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Political freedom and corporate payouts

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  • Guedhami, Omrane
  • Kwok, Chuck C.Y.
  • Shao, Liang

Abstract

We study the effect of a country's political freedom status on corporate payouts around the world. In both OLS and two-stage regressions, we find that firms in less free countries pay out more cash, suggesting that low political freedom is associated with a less friendly investment environment. Consistent with this view, we further find that firms reduce payouts when a country's political freedom status improves, while they tend to pay out past excess cash and cut future investment in the face of a deterioration in political freedom. In additional analysis, we also find that firms in less free countries do not pay out cash mainly to ease agency concerns: cash payouts in these countries are more volatile and hence less valuable.

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  • Guedhami, Omrane & Kwok, Chuck C.Y. & Shao, Liang, 2017. "Political freedom and corporate payouts," Journal of Corporate Finance, Elsevier, vol. 43(C), pages 514-529.
    • Handle: RePEc:eee:corfin:v:43:y:2017:i:c:p:514-529
    DOI: 10.1016/j.jcorpfin.2017.02.002
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    More about this item

    Keywords

    Political institutions; Freedom; Payout policy;
    All these keywords.

    JEL classification:

    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy
    • P16 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Capitalist Institutions; Welfare State

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