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Does Information Asymmetry Affect Dividend Policy? Analysis Using Market Microstructure Variables

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  • Seonhyeon Kim

    (Business School, Korea University, Seoul 02841, Korea)

  • Jin-young Jung

    (College of Business Administration, Inha University, Incheon 22212, Korea)

  • Sung-woo Cho

    (College of Computing, Sungkyunkwan University, Suwon 16419, Korea)

Abstract

This study analyzes the relationship between information asymmetry and dividend policy in an emerging market, Korea. We adopt several proxies for information asymmetry, such as the Glosten–Harris and Hasbrouk–Foster–Viswanathan models, drawn from market microstructure literature. This study finds a negative relationship between information asymmetry and dividend yields, which appears to be particularly strong when firms have difficulty raising external capital because they have high systematic risk, financial constraints, or low stock liquidity. This result, based on an analysis using market microstructure variables that provide direct measures of information asymmetry, suggests that the pecking order theory holds for the Korean stock market and that information asymmetry is a strong determinant of dividend policy decisions in an emerging market.

Suggested Citation

  • Seonhyeon Kim & Jin-young Jung & Sung-woo Cho, 2021. "Does Information Asymmetry Affect Dividend Policy? Analysis Using Market Microstructure Variables," Sustainability, MDPI, vol. 13(7), pages 1-19, March.
    • Handle: RePEc:gam:jsusta:v:13:y:2021:i:7:p:3627-:d:523554
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