Firm-level political risk and dividend payout

Document Type

Article

Source of Publication

International Review of Financial Analysis

Publication Date

3-1-2023

Abstract

We use a novel measure of firm-level political risk based on a textual search technique on firms' quarterly earnings conference transcripts to explain dividend payouts in publicly listed U.S. firms. We find a positive and significant effect of firm-level political risk on dividend payouts, particularly in uncertainties related to economics, institutions, technology, trade, and security. The effect is more pronounced in firms with better corporate governance, less analyst follow-up, and higher growth opportunities. These results support the signaling role of dividends rather than the role of agency theory in explaining dividend payouts when firms are associated with higher levels of political risk. We also find the effect to be prominent after controlling for an aggregate measure of economic policy uncertainty and in poor economic conditions and in major political event periods. We address endogeneity concerns by running placebo tests and conducting instrumental variable analysis and we alleviate self-selection bias by performing propensity score matching technique.

ISSN

1057-5219

Publisher

Elsevier BV

Volume

86

Disciplines

Business

Keywords

Agency theory, Dividends, Economic policy uncertainty, Firm-level political risk, Signaling theory

Scopus ID

85147221908

Indexed in Scopus

yes

Open Access

no

Link to Full Text

Share

COinS