Political Uncertainty and Dividend Policy : Evidence from International Political Crises

We examine the impact of political uncertainty on firms' payout policy. Using a large international sample across 35 countries over the period from year 1990 to 2008, 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. Nevertheless, the impact of political shocks seems to be attenuated by stable political systems. In addition to identifying this precautionary incentive, we also document 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 theory of dividends