Abstract
Using a large sample of US firms over the period of 1991–2015, we examine the economic benefits of paying dividends. We find that dividend payments mitigate stock price crash risk. We show that dividend payments reduce bad news hoarding (overinvestments) while bad news hoarding (overinvestments) is (are) positively associated with stock price crash risk, suggesting that curbing bad news hoarding and curtailing overinvestments are two channels through which dividends mitigate crash risk. Finally, our main results are robust to a battery of sensitivity checks including controls for potential endogeneity concerns.
| Original language | English |
|---|---|
| Journal | Accounting and Finance |
| DOIs | |
| State | Accepted/In press - 2024 |
Bibliographical note
Publisher Copyright:© 2024 Accounting and Finance Association of Australia and New Zealand.
Funding
We thank Professor Gary Monroe (the editor in chief), Louise Lu (deputy editor), two anonymous referees, Leonce Bargeron, Brian Bratten, Monika Causholli, Ken Y. Chen, Mei Feng, Kristine Hankins, Paul Hribar, Ying Huang, Bin Ke, Jing Liu, Matt Sooy, Ya Tang, Wei Zhu, participants at the 2013 University of Kentucky Fall Accounting Colloquium, 2014 CKGSB Accounting Colloquium, 2014 AAA Annual Meeting, the joint workshop between National Taiwan University and Peking University, Southwestern University of Finance and Economics accounting workshop, University of Kentucky finance brownbag, 2024 Ph.D. Seminar in Accounting at SFU's Beedie School of Business for their comments and suggestions. Hong Xie acknowledges financial support from Gatton College of Business and Economics at University of Kentucky. Jeong\u2010Bon Kim acknowledges partial financial support from Distinguished SFU Professorship.
| Funders | Funder number |
|---|---|
| University of Kentucky Gatton College of Business and Economics Von Allmen School of Accountancy |
Keywords
- agency costs
- bad news hoarding
- crash risk
- dividends
- overinvestments
ASJC Scopus subject areas
- Accounting
- Finance
- Economics, Econometrics and Finance (miscellaneous)