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High-Speed Rail Launch: A Natural Experiment on Geographic Location and Cash Dividends

Author

Listed:
  • Zhao, Gang
  • Liang, Shangkun
  • Zhang, Jindan
  • Zhang, Joseph H.

Abstract

This paper examines the impact of geographic location and high-speed rail (HSR) launch on the capital market efficiency in terms of cash dividend payouts. A firm's geographic location reflects the degree of information asymmetry, and HSR launch improves information dissemination. Using a sample of China's public firms, we find that the launch of HSR significantly reduces the cash dividends in firms located in neighboring cities along the HSR line. This effect is more pronounced in firms experiencing agency issues, especially those operating in complex businesses, audited by small auditors, state-owned enterprises, and those characterized by greater free cash flow and fewer investment prospects. Further analysis shows that the suppression of cash dividends accompanied by the launch of HSR only exists before implementing the mandatory dividend policy. The results indicate that the launch of HSR alleviates information asymmetry between external investors and managers, reduces agency costs, and improves stock market efficiency.

Suggested Citation

  • Zhao, Gang & Liang, Shangkun & Zhang, Jindan & Zhang, Joseph H., 2024. "High-Speed Rail Launch: A Natural Experiment on Geographic Location and Cash Dividends," Pacific-Basin Finance Journal, Elsevier, vol. 83(C).
    • Handle: RePEc:eee:pacfin:v:83:y:2024:i:c:s0927538x23002858
    DOI: 10.1016/j.pacfin.2023.102214
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    More about this item

    Keywords

    Geographic location; High-speed rail; Cash dividends; Information asymmetry; Agency cost;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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