Financial crisis and dividend policy: evidence from an emerging market

Quoc Trung Tran1,, Xuan Minh Nguyen1, Thi Huong Dao2
1 Foreign Trade University, Ho Chi Minh City, Vietnam
2 Thuyloi University, Ha Noi, Vietnam

Main Article Content


Prior research shows that firms restrict their dividend policy due to precautionary motives when they face high uncertainty and external financial constraint during a financial crisis. However, the effect of a financial crisis on dividend policy may also be explained by the bird in hand mechanism. This paper investigates how the global financial crisis affects corporate dividend policy in the Vietnamese stock market. This market is chosen because of its weak corporate governance environment strengthens shareholders’ bird in hand motive. With a sample of 5,489 observations between 2007 and 2017, we find that both the probability of dividend payment and dividend payout ratio are higher during the crisis period of 2008-2009. The effect of the financial crisis is weaker in firms with high leverage and large size. Moreover, our findings show that the likelihood of dividend omission is lower while the probability of dividend initiation and dividend increase is higher during the financial crisis.

Article Details


Almeida, H., Campello, M. and Weisbach, M.S. (2004), “The cash flow sensitivity of cash”, The Journal of Finance, Vol. 59 No. 4, pp. 1777 - 1804.
Arslan, O., Florackis, C. and Ozkan, A. (2006), “The role of cash holdings in reducing investment–cash flow sensitivity: evidence from a financial crisis period in an emerging market”, Emerging Markets Review, Vol. 7 No. 4, pp. 320 - 338.
Baker, H. K. (2009), Dividends and dividend policy, Robert W Kolb series in finance Hoboken, New Jerseys: John Wiley.
Brockman, P. and Unlu, E. (2009), “Dividend policy, creditor rights, and the agency costs of debt”, Journal of Financial Economics, Vol. 92 No. 2, pp. 276 - 299.
Campello, M., Graham, J.R. and Harvey, C.R. (2010), “The real effects of financial constraints: Evidence from a financial crisis”, Journal of Financial Economics, Vol. 97 No. 3, pp. 470 - 487.
DeAngelo, H. and DeAngelo, L. (2006), “The irrelevance of the MM dividend irrelevance theorem”, Journal of Financial Economics, Vol. 79 No. 2, pp. 293 - 315.
DeAngelo, H., DeAngelo, L. and Stulz, R.M. (2006), “Dividend policy and the earned/contributed capital mix: a test of the life-cycle theory”, Journal of Financial Economics, Vol. 81 No. 2, pp. 227 - 254.
Farrukh, K., Irshad, S., Shams, K.M., Ishaque, S. and Ansari, N.Y. (2017), “Impact of dividend policy on shareholders wealth and firm performance in Pakistan”, Cogent Business & Management, Vol. 4 No. 1, 1408208.
Flannery, M.J., Kwan, S.H. and Nimalendran, M. (2013), “The 2007-2009 financial crisis and bank opaqueness”, Journal of Financial Intermediation, Vol. 22 No. 1, pp. 55 - 84.
Gordon, M. (1959), “Dividends, earnings and stock prices”, Review of Economics and Statistics, Vol. 41 No. 2, pp. 99 - 105.
Grullon, G., Michaely, R. and Swaminathan, B. (2002), “Are dividend changes a sign of firm maturity?”, Journal of Business, Vol. 75 No. 3, pp. 387 - 424.
Hai, B.X. and Nunoi, C. (2008), “Corporate governance in Vietnam: a system in transition”, Hitotsubashi Journal of Commerce and Management, Vol. 42 No. 1, pp. 45 - 65.
Hauser, R. (2013), “‘Did dividend policy change during the financial crisis?”, Managerial Finance, Vol. 39 No. 6, pp. 584 - 606.
Horioka, C.Y. and Terada‐Hagiwara, A. (2014), “Corporate cash holding in Asia’, Asian Economic Journal, Vol. 28 No. 4, pp. 323 - 345.
Jensen, M.C. (1986), “Agency costs of free cash flow, corporate finance, and takeovers”, American Economic Review, Vol. 76 No. 2, pp. 323 - 329.
Jensen, M.C. and Meckling, W.H. (1976), “Theory of the firm: managerial behavior, agency costs and ownership structure”, Journal of Financial Economics, Vol. 3 No. 4, pp. 305 - 360.
Kumaraswamy, S., Ebrahim, R.H. and Mohammad, W.M.W. (2019), “Dividend policy and stock price volatility in Indian capital market”, Entrepreneurship and Sustainability Issues, Vol. 7 No. 2, pp. 862 - 874.
Lian, Y., Sepehri, M. and Foley, M. (2011), “Corporate cash holdings and financial crisis: an empirical study of Chinese companies”, Eurasian Business Review, Vol. 1 No. 2, pp. 112 - 124.
McGee, R.W. (2009), “An overview of corporate governance practices in Vietnam”, in McGee, R.W.(Ed.), Corporate Governance in Developing Economies: Country Studies of Africa, Asia, and Latin America, Boston, MA: Springer US, pp. 235 - 238.
Miller, M.H. and Modigliani, F. (1961), “Dividend policy, growth, and the valuation of shares”, The Journal of Business, Vol. 34 No. 4, pp. 411 - 433.
Minh, T.L. and Walker, G. (2008), “Corporate governance of listed companies in Vietnam”, Bond Law Review, Vol. 20 No. 2.
Moore, A. (2017), “Measuring economic uncertainty and its effects”, Economic Record, Vol. 93 No. 303, pp. 550 - 575.
Myers, S.C. and Majluf, N.S. (1984), “Stock issues and investment policy when firms have information that investors do not have”, NBER Working Papers 0884, National Bureau of Economic Research, Inc.
Ngoboka, J.P.H. and Singirankabo, E. (2021), “Dividend policy and firm value: a study of companies quoted at the Rwanda Stock Exchange”, Journal of Research in Business and Management, Vol. 9 No. 2, pp. 68 - 76.
Nguyen, D.C. (2008), “Corporate governance in Vietnam: regulations, practices and problems”, Central Institute for Economic Management, pp. 1 - 69.
Pathan, S., Faff, R., Mendez, C.F. and Masters, N. (2016), “Financial constraints and dividend policy”, Australian Journal of Management, Vol. 41 No. 3, pp. 484 - 507.
Pham, D.A. and Hoang, T.P.A. (2020), “Does corporate governance structure matter for firm financial performance? A system GMM panel analysis for Vietnam”, Journal of International Economics and Management, Vol. 20 No. 1, pp. 1 - 17.
Qamar, R. (2019), The impact of dividend policy on stock price volatility based on “bird-in-hand” theory: evidence from Malaysia, Universiti Utara Malaysia.
Roubini, N. (2007), “Current market turmoil: non-priceable Knightian “uncertainty” rather than priceable market risk”, RGE Monitor, pp. 15 - 17.
Shao, L., Kwok, C.C.Y. and Guedhami, O. (2013), “Dividend policy: balancing shareholders’ and creditors’ interests”, Journal of Financial Research, Vol. 36 No. 1, pp. 43 - 66.
Shin, M., Zhang, B., Zhong, M. and Lee, D.J. (2018), “Measuring international uncertainty: the case of Korea”, Economics Letters, Vol. 162, pp. 22 - 26.
Tangrukwaraskul, E.-a. and Kulchanarat, K. (2019), “Digitalization and firm performance in Thailand: evidence from firm dividend payout policy”, in Proceedings of International Academic Conferences 9811649, International Institute of Social and Economic Sciences.
Tran, H.C. and Phan, T.T.D. (2021), “Determinants of corporate cash holdings: evidence from Vietnamese materials firms”, Journal of International Economics and Management, Vol. 21 No. 3, pp. 1 - 21.
Tran, Q.T., Alphonse, P. and Nguyen, X.M. (2017), “Dividend policy: shareholder rights and creditor rights under the impact of the global financial crisis”, Economic Modelling, Vol. 64, pp. 502 - 512.
Williams, H.T., Duro, A.T. and Williams, H.T. (2017) “An empirical investigation of the impact of dividend policy on performance of quoted companies in a developing economy”, Singaporean Journal of Business Economics, and Management Studies, Vol. 5 No. 12, pp. 1 - 7.
Wooldridge, J.M. (2010), Econometric analysis of cross section and panel data, 10th ed., Cambridge: MIT Press.