Stock liquidity and dividend payouts in the emerging markets
The stock liquidity and dividend empirically state having a negative relationship in earlier research. However, recent empirical evidence claims that this study neglects the informational effect of stock liquidity and discover contradictory findings in their research relative to the previous stud...
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| Format: | Thesis |
| Language: | English |
| Published: |
2020
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| Subjects: | |
| Online Access: | http://psasir.upm.edu.my/id/eprint/91369/1/GSM%202020%2011%20-%20IR.pdf |
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| Summary: | The stock liquidity and dividend empirically state having a negative
relationship in earlier research. However, recent empirical evidence claims that
this study neglects the informational effect of stock liquidity and discover
contradictory findings in their research relative to the previous study. The
mixed findings leave room or gaps to uncover what may strengthen or weaken
the relationship, which contributed to the mixed discovery in the previous
literature. Furthermore, since an earlier study concentrated in developed
markets and a recent study focused on emerging markets, this should leave
room to discover how these two significantly different markets may influence
this relationship.
The study uses a sample from twenty-two (22) emerging market countries for
the period of 2006 to 2015, the study aims to achieve three objectives using
panel Tobit and panel Logistic regression both with random effect. Firstly, the
study examines the nature of the relationship between stock liquidity and
dividend payout across emerging market countries. Secondly, the study
examines the country level moderating effect, namely financial market
development and governance quality on the relationship between stock
liquidity and dividend payout. Third, the study investigates the firm-level
moderating effect, which is the moderating effect of a family business on the
link between stock liquidity and dividend payout.
The results reveal that stock liquidity and dividend payout are positively
related and consistent with different proxies of liquidity. The first country-level
moderating factor, namely financial market development, positively moderates
the relationship between stock liquidity and dividend. It indicates that financial
market development enhances stock liquidity, mitigates information
asymmetry, and increase firm incentives to pay a dividend. In contrast, second
country-level moderator, namely governance quality, negatively moderates
the relationship between stock liquidity and dividend. Governance quality
negatively moderates the relationship between stock liquidity and dividend
payout because firms use dividends as a substitute for weak governance,
which aligns with substitute hypotheses. Family business as moderator at the
firm level shown to have a positive moderating effect on stock liquidity and
dividend payout relationships. It indicates that family business reduces
dividend payout by positively moderate the negative relationship between
stock liquidity and dividend, which initially has a positive relationship without
interaction from a family business firm.
The study contributes to the literature in two ways. First, the study introduces
three new moderating factors on the relationship between stock liquidity and
dividend payout. Secondly, unlike past studies, which assume that governance
quality should reduce information asymmetry and increasing incentives to pay
dividends, and family business should increase information asymmetry and
reduce dividend payment, the study found the contrary. This study found that
under the condition of weak governance such as in emerging market
countries, firms rely on dividends as a substitute for poor governance to
maintain good relationships with investors, which results in a negative
moderating effect of governance quality. The result also shows that family
business reduces dividend payout because family business positively
moderates the negative relationship between stock liquidity and dividend,
which initially has a positive relationship without the interaction with the family
business firm. |
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