Political uncertainty and dividend policy: Evidence from international political crises Tao Huang * , Fei Wu † , Jin Yu ‡ , Bohui Zhang § April 4, 2013 Abstract We examine the impact of political uncertainty on firms’ payout policy. Using a large international sample across 35 countries over the period from year 1980 to 2009, we find that past dividend payers are more likely to terminate dividends and that non-payers are less likely to initiate dividends during periods of high political uncertainty. These findings suggest a precautionary incentive of managers in response to political shocks. Furthermore, the impact of political shocks can be attenuated by stable political sys- tems. In addition to identifying this precautionary incentive, we also find that firms with lower market valuation or less liquidity are more likely to initiate dividends during periods of high political uncertainty, which is consistent with the catering motive of managers. * Jiangxi University of Finance and Economics (email: [email protected]) † Jiangxi University of Finance and Economics - International Institute for Financial Studies (email: [email protected]) ‡ University of New South Wales (email: [email protected]) § University of New South Wales (email: [email protected])
Transcript
Political uncertainty and dividend policy: Evidence
from international political crises
Tao Huang∗, Fei Wu†, Jin Yu‡, Bohui Zhang§
April 4, 2013
Abstract
We examine the impact of political uncertainty on firms’ payout policy. Using a largeinternational sample across 35 countries over the period from year 1980 to 2009, we findthat past dividend payers are more likely to terminate dividends and that non-payersare less likely to initiate dividends during periods of high political uncertainty. Thesefindings suggest a precautionary incentive of managers in response to political shocks.Furthermore, the impact of political shocks can be attenuated by stable political sys-tems. In addition to identifying this precautionary incentive, we also find that firmswith lower market valuation or less liquidity are more likely to initiate dividends duringperiods of high political uncertainty, which is consistent with the catering motive ofmanagers.
∗Jiangxi University of Finance and Economics (email: [email protected])†Jiangxi University of Finance and Economics - International Institute for Financial Studies (email:
It is important to understand the determinants of corporate payout policy. Managerial
perceptions regarding the uncertainty of firms’ future earnings, one of many driving factors,
has been shown to have an influential effect on payout policy.1 However, inferences about the
importance of uncertainty on dividend payout policy in existing studies are generally limited
by two factors: (1) financial measures of uncertainty can be contaminated by look-ahead
bias or can be sensitive to omitted-variable errors;2 and (2) the causal relationship between
cash flow uncertainty and corporate dividend decisions is not completely clear.3
To tackle these issues, we explore the impact of international political crises on dividend
payout decisions. Considering international political crises is ideal for several reasons. First,
political crises are exogenous to financial markets (see Berkman, Jacobsen, and Lee (2011))
and thus provide a clean identification strategy that allows us to analyze the true incentives
for payout decisions. Second, political crises have a direct impact on the level of uncertainty
of firms’ future earnings.4 Third, because of the potentially substantial heterogeneity in how
1See the literature based on survey evidence by Linter (1956), and Brav, Graham, Harvey, and Michaely(2005). The empirical evidence presented by Hoberg and Prabhala (2008) and Chay and Suh (2009) indicatesthat firm-level risk measures, as a proxy for cash ow uncertainty, explains a large part of both the cross-sectional and the time-series variations in the probability of paying dividends. Examining the market-wideuncertainty (measured using the Chicago Board Options Exchange Volatility Index, VIX), Walkup (2011)documents a similar finding.
2Managers could look ahead and forecast future economic conditions. For example, Edmans, Goldstein,and Jiang (2012) emphasize that most firm-related or financial variables are inappropriate for use in ana-lyzing the true incentives for corporate decisions. Moreover, there are potential omitted variables that maysimultaneously drive both the uncertainty of firms’ future earnings and dividend payout policy.For example,changes in the taxation affect both cash flow uncertainty and corporate dividend decisions
3For example, reduction in dividend payments is associated with increase in the investment which leadsto larger risk exposure to the business cycle
4Political crises are likely to cause changes in the perceived rare disaster probabilities (Berkman, Jacobsen,
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firms respond to exogenous shocks, political crises provide a unique platform for investigating
the role of country characteristics and for determining firms’ various motives for dividend
payout policy (see La Porta, Lopez-de-Silanes, Shleifer, and Vishny (2000) and Choy, Gul,
and Yao (2011)).
Using a comprehensive sample of 23,426 firms from 35 countries over 19 years, we examine
whether and how the firms’ payout decisions are affected by international political crises.
Our empirical designs are based on these firms’ dramatic payout events, namely dividend
termination and initiation, in response to changes in the uncertainty level, as measured using
several crisis indices. More specifically, we focus on firms that have been consecutively paying
dividends over the past three years, i.e., past payers, and analyze how intensified political
uncertainty affects these past payers’ probability of dividend termination. Analogously, we
also examine how the likelihood of dividend initiation from firms that have never paid out
dividends over the past 3 years, i.e., past non-payers, changes in response to intensified
political uncertainty.
Three findings emerge from this study. First, we show that past dividend payers tend
to be more likely to terminate their dividend payouts and that past non-payers tend to be
less likely to initiate dividend payouts during periods with more political crises and more
and Lee (2011)) and the level of uncertainty associated with possible changes in government policy (see, e.g.,Pastor and Veronesi (2012a) and Pastor and Veronesi (2012b)) and the business environment (see, e.g.,Blomberg and Hess (2003)). Uncertainty has been documented as the key channel through which politicalevents affect firm-level corporate decisions. For example, Julio and Yook (2012) and Durnev (2012) findthat firms change their investments and investment sensitivity to price during election years when politicaluncertainty is presumably high.
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severe crises. For example, our results show that for a past dividend payer, the ratio of
the probability of terminating dividends to the probability of continuing to pay dividends
increases by approximately 7.39%, on average, for a one-standard-deviation increase in the
number of crises. Similarly, for a one-standard-deviation increase in the number of crises,
for the average past dividend non-payer, the ratio of the odds of initiating new dividend
payouts to the odds of continuing not to pay dividend decreases by 4.15%.
Analyzing dividend termination and initiation defined based on a firm’s past three-year
dividend history may only lead us to identify dramatic and relatively rare changes in dividend
policy. We have performed several robustness checks to relax this definition. Using three
different dividend payout-level variables, we extend our analysis by examining the effect
of political uncertainty on incremental changes in dividend policy. We find a significantly
negative relationship between the intensity of political uncertainty and the change in the
dividend ratio. Next, we use alternative definitions of past dividend-payers and non-payers
based on different time intervals, i.e., the past one year and the past two years. We again
obtain qualitatively consistent results.
Because we construct an aggregate crisis severity index using six individual indices that
capture different aspects of crisis severity,5 we also show that our results are robust to
the use of individual crisis severity indices. Last, we employ three methods of addressing
the concern that our results may be driven by the time-varying composition of the sampled
5See Appendix A for detailed variable definitions.
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firms rather than by political crises. We split our sample into sub-samples based on economic
development, restrict our sample to a group of continuously listed firms (for years 2000 to
2008), and control for a time-trend variable. Our results remain robust to these checks.
Second, our international sample of firms and crises allows us to assess how a country’s
political system affects the sensitivity of dividends to political uncertainty. In our study, we
document substantial cross-country variation. In particular, we find that dividend decisions
become less sensitive to political uncertainty in countries with more stable political systems.
This result highlights the important role of institutional settings in mitigating the adverse
effect of political uncertainty on individual firms.6
Finally, we show that under-valued firms and firms with illiquid shares exhibit dividend
behavior that differs widely from that of the average firm in face of political uncertainty.
In fact, firms in the former two categories are more likely to initiate dividends. In gen-
eral, dividend-paying firms experience a higher premium during periods of high political
uncertainty. It may thus be optimal for under-valued firms to cater the market demand
for dividends. We also find deteriorated liquidity for all firms during periods of high po-
litical uncertainty and determine that firms with illiquid shares are more likely to initiate
dividend payouts because a dividend may be viewed as a substitute for liquidity. These
results are consistent with the catering hypothesis of dividends (see Baker and Wurgler
6Johnson, Boone, Breach, and Friedman (2000) report analogous evidence emphasizing the role of macro-corporate governance in the relationship between stock market performance and the Asian financial crisis of1997- 1998.
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(2004)). However, firms that initiate dividend payouts during high uncertainty periods do
not appear to subsequently perform better than other firms. Moreover, firms with higher
information asymmetry do not appear to be more likely to initiate dividend payouts. These
results together do not generate support for the signaling hypothesis of dividends (see, e.g.,
Bhattacharya (1979), John and Williams (1985), and Miller and Rock (1985)).
Our study adds to the literature on how firms vary their payout policy in response to
changes in the business environment in which they operate. For example, a firm could
decrease its dividend distribution to enhance its bargaining position with organized labor
(DeAngelo and DeAngelo (1990)). Chetty and Saez (2005) and Chetty and Saez (2006)
document that dividend payments and dividend initiation have increased since the 2003 U.S.
dividend tax cut. Amihud and Li (2006) argue that increased stockholdings by institutional
investors over time increase the amount of information that is incorporated into the stock
price. Because using dividends as a signaling tool is costly, a decline in the information
content of dividend announcements reduces firms’ propensity to pay dividends. In addition to
changes in taxation and institutional ownership, our evidence confirms that the precautionary
motives of managers deter dividend payouts under high uncertainty.
We also contribute to the literature that examines firms’ strategic dividend behavior.
In the ideal world of Modigliani and Miller (1958), a firm’s payouts should not affect firm
value. However, much of the empirical evidence suggests that firms deliberately manage
their payout strategies. For example, firms initiate dividends strategically to signal good
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prospects for future performance (Bhattacharya (1979), John and Williams (1985), and
Miller and Rock (1985)), or to cater to market demand for dividends (Baker and Wurgler
(2004)). To avoid market penalties, managers may decide to maintain a stable level of
dividends by practicing a “dividend smoothing”strategy (see, e.g., Fama and Babiak (1968),
Brav, Graham, Harvey, and Michaely (2005)) or a “partially pooling”strategy (Guttman,
Kadan, and Kandel (2010)). We find that firms with lower market valuation or less liquid
shares are more likely to initiate dividends during periods of high political uncertainty. Our
finding strongly supports the catering incentive of managers and is hard to reconcile with
the stickiness view and the signaling hypothesis of dividend payments.
Finally, because we examine time-varying political effects on payout decisions, our study
relates to the literature that contends that a firm’s dividend policy is, to a certain degree,
time-varying. A large number of studies, e.g., DeAngelo and DeAngelo (1990), Fama and
French (2001), Baker and Wurgler (2004), Amihud and Li (2006), and Hoberg and Prabhala
(2008), have established the importance of the time-series dimension to payout policy. In an
investigation of payout decisions in our international sample, we observe that at least 30%
of payout variation is attributable to the time dimension.7
The remainder of the paper is organized as follows. In Section 2, we review the theoretical
foundation for our empirical study and develop several testable hypotheses. We then describe
7Specifically, we construct a dividend payout dummy that is equal to one if a firm pays dividends andzero otherwise for our sample of 112,151 international firm-year observations. We then employ a variancedecomposition approach to separate the sample’s total variation into a within-firm component and a betweenfirm component (see, e.g. Graham and Leary (2011), for a similar analysis of corporate leverage policy).
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our data sources, the sample construction process, and the empirical models in Section 3.
Section 4 presents and discusses the impact of political crisis on dividend payout policy and
the role of political system. Robustness checks are also performed in Section 4. In section 5,
we analyze why and which firms strategically initiate their dividend payments during periods
of high political uncertainty. Section 6 concludes the paper.
2 Theoretical Motivation and Hypotheses
Uncertainty is a key channel through which political factors affect financial markets. We base
our first hypothesis on two assumptions. First, during periods that feature political insta-
bilities, the uncertainties associated with possible changes in government policies and in the
macro environment may dramatically alter managerial risk perception (see, e.g., Pastor and
Veronesi (2012a) and Pastor and Veronesi (2012b)). Second, firms tend to make conservative
dividend decisions, and these decisions are largely affected by managerial perceptions of risk
related to the firm’s future cash flows (see, e.g., Linter (1956), Brav, Graham, Harvey, and
Michaely (2005), Hoberg and Prabhala (2008), Chay and Suh (2009), and Walkup (2011)).
These conservative dividend decisions may be due to two reasons. First, a precautionary
motive makes riskier firms more reluctant to initiate or increase dividend payments. Rather,
such firms may retain more cash to better deal with the expected future financial shortfalls.
Second, external financing is usually more costly than internal financing and is even more
so during periods of high uncertainty. These two effects together yield our first hypothesis.
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H1. During periods of high political uncertainty, firms are more likely to terminate dividend
payments and are less likely to initiate dividend payments, ceteris paribus.
Nevertheless, a stable and efficient political system may help to attenuate the adverse
effect of negative political shocks on corporate dividend policy. Stable political systems
act as a buffer against political uncertainty for two reasons. First, stable political systems
reduce the risk (likelihood) and the adverse impact of changes in government policy and
the business environment. Second, stable political systems are generally correlated with
better law and institutional provisions for corporate governance. Better investor protection
reduces the agency costs of outside shareholders8 and promotes more transparent information
environments,9 which may reduce the negative impact of uncertainty shocks. Therefore, our
second hypothesis is as follows:
H2. The dividend decisions of firms operating in countries with more stable political systems
are less sensitive to political uncertainty, ceteris paribus.
Even though we hypothesize that firms on average reduce dividend payments during pe-
riods of high political uncertainty, there may be some firms that initiate dividend payments
deliberately during these periods. Our third hypothesis consists of a set of testable predic-
tions regarding whether and why these firms are incentivized to initiate dividends during
8See, e.g., La Porta, Lopez-de-Silanes, Shleifer, and Vishny (1998), La Porta, Lopez-de-Silanes, Shleifer,and Vishny (1999), and La Porta, Lopez-de-Silanes, Shleifer, and Vishny (2002) for evidence of the role ofthe political system in controlling agency conflicts.
9See, e.g., Bushman, Piotroski, and Smith (2004)
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periods of high political uncertainty. There are two possibilities. First, firms may initiate
dividends to signal that they are good firms. Political turmoil not only increases the costs
of initiating dividend payouts, but also increases uncertainty about future cash flows and,
hence, the risk premiums of firms.
Despite the scarce support for dividend signaling in the empirical literature,10 the sig-
naling theory of dividends (Bhattacharya (1979), John and Williams (1985), and Miller and
Rock (1985)) predicts that firms with good prospects for future performance will be will-
ing to increase their dividends and that it will be too costly for firms with poor prospects
for future performance to mimic these well-positioned firms. Moreover, given that dividend
signaling is costly, the firms with less effective channels for revealing their information, i.e.,
those with higher information asymmetry, should have stronger incentives to use dividends
as a signaling device. According to the signaling theory of dividends, we can make the
following predictions regarding dividend initiation.
H3a. During periods of high political uncertainty, firms that expect good performance in the
future and/or firms with a higher degree of information asymmetry are more likely to initiate
dividends, ceteris paribus.
Second, corporate managers may attempt to initiate dividends due to a catering incentive
(see Baker and Wurgler (2004)). If investors place a valuation premium on dividend-paying
10See, e.g., DeAngelo, DeAngelo, and Skinner (1996) and Grullon, Michaely, Benartzi, and Thaler (2005)for empirical evidence and see Brav, Graham, Harvey, and Michaely (2005) for survey evidence
9
firms during political crisis periods, it then becomes optimal for managers to cater to mar-
ket demand by issuing dividend payments. There may be two reasons why investors are
willing to reward dividend payers with a premium. First, Baker and Wurgler (2004) argue
that a dividend premium may reflect the belief that dividend-paying stocks are less risky
(They represent a “bird-in-the-hand ”vs. a “bird-in-the-bush”). If the risk tolerance of the
bird-in-the-hand investors changes during periods of high uncertainty, their preferences be-
tween dividend-payers and -non-payers will change accordingly. This type of a demand for
dividends during periods of high uncertainty may be interpreted as a “flight to safety”. Sec-
ond, the risk-averse investors who expect the earlier liquidation of part of their investments
as a means to manage increasing uncertainty will experience a substantial decline in stock
market liquidity. Dividends can be viewed as an alternative mechanism for gaining liquidity
(Banerjee, Gatchev, and Spindt (2007)). This logic yields the following predictions based on
the catering theory of dividends.
H3b. During periods of high political uncertainty, dividend-paying firms experience higher
premiums. Firms with a low market valuation and/or illiquid shares are more likely to
initiate dividends, ceteris paribus.
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3 Data and Empirical Design
3.1 Data and Sample
Our source of political crisis data is the International Crisis Behavior Project (ICB) database.
The ICB is a database of international political crises that occurred during the period from
year 1918 to 2008. The database contains detailed information on more than 400 inter-
national political crises. To ensure reliable coverage of accounting balance sheet data, we
restrict our sample to the period from year 1990 to 2008, which includes 98 international
political crises.
We use Worldscope from Datastream to obtain wordwide annual firm-level accounting
data. For the primary tests, we only include the firm-year observations if a firm either pays
dividends for all of the previous three years or does not pay dividends for any of the previous
three years.11 Brazil, Chile, Colombia, Greece, and Venezuela have mandatory dividend
rules, so we remove these countries from our sample. We exclude financial and utility firms
because their dividend policies are usually regulated and hence are quite different from
those of other industrial firms. We truncate our continuous variables at the 1st and 99th
percentiles. We truncate variables at the 99th percentile if they have a lower bound at zero,
e.g., the dividend-yield ratio (dy), the dividend-to-sales ratio (dvs), and the total payout-
to-sales ratio (tps). In the end, our sample consists of 19,117 unique firms and 112,151
11See the definitions of our dividend payout variables in the next subsection and in Appendix A. We expandour sample accordingly when we use the firms’ past two year (or one year) history of dividend payments.
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firm-years across 35 countries, ranging from emerging markets (14 countries) to developed
ones (21 countries). Appendix B summarizes the distribution of firm-year observations across
countries and years. It is not surprising that the U.S. accounts for approximately 35% of
total observations, followed by Japan and the U.K.. In our sample, the number of firm-years
increases over time given the improved data availability in recent years.
3.2 Variables
In this subsection, we introduce the variables used in our subsequent empirical tests. The
detailed variable definitions are summarized in Appendix A. We start with the dependent
variables, i.e., the dividend policy variables. The extant dividend literature documents a
general time trend in which dividends have declined in recent decades (see, e.g., Fama and
French (2001)). The level of dividend policy may contain a time-trend that leads to potential
measurement errors if the omitted time-trend is not properly addressed. Moreover, these
firms’ dividend payouts are relatively persistent and our sample covers a large cross section
of firms. These facts create problems when we estimate the dynamic changes in dividend
policy in response to political crises.
To address these concerns, we decide to focus on the changes in dividend policy rather
than on the policy itself. Therefore, our main dependent variable is dramatic changes in
dividend policy: dividend termination and initiation. More specifically, we define the divi-
dend termination dummy (dt) as follows. We first form a sample of firms that made their
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dividend payments in all of the last three years. Within this sample of “past-payers”, we
assign a value of one to the dividend termination dummy if a “past-payer”stops paying any
dividends in the current year; otherwise, we assign it a value of zero. Similarly, we define
the dividend initiation dummy (di) for a sample of “past-non-payers”according to the firm’
last three years’ dividend payments. We then assign a value of one to the dividend initiation
dummy if a “past-non-payer”pays dividends in the current year and assign the dummy a
value of zero otherwise.12 In addition to examining dramatic changes in dividend policy, we
use several variables that capture the change in the dividend-yield ratio (∆dy), the change in
the dividend-to-sales ratio (∆dvs), and the change in the total payout-to-sales ratio (∆tps)
as robustness checks.
Our key explanatory variable is political uncertainty. Presumably, the political uncer-
tainty in a particular year is positively correlated with the number of crises occurring during
the year. Therefore, our first measure of political uncertainty is the crisis index (crisis),
which is equal to the total number of political crises occurring in a particular year.
However, some crises may be more devastating and may introduce greater risk than
others. Following Berkman, Jacobsen, and Lee (2011), we examine six types of crises with
varying levels of severity: 1) a crisis that begins with a violent act, 2) a crisis that involves
either serious clashes or a full-scale war, 3) a crisis that involves a full-scale war, 4) a crisis
that involves grave value threats, 5) a crisis that is part of a protracted conflict, and 6) a
12In our robustness checks, we also define the dividend termination and initiation dummies on samplesbased on the firms’ last two years’, or one year’s, dividend payments.
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crisis that involves great powers or superpowers on both sides of the conflict.
To capture the full severity of the political crises that occurred during a particular year,
we summarize the different aspects of crisis severity into one aggregate measure of crisis
severity (sevidx). More specifically, for each individual crisis, we compute a severity score
by summing the above six indices and adding one. For example, a war with great power
involvement that is part of a protracted conflict will have an individual severity score of four
(one for being a crisis, one for being a war, one for having great power involvement, and
one for being part of a protracted conflict). We aggregate the individual severity scores to
obtain the severity index for all crises (sevidx) that occurred during the year.
Because market-wide uncertainty is presumably positively correlated with the cumula-
tive severity of the crises that occurred during a particular year, sevidx is our key measure
for political uncertainty. We summarize our crisis variables in Appendix C. In our sample
period, which includes the years 1990-2008, 98 crises occurred. The average number of crisis
per year is 5.158. The year 2008 has the lowest incidence of political crises with only one
crisis while 1991 has the highest incidence of political crises, with ten crises. The severity
index (sevidx) has a mean of 17.421. Similarly, 2008 has the lowest severity index (2) while
1991 has the highest (34). Figure 1 shows the time-series patterns for the political uncer-
tainty variables and the average dividend termination and initiation variables. Consistent
with our first hypothesis, these graphs show that there is a positive relationship between div-
idend termination (dt) and political uncertainty (crisis/sevidx) and that there is a negative
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relationship between dividend initiation (di) and political uncertainty (crisis/seridx).
[Insert Figure 1 about here]
In accordance with the extant dividend literature (see, e.g., Fama and French (2001),
Baker and Wurgler (2004), and Chay and Suh (2009)), we control for a set of firm charac-
teristics when we examine the impact of political crises on corporate dividend policy. The
control variables used in our primary regressions include Tobin’s q (q), asset growth (dta),
firm size (mv), the life cycle (rete), return on assets (roa), cash holdings (cash), closely-held
ownership (ch) and stock return volatility (std).
We report the summary statistics for our key variables in Table 1. The first two rows
of the table show that dramatic changes in corporate dividend policy are rare events, which
is consistent with the sticky pattern of dividend payouts. For example, the mean of the
dividend termination dummy is 0.044, which indicates that only 4.4% of firm-years include
dividend termination. The percentage of firm-years that include the initiation of dividend
payouts is approximately 5.7%.13
[Insert Table 1 about here]
Table 2 presents the correlation matrix for our primary variables. In particular, we show
that dividend termination is positively correlated with our crisis measures. On the other
13We include the summary statistics for the political crisis variables based on firm-year observations in thetable for the sake of completeness. A detailed description of the crisis distribution is provided in AppendixC.
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hand, dividend initiation is negatively correlated with our crisis measures. For example, the
Pearson (Spearman) correlation coefficient between dt and crisis is 0.019(0.016) and that
between di and crisis is -0.011(-0.010). In addition, the two crisis measures are themselves
highly correlated, as we expect. We therefore decide to use the crisis measures separately
in the regression analysis. Although the correlation matrix in Table 2 provides us with a
preliminary view of the relationship between dividend policy and political crises, we also
address the relationship in a multivariate regression context in the next section.
[Insert Table 2 about here]
3.3 Empirical Specification
In this paper, we attempt to analyze how dramatic changes in dividend payout policy occur
in response to political crises. Therefore, we use Logit models to estimate the dividend
termination and initiation decisions. Let a dividend decision Y ∈ {dt, di} be a binary
response variable, let z ∈ {crisis, sevidx} be a political uncertainty measure, and let X be
a vector that contains firm characteristics, country- and industry-level fixed effects, and a
constant. A Logit model assumes that the odds ratio of the dividend termination decision
takes the form
P (dt = 1)
1− P (dt = 1)= exp(αz +X ′β), (1)
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where α and β are coefficient estimates, exp(.) is the exponential function, and the odds
ratio is the ratio of the probability of terminating the dividend payout (P (dt = 1)) to the
probability of paying dividends (1− P (dt = 1)). Replacing dt with di in equation 1, we can
similarly estimate a Logit model of the dividend initiation decision.
As robustness checks, we also estimate multivariate linear regressions for various de-
pendent variables that represent the change in the payout ratio as follows. For exam-
ple, if we want to study how a change in dividend yields ∆dy responses to political risk
z ∈ {crisis, sevidx}, after controlling for other factors (X), we can employ the following
linear regression model:
∆dy = αz +X ′β + ε. (2)
Throughout the paper, the firm characteristics that we use as control variables include
Tobin’s q (q), asset growth (dta), firm size (mv), the life cycle (rete), return on assets (roa),
cash holdings (cash), closely held ownership (ch), and stock return volatility (std). The
standard errors are robust to heteroskedasticity and firm-level clustering unless we state
otherwise.
4 The Effect of Political Crises on Dividend Policy
In this section, we examine a few of unsettled empirical questions on corporate dividend
policy. First, do firms become more likely to terminate dividend payouts and less likely to
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initiate dividend payouts during periods of high political uncertainty? As a robustness check
for our first set of results, we next examine whether the dividend-payers reduce their levels
of dividend payments during these periods. We also perform several other robustness checks
using sub-samples and different dividend payout measures. In particular, we attempt to
address whether our results are driven by the time-varying composition of the sampled firms.
We also analyze how the macro-level stability of political system reshapes the relationship
between political uncertainty and dividend policy.
4.1 Dividend Termination, Initiation, and Political Crises
Table 3 shows our Logit regression results for dividend termination (Models 1 and 2) and
initiation (Models 3 and 4) decisions. The explanatory variables of interests are crisis and
sevidx in the first two rows of the table. We first examine the impact of political crises on
dividend termination decisions. Models 1 and 2 show that crisis has a positive coefficient of
0.032 and that sevidx has a positive coefficient of 0.010; both are highly significant at the
1% level. These results indicate that there is a positive relationship between termination
decisions and political uncertainty.
In particular, our results imply that, on average, the ratio of a past dividend payer’s
probability of terminating these payouts to the probability of its continuing to pay dividends
increases by approximately 7.39% (= [exp(0.032× 2.229)− 1] × 100%) in response to a
one-standard-deviation (= 2.229) increase in crisis. Similarly, the ratio of the odds of
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terminating the dividend payouts to the odds of continuing to pay the dividends increases by
7.92% (= [exp(0.010× 7.626)− 1]×100%) in response to a one-standard-deviation (= 7.626)
increase in sevidx. Therefore, our results suggest that past dividend payers tend to be more
likely to terminate their dividend payments during periods of high political risk (measured
by both the quantity and the severity of political crises).
Next, we document the existence of a negative relationship between dividend initiation
decisions and political risk (see Models 3 and 4 of Table 3). crisis has a negative coefficient
of -0.019, and sevdix has a negative coefficient of -0.006; both are highly significant at the
5% level. That is, given a one-standard-deviation increase in crisis, for the average past
dividend non-payer, the ratio of the odds of initiating a new dividend payout to the odds of
continuing not to pay the dividend decreases by 4.15%. For a one-standard-deviation increase
in sevidx, for the same non-payer, the ratio of the odds of initiating a new dividend payout
to the odds of continuing not to pay dividend decreases by 4.47%. Thus, past dividend
non-payers tend to become less likely to initiate dividend payments during periods with a
high degree of political uncertainty.
In addition to examining the crisis variables, we control for the firm-level characteristics
that are commonly used in the literature (see, e.g., Fama and French (2001), Baker and
Wurgler (2004), and Chay and Suh (2009)). In particular, we document that large firms
(measured by mv) tend to be more likely to initiate dividends and to be less likely to
terminate dividends. Like large firms, mature firms (measured by rete) are on average more
19
likely to pay dividends and are on average less likely to cut dividends. Profitability (measured
by roa) is positively associated with dividend initiation and is negatively associated with
dividend termination. Cash holdings (measured by cash) tend to encourage dividend payouts
and tend to discourage terminating such payouts. Last, firm-level uncertainty (measured by
std) is positively correlated with dividend termination and is negatively associated with
dividend initiation. These findings are generally consistent with those documented in the
literature (see, e.g., Baker and Wurgler (2004) and Chay and Suh (2009)).
The positive (negative) impact of political uncertainty on dividend termination (initia-
tion) decisions merits more discussion. First, political uncertainty has significant explanatory
power even after firm-level risk (std) is controlled for. Chay and Suh (2009) document that
cash flow uncertainty captures the cross-section variation in dividend policy, and our results
complement their finding by showing that uncertainty also accounts for the time-series vari-
ation in dividend policy. Second, unlike risk measures based on financial market variables, a
political crisis is exogenous to the individual firm policy process. That is, a political crisis can
affect an individual firm’s dividend policy through the uncertainty channel but the reverse is
very unlikely to be true. Therefore, to the best of our knowledge, we are the first to establish
a causal relationship, rather than a correlation, between risk and corporate dividend policy.
[Insert Table 3 about here]
20
4.2 Robustness Checks
The first robustness check that we perform in this subsection allows us to study the impact of
political uncertainty on the alternative dividend payout measures. These dependent variables
are (in order) dividend termination variables based on shorter past periods (dt2 and dt1),
dividend initiation variables based on shorter past periods (di2 and di1), and the change in
dividend payout ratios (∆dy, ∆dvs, and ∆dtps). Detailed definitions of these variables are
provided in Appendix A.
The regression results are presented in Table 4. The first and second rows of the ta-
ble show that crisis variables (crisis and sevidx) have positive coefficients when dividend
termination decisions are used and they have negative coefficients when dividend initiation
decisions and continuous payout ratios are used. In particular, the coefficients of the po-
litical crisis variables in the payout ratio regressions (Models 9 to 14) are all significant at
the 1% level. Consistent with our findings on dividend termination and initiation decisions,
we find that firms tend to reduce their dividend payments in response to a high degree of
political uncertainty. Although the results are weaker in the regressions based on alternative
dividend termination/initiation decisions (Models 1 to 8), they are qualitatively similar to
our primary results in Table 3.
[Insert Table 4 about here]
Second, we study the impact of the individual crisis index (greatp, vbreak, vcrisis, war, gthreat,
21
and protracted) on corporate dividend policy. Dividend termination regressions are provided
in Models 1 to 6 of Table 5, and dividend initiation regressions are provided in Models 7
to 12 of the same table. In accordance with our primary results in Table 3, past dividend
payers become more likely to terminate their dividend payments when an individual crisis
index is high. In particular, we find that four out of six coefficient estimators of the indi-
vidual crisis variables are significantly positive at the 1% level, although the other two are
insignificant. Moving to Models 7 to 14 of Table 5, we find similar support when dividend
initiation decisions are analyzed. All six crisis variables have negative coefficient estimates,
and three out of the six coefficient estimates are significant at the 5% level, indicating that
past non-payers tend to be less likely to initiate new dividend payments in response to more
severe political crises. Overall, our primary results in Table 3 are robust to the individual
components of our main explanatory variable (sevidx) rather than to sevidx itself.
[Insert Table 5 about here]
Third, our sample covers firms from both developed markets and emerging markets.
If there is a time-varying composition of the sampled firms from developed markets and
emerging markets and if this time-varying composition is highly correlated with our political
uncertainty measures, our results regarding the relationship between the change in dividend
payout and political uncertainty may be driven by the degree of economic development. To
address this concern, in Table 6, we report estimation results for Models 1 to 4 that are
based on the respective developed and emerging sub-samples (dt in Panel A and di in Panel
22
B). Overall, the results are qualitatively unchanged, although the magnitude of the crisis
coefficient estimates tend to be larger for the firms in emerging markets. Interestingly, this
finding also reveals that the negative impact of political turmoil on the individual firms’
dividend policy tends to be weaker in developed markets.14
[Insert Table 6 about here]
Fourth, a decline in the dividend payouts of the listed firms may be attributable to the
time-varying characteristics of the listed firms. For example, the population of publicly
traded firms tilts increasingly toward small firms with low profitability and high investment
opportunities - characteristics that are typical of firms that have never paid dividends (see
Fama and French (2001) for empirical evidence and DeAngelo, DeAngelo, and Stulz (2010)
for a theoretical justification). To partially eliminate the effects of the time-varying properties
of the sampled firms, we limit our sample to those firms that are continuously listed on the
market over the second half of the sample period (during the years 2000-2008), i.e., those
firms that have valid observations for that period. This choice of a limited sample period is
based on our observation that a large portion of the sample firms are not continuously listed
in the early years. We estimate Models 5 and 6 of Table 6 (dt in Panel A and di in Panel
B) for the 2000-2008 period. The results remain qualitatively unchanged.
Last, the extant dividend literature reports a general time trend of decline in dividends
for U.S. firms in recent decades (see, e.g., Fama and French (2001)). The solid lines in Figure
14In Section 4.3, we provide a more detailed discussion on the impact of the political system on thesensitivity of dividends to political crises.
23
1 confirm the existence of a similar time-series pattern based on our international sample.
This time trend may drive the negative relationship between dividend payouts and political
crises if the number of crises and the severity of the crises increase over the same period.
However, as shown in Figure 1, there is actually a declining pattern of crises over the sample
period (the dotted lines). Therefore, the documented negative relationship between dividend
payouts and political uncertainty is unlikely to be driven by some omitted latent variables.
Even more compellingly, when we add a time-trend variable (trend = year − 1989) to our
primary tests and report the estimation results obtained using this variable in Models 7 and
8 of Table 6 (dt in Panel A and di in Panel B), we find that our results remain robust when
controlling for the time-trend variable.
4.3 Political System and Political Crisis
For the sake of simplicity, from now on we will use sevidx as the only measure of political
uncertainty because it captures not only the number of crises but also the severity of each
crisis. Our prior discussions in Section 2 hypothesized that dividend policy in countries with
more stable political environments are less sensitive to adverse political shocks. We test this
hypothesis by interacting sevdix with different country-level political stability measures,
respectively. We use three common political stability variables:
1. checks: A checks and balances variable provided by the Database of Political Institu-
tions. This variable measures the effectiveness of checks and balances in each political
24
system on an annual basis. More specifically, we determine the number of decision
makers whose agreement is necessary for the approval of policy changes (see, e.g.,
Keefer (2010) and Julio and Yook (2012)).
2. stability: Kaufmann’s political stability measure captures the perceived likelihood
that a government will be destabilized or overthrown by unconstitutional or violent
means, including politically motivated violence and terrorism (see Kaufmann, Kraay,
and Mastruzzi (2010)).
3. polista: A composite political stability variable that combines several indicators that
measure the perceived likelihood that the government in power will be destabilized
or overthrown by possibly unconstitutional and/or violent means, including domestic
violence or terrorism (see http://www.qop.pol.gu.se).
A greater value for the three political stability variables indicates a more stable political
system.
We present our estimation results in Table 7. The first row of the table shows the coef-
ficients of the interactions between sevidx and the political stability variables. Our second
hypothesis states that corporate dividend decision are less sensitive to political uncertainty
in more stable political environments. Therefore, we expect to find negative coefficient esti-
mates of the interactions (in contrast to the positive coefficient estimates for seridx itself) for
dividend termination, and we expect to find positive coefficient estimates for the interactions
25
(in contrast to the negative coefficient estimates for seridx itself) for dividend initiation. We
find consistent results in the first row. In particular, those firms relative to their counterparts
in countries with less stable political systems are less likely to terminate dividend payouts
and are more likely to initiate dividend payouts during periods of high political uncertainty.
[Insert Table 7 about here]
5 Strategic dividend initiation
Thus far, based on an international sample, our results show that firms tend to be more
likely to terminate dividend payouts during periods of high political uncertainty. This evi-
dence indicates that there is a precautionary motive for managers’ deliberate dividend policy.
However, an examination of our sample reveals that when we sort our sample into five groups
based on sevidx, more than 5% firm-years include instances in which dividend payouts were
initiated in the highest severity index group. This result yields an interesting question: that
of why firms initiate dividends even when there is high uncertainty in the market. One
possible explanation is that some firms may strategically manage their dividend policy in
response to changes in the macro-environment. Although the number of firms initiating div-
idends during periods of high political uncertainty is relatively small, analyzing the behavior
of these firms helps us to better understand firms’ strategic dividend behavior.
In this section, we analyze why some firms respond to political uncertainty differently
26
from others, which firm characteristics drive this difference, and how we can use existing
dividend theories to explain the difference. The exogenous nature of political crises provides
us with a clean test of several existing explanations for corporate payout decisions. We focus
on two likely channels through which firms may be encouraged to initiate dividends even
in the presence of a high degree of uncertainty. Given that our focus is dividend initiation
decisions, the subsequent analysis will be restricted to the dividend initiation measure (di).
5.1 The signaling hypothesis of dividends
We start by testing the signaling hypothesis. First, we test for the consequence of signaling.
That is, firms that make dividend payments under high political uncertainty tend to have
better future performance. In Table 8, we regress the future net sales growth (growthsales,+1
and growthsales,+2), respectively, on the interaction between the crisis measure (sevidx)
and the dividend initiation variable(di), controlling for the current year net sales growth
(growthsales), the crisis measure, and the dividend initiation variable.
In addition, we examine alternative performance measures including the change in net
income (growthearnings,+1 and growthearnings,+2) and the change in the return on total assets
(growthroa,+1 and growthroa,+2). We fail to find any significantly positive coefficients for
the interaction terms (the first row in the table) for any of the examined future performance
measures. Although there is one case (Model 2) in which we document a significantly negative
coefficient, our results indicate deteriorating rather than improved future firm performance
27
following crises.
[Insert Table 8 about here]
Next, we examine the incentives for signaling. The firms with a higher degree of infor-
mation asymmetry should a have greater incentive to initiate dividend payouts to reveal
their information. To test this theory, we add the interaction term between our main crisis
variable sevidx and a firm-level information asymmetry measure. We use four different in-
formation asymmetry variables (firm age (age), accounting accruals (acc), the probability of
informed trading (pin), and analyst coverage (ana)) separately in each model. It is evident
that information asymmetry is positively correlated with pin and acc and that is negatively
associated with age and ana. The definitions of these information asymmetry variables are
summarized in Appendix A. If the signaling hypothesis is correct, the interactions between
sevidx and age and ana should be negatively significant, whereas the interactions between
sevidx and acc and pin should be positively significant.
The first row of Table 9 summarizes the regression coefficients of the interaction terms.
The interaction terms of all four models are insignificantly different from zero. In summary,
the results in Table 8 and Table 9 are very difficult to reconcile with a theory of rational
signaling in which corporate managers decide to initiate dividend payouts during periods of
high political uncertainty.
[Insert Table 9 about here]
28
5.2 The catering hypothesis of dividends
Next we test the catering theory of dividends. To motivate firms to initiate dividends
during high risk periods, financial markets must compensate them with a premium, i.e.,
they must value dividend payers higher than their otherwise identical counterparts. In Table
10, we provide evidence that the financial markets reward dividend payers more under higher
political uncertainty. Following Baker and Wurgler (2004), we construct two aggregate time-
series of dividend premiums, i.e. we examine the difference between the average market-to-
book ratios of the dividend payers and the non-payers. We denote the premium by dpremew
(dpremvw) if the average market-to-book ratios are equally (value) weighted. The first row
of Table 10 shows that the country-level dividend premiums are positively correlated with
sevidx.
[Insert Table 10 about here]
Having established that financial markets appear to more intensely demand and better
reward dividend payouts under high political uncertainty, we then study whether those
under-valued stocks (using low q as a proxy) tend to be more likely to be associated with
new dividend payouts. To test this potential relationship, we show in Model 3 of Table 11
that q decreases with sevidx, i.e., that firms are, on average, under-valued during periods
of high political uncertainty. In addition, we expect to see a negative coefficient for the
interaction between sevidx and q in the dividend initiation regression if under-valued firms
29
(i.e., low q) have more incentive to initiate dividend payments. Unsurprisingly, we find a
significantly negative coefficient for the interaction in Model 1 of Table 11. This finding is
consistent with the catering hypothesis of dividends, in which firms cater to investors by
making dividend payments when those investors value dividend payers at a premium, i.e.,
when political uncertainty is high.
Lastly, we study whether liquidity acts as a channel underlying the market demand
for dividend payers. Following Amihud (2002), we use the Amihud (il)liquidity measure,
amihud. In Model 4 of Table 11, we find that firm-level liquidity tends to decrease dramat-
ically (or that illiquidity tends to increase substantially) under high political crisis. This
result is consistent with what has been documented in financial crises. In Model 2 of Table
11, we add an interaction term for sevidx and amihud to our primary regression specifi-
cation. The interaction term has a significantly positive coefficient. That is, although the
average firm tends to be less likely to initiate dividend payouts during high political crisis, an
illiquid firm may find that it is optimal to initiate dividend payments to cater to market de-
mand for dividend payers during periods of high political uncertainty. This finding suggests
that dividends and liquidity may be substitutes for one another (see Banerjee, Gatchev, and
Spindt (2007)).
[Insert Table 11 about here]
30
6 Conclusion
Using a comprehensive sample of 112,152 firm-year observations from 35 countries over two
decades, this paper explores firms’ intertemporal dividend decisions by examining the impact
of political uncertainty. This paper has two distinguishing features that differentiate it
from existing studies. First and most importantly, our measure of uncertainty is based on
exogenous shocks triggered by international political crises. We are therefore able to establish
the causal relationship rather than the correlation between uncertainty and dividend policy.
Second, examining time-varying political risk allows us to study the time-series variation
rather than the cross-sectional variation in dividend decisions.
We have obtained three sets of novel findings. First, we show that past payers tend to
be more likely to terminate their dividend payments and that past non-payers tend to be
less likely to initiate dividend payments during periods with more (or more severe) political
crises. These results are robust to the use of a variety of sub-samples, alternative political
crisis measures, and alternative dividend decision variables.
Second, we find that dividend decisions become less sensitive to political uncertainty in
countries with more stable political systems. The result highlights the influential role of
the macro-environment in alleviating the adverse effect of political uncertainty on individual
firms.
Third, we show that the dividend decisions of under-valued firms and firms with illiquid
shares are less sensitive to political uncertainty because it is optimal for them to cater to
31
the market demand for dividends under high political uncertainty.
Overall, our study provides new evidence that firms make deliberate dividend payout
decisions. In particular, our results show that the precautionary motives of managers tend
to be one of the important factors that explain the primary pattern of observed dividend
payouts. In addition, the country-level heterogeneity in the sensitivity of dividends to polit-
ical uncertainty indicates that political stability appears to be able to partially internalize
the negative externalities triggered by political events. Finally, the firm-level heterogeneity
in the sensitivity of dividends to political risk appears to be consistent with the catering
hypothesis of dividends and difficult to reconcile with the signaling hypothesis of dividends.
32
Table 1: Summary Statistics. This table presents the summary statistics of firm-yearobservations in our sample across 35 countries over the period from year 1990 to 2008. dt isthe dividend termination dummy, di is the dividend initiation dummy, crisis is the numberof crises, sevidx is the aggregate crisis severity index, q is Tobin’s q, dta is the growth rateof assets, mv is firm size, rete is retained earnings-to-total equity ratio, roa is return onassets, cash is cash holding, ch is the fraction of closely held shares, and std is stock returnvolatility. Detailed variable definitions are given in Appendix A.
Table 3: Logit regressions of dividend termination/initiation decision. This tablepresents Logit regression results of the dividend termination decision and initiation decisionfor our sample across 35 countries over the period from year 1990 to 2008. dt is the dividendtermination dummy, di is the dividend initiation dummy, crisis is the number of crises,sevidx is the aggregate crisis severity index, q is Tobin’s q, dta is the growth rate of assets,mv is firm size, rete is retained earnings-to-total equity ratio, roa is return on assets, cashis cash holding, ch is the fraction of closely held shares, and std is stock return volatility.Detailed variable definitions are given in Appendix A. T-statistics are given in parentheses.***, ** or * next to coefficients indicate that coefficients are significantly different from zeroat the 1%, 5%, or 10% levels, respectively.
dt diVariable Model 1 Model 2 Model 3 Model 4crisis 0.032*** -0.019**
Table 7: Logit regressions of dividend termination/initiation decision - politicalstability. This table presents Logit regressions with an interaction between sevidx and apolitical stability variable for our sample across 35 countries over the period from year 1990 to2008. psv is a generic political stability variable that could be any one of checks, stability,and polista, checks is the checks and balances measure, stability is a political stabilitymeasure from Kaufmann, Kraay, and Mastruzzi (2010), polista is a political stability measurefrom http://www.qog.pol.gu.se, dt is the dividend termination dummy, di is the dividendinitiation dummy, sevidx is the aggregate crisis severity index, q is Tobin’s q, dta is thegrowth rate of assets, mv is firm size, rete is retained earnings-to-total equity ratio, roa isreturn on assets, cash is cash holding, ch is the fraction of closely held shares, and std is stockreturn volatility. Detailed variable definitions are given in Appendix A. T-statistics are givenin parentheses. ***, ** or * next to coefficients indicate that coefficients are significantlydifferent from zero at the 1%, 5%, or 10% levels, respectively.
Table 9: Logit regressions of dividend initiation - information asymmetry. Thistable presents Logit regressions of dividend initiation with an interaction between sevidxand an information asymmetry variable for our sample across 35 countries over the periodfrom year 1990 to 2008. infoasy is a generic information asymmetry variable that couldbe any one of age, acc, pin, and ana, age is firm age, acc is accounting accruals, pin is theprobability of informed trading, ana is the analyst coverage, di is the dividend initiationdummy, sevidx is the aggregate crisis severity index, q is Tobin’s q, dta is the growth rate ofassets, mv is firm size, rete is retained earnings-to-total equity ratio, roa is return on assets,cash is cash holding, ch is the fraction of closely held shares, and std is stock return volatility.Detailed variable definitions are given in Appendix A. T-statistics are given in parentheses.***, ** or * next to coefficients indicate that coefficients are significantly different from zeroat the 1%, 5%, or 10% levels, respectively.
Table 10: Country-level dividend premium regressions. This table presents country-level dividend premium regressions for our sample across 35 countries over the period fromyear 1990 to 2008. sevidx is the aggregate crisis severity index, dpremew is the equallyweighted country-level dividend premium, dpremvw is the value-weighted country-level div-idend premium. Detailed variable definitions are given in Appendix A. T-statistics are givenin parentheses. ***, ** or * next to coefficients indicate that coefficients are significantlydifferent from zero at the 1%, 5%, or 10% levels, respectively.
dpremew dpremvwVariable Model 1 Model 2sevidx 0.004*** 0.002
(4.46) (1.31)dpremew−1 0.403***
(6.03)dpremvw−1 0.384***
(8.54)
Country FEs Yes YesClustering Country CountryNObs 378 378R̄2 52.3% 39.4%
43
Table 11: Logit regressions of dividend initiation decision - Tobin’s q and liquid-ity. This table presents Logit regressions of dividend initiation decision with an interactionbetween sevidx and q or an interaction between sevidx and liquidity for our sample across35 countries over the period from year 1990 to 2008. di is the dividend initiation dummy,amihud is the amihud (il)liquidity measure, sevidx is the aggregate crisis severity index, qis Tobin’s q, dta is the growth rate of assets, mv is firm size, rete is retained earnings-to-total equity ratio, roa is return on assets, cash is cash holding, ch is the fraction of closelyheld shares, and std is stock return volatility. Detailed variable definitions are given in Ap-pendix A. T-statistics are given in parentheses. ***, ** or * next to coefficients indicate thatcoefficients are significantly different from zero at the 1%, 5%, or 10% levels, respectively.
di q amihudVariable Model 1 Model 2 Variable Model 3 Model 4q ∗ sevdix -0.004* sevidx -0.002** 0.025***
Industry FEs Yes Yes Industry FEs Yes YesCountry FEs Yes Yes Country FEs Yes YesClustering Firm Firm Clustering Firm FirmNObs 43,335 41,364 NObs 25,458 25,458R̄2 12.5% 12.4% R̄2 34.1% 34.1%
44
Figure 1: For our sample period from year 1990 to 2008, the top left graph plots the time-series of thenumber of crises (crisis) and the average dividend termination (dt), top right graph plots the time-series ofthe severity index (sevidx) and the average dividend termination (dt), bottom left graph plots the time-seriesof the number of crises (crisis) and the average dividend initiation (di), and bottom right graph plots thetime-series of the severity index (sevidx) and the average dividend initiation (di). Data sources are the ICBdatabase and Datastream.
45
App
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reat
pow
erin
volv
emen
tgreatp
Th
enu
mb
ercr
ises
inw
hic
hat
least
on
egre
at
pow
eror
sup
erp
ower
isin
volv
edIC
Bon
both
sid
esof
the
con
flic
tin
year
t
46
Var
iab
leA
cron
ym
Defi
nit
ion
Data
sou
rce
Fir
mch
ara
cter
isti
csT
obin
’sq
qT
he
mar
ket
valu
eof
equ
ity
plu
sth
eb
ook
valu
eof
tota
ld
ebts
scale
dby
Data
stre
am
the
book
valu
eof
tota
lass
ets
Ass
etgr
owth
dta
Th
eas
set
grow
th:
((assets t−assets t−1)/assets t−1)
Data
stre
am
Fir
msi
zemv
Th
en
atu
ral
logari
thm
of
the
mark
etca
pit
ali
zati
on
Data
stre
am
Lif
ecy
cle
rete
Th
ere
tain
edea
rnin
gs-
to-t
ota
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yra
tio
Data
stre
am
Ret
urn
onas
sets
roa
Th
ere
turn
onas
sets
:op
erati
ng
inco
me
div
ided
by
tota
lass
ets
Data
stre
am
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hh
old
ing
cash
Th
eca
shh
old
ing
Data
stre
am
Clo
sely
hel
dow
ner
ship
chT
he
frac
tion
ofcl
ose
lyh
eld
share
s:th
enu
mb
erof
close
lyh
eld
share
sD
ata
stre
am
scal
edby
the
tota
lnu
mb
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com
mon
share
sou
tsta
nd
ing
Sto
ckre
turn
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tili
tystd
Th
etw
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arh
isto
rica
lst
ock
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lity
,i.
e.,
the
stan
dard
dev
iati
on
Data
stre
am
ofm
onth
lyst
ock
retu
rns
inp
revio
us
two
years
Addit
ion
al
firm
chara
cter
isti
cs(i
nfo
rmati
on
asy
mm
etry
)u
sed
inro
bust
nes
sch
ecks
Fir
mag
eage
Th
enum
ber
ofye
ars
bet
wee
nth
eli
stin
gd
ate
an
dth
eob
serv
ati
on
year
Data
stre
am
plu
son
eA
ccou
nti
ng
accr
uals
acc
Acc
ounti
ng
accr
uals
Data
stre
am
Info
rmed
trad
ing
pin
Th
ep
rob
abil
ity
of
info
rmed
trad
ing
TR
TH
An
alyst
cove
rage
ana
Th
enum
ber
offi
nan
cial
an
aly
stco
veri
ng
afi
rmIB
ES
Cou
ntr
ych
ara
cter
isti
csC
hec
ks
and
bal
ance
sch
ecks
Th
ech
ecks
and
bala
nce
sm
easu
reW
orl
dB
an
kD
ata
base
of
Poli
tica
lIn
stit
uti
on
sP
olit
ical
stab
ilit
ystability
Kau
fman
n’s
pol
itic
al
stab
ilit
ym
easu
reK
au
fman
net
.al.
(2010)
Pol
itic
alst
abil
ity
polista
An
aggr
egat
ep
oli
tica
lst
ab
ilit
yin
dic
ato
rm
ain
tain
edby
the
Qu
ali
tyof
htt
p:/
/w
ww
.qog.p
ol.
gu
.se
Gov
ern
men
tin
stit
ute
,U
niv
ersi
tyof
Goth
enb
urg
m,
Sw
eden
Div
iden
dp
rem
ium
dpremew
Th
eeq
ual
lyw
eighte
dd
ivid
end
pre
miu
m,
i.e.
,th
ed
iffer
ence
bet
wee
nth
eD
ata
stre
am
aver
age
mar
ket-
to-b
ook
rati
os
of
div
iden
dp
ayer
sand
non
-pay
ers
Div
iden
dp
rem
ium
dpremvw
Th
eva
lue-
wei
ghte
dd
ivid
end
pre
miu
m,
i.e.
,th
ed
iffer
ence
bet
wee
nth
eD
ata
stre
am
aver
age
mar
ket-
to-b
ook
rati
os
of
div
iden
dp
ayer
sand
non
-pay
ers
47
App
endix
B:
Fir
mdis
trib
uti
on
.T
his
table
pre
sents
the
dis
trib
uti
onof
firm
-yea
rs(fi
rms)
acro
ssco
untr
yan
dye
ar.
Cou
ntr
yN
ob
sN
Fir
m90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
Arg
enti
na
69
25
13
54
43
21
12
98
14
12
Au
stra
lia
4,1
58
1,0
25
533
52
93
100
98
95
92
93
119
101
132
163
240
373
614
597
563
595
Au
stri
a282
55
14
49
911
912
11
14
20
19
20
26
24
25
30
34
Bel
giu
m329
83
310
910
14
14
10
911
10
12
14
14
13
20
34
33
42
47
Can
ad
a2,5
10
736
518
51
72
77
63
47
60
69
92
84
39
141
136
234
290
329
352
351
Ch
ina
720
187
14
47
22
35
50
67
88
101
120
107
114
Den
mark
601
107
112
18
17
26
32
28
38
44
30
31
37
39
45
49
53
49
52
Fin
lan
d798
115
15
17
19
23
35
36
41
49
45
34
55
55
64
62
66
68
60
63
Fra
nce
4,2
94
679
11
103
186
192
197
184
215
222
210
175
233
278
304
319
312
294
291
281
287
Ger
many
3,4
36
566
549
140
154
164
162
191
203
208
189
159
174
214
243
255
250
229
227
220
H.K
.2,6
68
647
14
13
17
22
30
29
33
47
67
81
122
148
188
272
369
401
397
427
Ind
on
esia
858
197
14
32
40
50
48
24
18
49
49
63
104
106
102
88
80
Irel
an
d549
63
16
16
28
33
35
34
33
33
30
30
29
35
37
38
36
34
32
29
Isra
el177
61
15
22
611
10
12
23
26
21
29
29
Italy
1,1
02
208
948
70
37
39
26
26
31
35
36
54
67
70
88
94
82
94
100
96
Jap
an
23,0
67
2,5
49
11
60
573
995
1,3
11
1,5
86
1,6
34
1,7
06
1,7
57
1,7
82
1,0
47
1,0
99
1,2
68
1,3
08
1,3
22
1,3
49
1,3
88
1,4
17
1,4
54
Mala
ysi
a2,9
07
631
39
19
18
20
28
26
31
39
50
59
117
173
234
379
430
443
419
410
Net
her
lan
ds
322
93
18
88
56
36
44
614
20
30
35
53
56
55
N.
Zea
lan
d349
63
12
513
15
12
13
13
17
16
13
22
24
29
27
29
32
33
33
Norw
ay
308
91
13
46
811
15
15
15
910
17
27
26
32
33
32
44
Per
u38
16
11
25
01
22
33
36
9P
hilip
pin
es515
109
613
20
21
33
37
46
62
70
70
65
72
Pola
nd
262
85
36
12
16
19
24
26
30
31
42
53
Port
ugal
280
57
910
13
12
11
15
16
13
17
17
13
13
15
16
17
16
16
21
20
Sin
gap
ore
1,5
24
374
612
14
12
13
23
25
27
39
46
49
74
91
99
164
207
209
213
201
S.
Afr
ica
1,2
80
209
616
32
66
77
76
76
80
64
54
41
52
80
88
91
93
97
97
94
S.
Kore
a1,2
65
374
12
16
16
26
27
43
59
64
946
75
112
193
190
195
131
53
7S
pain
807
114
317
28
33
36
40
43
43
40
38
47
43
50
52
61
61
59
58
55
Sw
eden
1,3
22
208
13
24
39
42
40
54
58
67
78
72
61
80
94
98
100
99
100
98
105
Sw
itze
rlan
d1,2
92
197
311
20
43
54
54
47
57
62
62
69
97
110
91
95
102
104
107
104
Taiw
an
1,6
98
494
24
32
310
22
52
144
223
278
309
333
313
Th
ailan
d107
50
11
45
34
312
17
20
14
15
8T
urk
ey511
152
13
13
611
75
12
20
25
42
58
71
74
77
95
U.K
.12,7
27
1,9
82
79
358
640
755
766
761
753
753
684
610
635
730
729
717
748
775
738
752
744
U.S
.39,0
19
6,5
15
49
173
750
1,4
41
1,4
55
1,5
42
1,6
67
1,7
52
2,4
06
2,4
83
2,2
93
2,7
18
3,3
08
3,2
44
3,1
56
2,9
28
2,6
74
2,4
76
2,5
04
All
112,1
51
19,1
17
225
974
2,7
31
4,1
06
4,5
38
4,9
51
5,2
01
5,4
66
6,1
82
6,1
57
5,3
25
6,2
90
7,5
33
8,0
16
8,7
43
9,1
73
8,9
83
8,7
41
8,8
16
48
Appendix C: Crisis distribution. This table presents the distribution of crisis acrossyear.
