RESEARCH ARTICLE
Do dividends mitigate bad news hoarding, overinvestments, and stock price crash risk?
Jeong-Bon Kim,
Le Luo,
Hong Xie,
Corresponding Author
Jeong-Bon Kim
Beedie School of Business, Simon Fraser University, Burnaby, British Columbia, Canada
Correspondence
Jeong-Bon Kim, Beedie School of Business, Simon Fraser University, Burnaby, BC V5A 1S6, Canada.
Email: [email protected]
Search for more papers by this authorLe Luo
School of Accountancy, Central University of Finance and Economics, Beijing, China
Search for more papers by this authorHong Xie
Von Allmen School of Accountancy, University of Kentucky, Lexington, Kentucky, USA
Search for more papers by this authorJeong-Bon Kim,
Le Luo,
Hong Xie,
Corresponding Author
Jeong-Bon Kim
Beedie School of Business, Simon Fraser University, Burnaby, British Columbia, Canada
Correspondence
Jeong-Bon Kim, Beedie School of Business, Simon Fraser University, Burnaby, BC V5A 1S6, Canada.
Email: [email protected]
Search for more papers by this authorLe Luo
School of Accountancy, Central University of Finance and Economics, Beijing, China
Search for more papers by this authorHong Xie
Von Allmen School of Accountancy, University of Kentucky, Lexington, Kentucky, USA
Search for more papers by this authorAbstract
Using a large sample of US firms over the period of 1991–2015, we examine the economic benefits of paying dividends. We find that dividend payments mitigate stock price crash risk. We show that dividend payments reduce bad news hoarding (overinvestments) while bad news hoarding (overinvestments) is (are) positively associated with stock price crash risk, suggesting that curbing bad news hoarding and curtailing overinvestments are two channels through which dividends mitigate crash risk. Finally, our main results are robust to a battery of sensitivity checks including controls for potential endogeneity concerns.
Open Research
DATA AVAILABILITY STATEMENT
Data used in this study are available from public sources identified in the text.
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