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Peer effect on dividends and return comovement

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  • Seo, Sung Won
  • Lee, Jong Hwa

Abstract

This study investigates the stock return comovement of dividend-paying and nonpaying firms induced by peer effects of dividend payout policies. We consider peer effect as a channel that links a firm’s dividend initiation to firms that did not change dividend status. Dividend initiation attracts investors to the industry and puts pressure on peer firms to change their dividend policy, which leads to return comovement between nonpaying peers and paying firms. Using matched peer firms that resemble dividend initiators, we find that return comovement can be induced through an indirect channel without changes in style or category. Excess return comovement for firms without dividends is observed with dividend payers of the market and their industries through peer influence.

Suggested Citation

  • Seo, Sung Won & Lee, Jong Hwa, 2023. "Peer effect on dividends and return comovement," The North American Journal of Economics and Finance, Elsevier, vol. 67(C).
    • Handle: RePEc:eee:ecofin:v:67:y:2023:i:c:s1062940823000657
    DOI: 10.1016/j.najef.2023.101942
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    More about this item

    Keywords

    Peer effect; Dividend policy; Initiation; Return comovement; Category investing;
    All these keywords.

    JEL classification:

    • C31 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models; Quantile Regressions; Social Interaction Models
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy

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