Harakeh, M orcid.org/0000-0003-3294-4391, Lee, E and Walker, M (2019) The effect of information shocks on dividend payout and dividend value relevance. International Review of Financial Analysis, 61. pp. 82-96. ISSN 1057-5219
Abstract
We exploit the mandatory adoption of International Financial Reporting Standards (IFRS) as a source of exogenous shock to the corporate financial information environment to study the potential effect that this information shock might have on the dividend payout policy and dividend value relevance in the UK and France. We employ a difference-in-differences research design, in which our choice of the control and treatment groups is mainly based on the divergence between domestic accounting standards and IFRS, while holding institutional factors constant. The UK domestic accounting standards slightly diverge from IFRS (low-divergence firms), whereas French domestic accounting standards substantially diverge from IFRS (high-divergence firms). Nevertheless, both countries have similar institutional factors that might confound the effect of IFRS adoption. Our theoretical argument is that IFRS adoption is expected to mitigate information asymmetry, a major reason for the free cash flow problem (Jensen, 1986) and cash over-retention (Myers & Majluf, 1984). Our findings suggest that IFRS adoption is a major contributor in increasing dividend payouts among high-divergence firms via reduction of asymmetric information. Moreover, improving the information environment helps investors become more confident about using accounting numbers to assess firm financial performance, which causes a significant reduction in dividend value relevance among high-divergence firms.
Metadata
Item Type: | Article |
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Authors/Creators: |
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Copyright, Publisher and Additional Information: | © 2018 Elsevier Inc. All rights reserved. This is an author produced version of an article published in International Review of Financial Analysis. Uploaded in accordance with the publisher's self-archiving policy. |
Keywords: | Information shocks; Information asymmetry; IFRS; Dividend payout; Dividend value relevance |
Dates: |
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Institution: | The University of Leeds |
Academic Units: | The University of Leeds > Faculty of Business (Leeds) |
Depositing User: | Symplectic Publications |
Date Deposited: | 06 Oct 2022 09:02 |
Last Modified: | 06 Oct 2022 09:02 |
Status: | Published |
Publisher: | Elsevier |
Identification Number: | 10.1016/j.irfa.2018.10.009 |
Related URLs: | |
Open Archives Initiative ID (OAI ID): | oai:eprints.whiterose.ac.uk:191644 |
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