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Review of Quantitative Finance and Accounting

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16-11-2018 | Original Research

The US financial crisis and corporate dividend reactions: for better or for worse?

Authors: Jitka Hilliard, John S. Jahera Jr., Haoran Zhang

Published in: Review of Quantitative Finance and Accounting | Issue 4/2019

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Abstract

We examine how changes in dividend policy in 2008 as the financial crisis was unfolding influenced firm risk-adjusted returns in the following years. Our sample consists of NYSE- and NASDAQ-traded firms that paid dividends in 2007. We divide these firms into four groups based on their dividend policy in 2008. We find that firms that decreased or eliminated dividends in 2008 had higher risk-adjusted returns in 2009. The higher risk-adjusted return is consistent with the better corporate governance in 2007. This finding suggests that the firms that quickly reacted to the deteriorating economic conditions by cutting dividends and preserving cash were able to better weather the coming financial crisis.

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This sample is smaller than the overall number of dividend paying firms in Table 1. It is because some firms were lost due to missing values in Compustat and merging CRSP and Compustat databases.

We pick 2009 as evaluating period because the dividend cut should show immediate effect on the performance. In an unreported result, we extend the evaluating period to 2009–2015. The main results hold and these results are available upon request.

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Title: The US financial crisis and corporate dividend reactions: for better or for worse?
Authors: Jitka Hilliard
John S. Jahera Jr.
Haoran Zhang
Publication date: 16-11-2018
Publisher: Springer US
Published in: Review of Quantitative Finance and Accounting / Issue 4/2019
Print ISSN: 0924-865X
Electronic ISSN: 1573-7179
DOI: https://doi.org/10.1007/s11156-018-0778-6

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