Does China's economic policy uncertainty affect dividend policy of Hong Kong based companies?
Abstract
Economic policy uncertainty has been an intensively discussed topic since the introduction of Baker et al's (2016) EPU index. However, the spillover effect aspect of EPU is just starting to receive attention. This paper follows the new research trend to examine the specific impact of China EPU on Hong Kong based companies, taking advantage of the close political and economic relationship between Hong Kong and China. The results show that, in the presence of China EPU, Hong Kong based firms pay fewer dividends. This finding is contrary to that of Attig et al. (2018), which state that dividends and EPU have a positive relationship. This paper also provides the precautious motives channel to explain the negative relationship between China EPU and Hong Kong-based companies’ dividends. This paper is the first to examine the relationship between EPU and dividends with regard to economic policy uncertainty spillover effects.