Dividend policy, its asymmetric behavior and stock liquidity

What is it about?

The question whether dividend payout can impact the level of stock liquidity is an important issue of concern for decision-makers, portfolio managers and for studying aspects of firm and stock trading behaviors. We find that dividend payout is adversely associated with stock liquidity, confirming the dividend-liquidity hypothesis. We also report that the changes in dividend payout (low and high) ratios asymmetrically affect stock liquidity - confirming the dividend-signaling theory. The presence of the GFC weakened the impact of dividend payments on stock liquidity. The paper serves as a guidance to market participants to better understand the impact of dividend policy and its asymmetric effects on stock liquidity. Our analyses can direct investors and regulators to adopt new supervisory devices to create an appropriate level of dividend payouts that helps to effectively support the level of stock liquidity.

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