreciate step-up dividend payouts, portraying the typical dividend payment as naively following reported profits (Krieger et al 2020). However, the economic fallout of the pandemic has compelled the corporate firms to drastically reduce dividends.…”