Dividends, Asymmetric Information, and Agency Conflicts: Evidence from a Comparison of the Dividend Policies of Japanese and U.S. Firms

Authors

  • Kathryn L. Dewenter,

    1. University of Washington
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  • Vincent A. Warther

    1. University of Michigan Business School and the University of Chicago Graduate School of Business
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    • Dewenter is from the University of Washington, Warther is from the University of Michigan Business School and the University of Chicago Graduate School of Business. We thank Brad Barber, Sanjai Bhagat, Harry DeAngelo, Jonathan Karpoff, Jennifer Koski, Paul Malatesta, Ed Rice, Stephan Sefcik, René Stulz, David Weinstein, an anonymous referee, and seminar participants at the University of Michigan and University of Washington for useful comments. This research was supported by grants from the James H. Zumberge Faculty Research and Innovation Fund at the University of Southern California, the University of Michigan Business School (Warther), and University of Washington School of Business (Dewenter).

ABSTRACT

We compare dividend policies of U.S. and Japanese firms, partitioning the Japanese data into keiretsu, independent, and hybrid firms. We examine the correlation between dividend changes and stock returns, and the reluctance to change dividends. Results are consistent with the joint hypotheses that Japanese firms, particularly keiretsu-member firms, face less information asymmetry and fewer agency conflicts than U.S. firms, and that information asymmetries and/or agency conflicts affect dividend policy. Japanese firms experience smaller stock price reactions to dividend omissions and initiations, they are less reluctant to omit and cut dividends, and their dividends are more responsive to earnings changes.

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