Economic policy uncertainty and cash dividend policy: evidence from China

This paper investigates the impact of economic policy uncertainty (EPU) on the dividend policy of listed companies, alongside its underlying mechanisms. Based on a panel data compilation from 4421 Chinese listed companies spanning 2007 to 2021, the research demonstrates that EPU significantly increases the cash dividends of listed companies. Our findings resolve endogeneity issues and are robust to different variable definitions. The influence is more significant among smaller, non-state-owned companies, as well as those with lower equity concentration and lower financial constraints. We further find that EPU heightens investors' demand for dividends, increases agency costs, and reduces business growth opportunities to improve companies' dividend distribution tendency. Moreover, we find that increasing dividend payout when EPU increases is aligned with shareholders' wealth maximization objective.

Chuanzhen Li, Liang Zhao, Yiwen Zhang