The quality of political signals and corporate payouts

ABSTRACT

This study contributes to the broader field of financial economics by highlighting the important role of the quality of political signals in shaping corporate financial strategies. Using a sample of 17,635 US firms over the period 2001–2021, this paper examines how corporate payouts respond to low-quality political signals. We find evidence that such signals trigger corporate precautionary behaviour, leading to more conservative payout policies. Given the stickiness of dividends, we find that firms prefer cutting share repurchases over cash dividends.

KEYWORDS:

• Political signal quality
• corporate payouts
• share buyback
• precautionary motive

JEL CLASSIFICATION:

• G35
• L15
• O16

Acknowledgements

The authors would like to thank the three anonymous reviewers for their very insightful comments and suggestions.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

¹ The coefficients between explanatory variables are generally low (below |0.4|), which indicate that our main findings do not suffer from serious multicollinearity problems. The results are not reported here but are available upon request.

Additional information

Funding

The authors are supported by the University of Finance-Marketing, Viet Nam.