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Revisiting the Effect of Dividend Policy on Firm Performance and Value: Empirical Evidence from the Korean Market

Author

Listed:
  • Okechukwu Enyeribe Njoku

    (Department of Business Administration, Kumoh National Institute of Technology, Gumi 39177, Republic of Korea)

  • Younghwan Lee

    (Department of Business Administration, Kumoh National Institute of Technology, Gumi 39177, Republic of Korea)

Abstract

This study investigates the relationship between dividend policy, firm performance, and value within the Korean market, taking into account the unique context of Chaebol ownership structures. Utilizing a robust dataset of 5478 observations from the Korean Composite Stock Price Index, our empirical analysis employs advanced regression models, revealing distinctive effects of various dividend policy measures through the lenses of interest alignment and managerial entrenchment hypotheses. Surprisingly, while cash dividend payments exhibit a robust positive impact on Tobin’s Q and market-to-book ratios, suggesting an overall positive link with market valuations, a closer inspection reveals divergent impacts for Chaebol and non-Chaebol firms. In Chaebol entities, dividend policy proxies consistently demonstrate positive effects on performance metrics, aligning with the interest alignment hypothesis and highlighting strategic signaling efforts. Conversely, non-Chaebol firms exhibit intriguingly negative impacts, supporting the managerial entrenchment hypothesis and implying potential challenges to market value. Firms should prioritize transparent communication on dividend policies for improved investor decision making and enhanced corporate governance in the dynamic Korean market.

Suggested Citation

  • Okechukwu Enyeribe Njoku & Younghwan Lee, 2024. "Revisiting the Effect of Dividend Policy on Firm Performance and Value: Empirical Evidence from the Korean Market," IJFS, MDPI, vol. 12(1), pages 1-36, February.
    • Handle: RePEc:gam:jijfss:v:12:y:2024:i:1:p:22-:d:1348038
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    References listed on IDEAS

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    Cited by:

    1. Okechukwu Enyeribe Njoku & Younghwan Lee, 2025. "Debt Capital and Dividend Policy as Complementary Indicators of Firm Valuation," IJFS, MDPI, vol. 13(1), pages 1-26, February.
    2. Richard Arhinful & Leviticus Mensah & Halkawt Ismail Mohammed Amin & Hayford Asare Obeng, 2024. "The influence of cost of debt, cost of equity and weighted average cost of capital on dividend policy decision: evidence from non-financial companies listed on the Frankfurt Stock Exchange," Future Business Journal, Springer, vol. 10(1), pages 1-24, December.
    3. Okechukwu Enyeribe Njoku & Younghwan Lee, 2025. "Agency Costs, Ownership Structure, and Cost Stickiness: Implications for Sustainable Corporate Governance," Sustainability, MDPI, vol. 17(11), pages 1-21, June.
    4. Celina Martinez Georges & Jasper Grashuis & Silvia Morales de Queiroz Caleman & Guilherme Fowler de Avila Monteiro, 2025. "Communication, principal–agent alignment and performance: Evidence from Brazilian agricultural co‐operatives," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 96(2), pages 341-361, June.

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