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Stock price synchronicity and dividend policy: evidence from an emerging market

Author

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  • Omar Farooq
  • Mona A. ElBannan

Abstract

Purpose - The purpose of this paper is to document the impact of stock price synchronicity (SYNCH) on the dividend payout ratio. Design/methodology/approach - The authors use data from India for the period between 2000 and 2012 and the panel regression approach to test their arguments. Findings - This paper documents that the relationship between synchronicity and dividend payout ratio is positive until a turning point is reached. After that point, synchronicity has a negative impact on dividend payout ratio. The authors argue that firms with low synchronicity have higher information asymmetries. As a result, they have an incentive to develop a reputation as better-governed firms by paying high dividends. However, as synchronicity increases further, information asymmetries go down and as a result incentive to use dividend payouts as a mechanism to reduce information asymmetries goes down. Therefore, positive relationship between synchronicity and dividend payout ratios breaks down at high levels of synchronicity. Originality/value - The authors provide evidence regarding the role played by SYNCH – a publicly available measure – on dividend polices adopted by firms within the context of emerging markets.

Suggested Citation

  • Omar Farooq & Mona A. ElBannan, 2019. "Stock price synchronicity and dividend policy: evidence from an emerging market," Accounting Research Journal, Emerald Group Publishing Limited, vol. 32(4), pages 627-641, November.
  • Handle: RePEc:eme:arjpps:arj-02-2018-0036
    DOI: 10.1108/ARJ-02-2018-0036
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    Citations

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    Cited by:

    1. Ahmad Fraz & Arshad Hassan, 2017. "Stock Price Synchronicity and Information Environment," Business & Economic Review, Institute of Management Sciences, Peshawar, Pakistan, vol. 9(4), pages 213-232, December.
    2. R. L. N. Murthy & Hardeep Singh Mundi, 2023. "Stock Return Synchronicity and Profitability: Evidence from India," Paradigm, , vol. 27(1), pages 47-59, June.

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