Dividend Payouts and Information Shocks

Dividend Payouts and Information Shocks

Luzi Hail, Ahmed Tahoun, Clare Wang

Series number :

Serial Number: 

Date posted :

February 01 2014

Last revised :

February 18 2014
SSRN Share


  • dividend policy • 
  • payout policy • 
  • International accounting • 
  • Information environment • 
  • IFRS • 
  • Insider trading laws

We examine changes in firms? dividend payouts following an exogenous shock to the
information asymmetry problem between managers and investors. Agency theories

predict a decrease in dividend payments to the extent that improved public information lowers managers? need to convey their commitment to avoid overinvestment via costly dividend payouts. Conversely, dividends could increase if minority investors are in a better position to extract cash dividends. We test these predictions by analyzing the dividend payment behavior of a global sample of firms around the mandatory adoption of IFRS and the initial enforcement of new insider trading laws. Both events serve as proxies for a general improvement of the information environment and hence, the corporate governance structure in the economy. We find that following the two events firms are less likely to pay (increase) dividends, but more likely to cut (stop) such payments. The changes occur
around the time of the informational shock, and only in countries and for firms subject to the regulatory change. They are more pronounced when the inherent agency issues or the informational shocks are stronger. We further find that the information content of dividends decreases after the events. The results highlight the importance of the agency costs of free cash flows (and changes therein) for shaping firms? payout policies.


Real name:
Research Member
The Wharton School, University of Pennsylvania
Real name:
Ahmed Tahoun
Real name:
Clare Wang