Economic Policy Uncertainty and Corporate Dividend Payouts

This paper examines the impact of policy uncertainty on corporate dividend payouts in a sample of 20,856 US firms over the period 1991-2020. In line with the agency theory, we find evidence that firms pay higher dividends to mitigate agency problems during periods of high policy uncertainty. The positive impact of policy uncertainty on dividend payouts is more pronounced on share repurchases than on cash dividends. We also find that dividend payouts respond stronger to government expenditure uncertainty than newspaper-based policy-related economic uncertainty, consumer price uncertainty, and tax code expiration uncertainty. The impact of economic policy uncertainty is weakened in more corrupt states, in firms with less agency issues, and when the Republican Party stays in office