Economic Policy Uncertainty And Corporate Dividend Policy: Evidence From South Korea

Abstract

Corporate dividend policy is a financial aspect of firms that is quite sensitive to unexpected changes and fluctuations within the specific business environment and the whole economy. As such, determining the appropriate dividend policy may help firms to mitigate problems arising and uphold performance during volatile conditions. Using a Korean sample of 4,968 year-firm observations covering the period 1994-2019, this study aims at examining the linkage between economic policy uncertainty (EPU) and corporate dividend policy and further explores the possible transmission channels of this relationship. The empirical findings demonstrate a positive influence of EPU on corporate dividend policy and the existence of moderating effects of four channels. Foreign institutional ownership and market competition have been demonstrated to exacerbate the effect, while the presence of investment irreversibility and external finance dependence has been found to inhibit this positive relationship. Collectively, this novel evidence broadens the existing understanding of dividend payout policy and its positive function in mitigating agency problems during high-EPU periods.