The purpose of this paper is to document the impact of stock price synchronicity (SYNCH) on the dividend payout ratio.
The authors use data from India for the period between 2000 and 2012 and the panel regression approach to test their arguments.
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.
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.
