Moderating Effects of Governance Quality on the Relationship between Stock Liquidity and Dividend in Emerging Market Countries

Mohd Ashari Bakri, Bany Ariffin Amin Noordin, Matemilola Bolaji Tunde, Lau Wei Theng

Abstract


ABSTRACT

The paper examines the moderating effects of governance quality on stock liquidity and dividend relationship. Past empirical studies on the link between stock liquidity and dividend suggest there are mixed findings between them. A negative relationship suggests stock liquidity and dividend are a substitute which aligns with the liquidity hypothesis. On the other hand, a positive relationship between stock liquidity and dividend suggests stock liquidity informational effect increases a firm’s incentive to pay dividends. Moderating factors could have contributed to such mixed findings. Therefore, this study suggested governance quality could be one of the moderating factors that contributed to the inconsistency findings. Governance quality has been known to mitigate information asymmetry that made firm pay more dividends by formulating and promoting sound policies. Thus, this study aimed to ascertain the moderating factors of governance quality on the relationship between stock liquidity and dividend. By using a sample from 22 emerging market countries, we adopted logistic panel random effect to estimate the model. Adopting the governance quality measurements developed by the World Bank, our empirical results found that political stability, government effectiveness, regulation quality and control of corruption are among the factors that moderated the relationship between stock liquidity and dividend.

Keywords: Stock Liquidity; dividend; governance quality; information asymmetry

ABSTRAK

Kajian ini bertujuan untuk menyiasat kesan penyederhanaan kualiti tadbir urus terhadap hubungan antara kecairan saham dan dividen. Kajian lepas terhadap hubugan antara kecairan saham dan dividen menunjukkan hubungan yang tidak konsisten. Hubungan negatif mencadangkan bahawa kecairan saham dan dividen berperanan sebagai pengganti. Manakala, hubungan positif mencadangkan bahawa kesan maklumat kecairan saham meningkatkan insentif firma untuk membayar dividen. Faktor penyederhanaan mungkin memainkan peranan bagi penemuan yang berbeza. Oleh itu, kajian ini mencadangkan kualiti tadbir urus merupakan salah satu faktor yang mendorong kepada penemuan yang tidak konsisten pada kajian lepas. Kualiti tadbir urus telah diketahui mengurangkan maklumat asimetri yang membuat firma membayar lebih dividen dengan merumuskan dan mengalakkan polisi yang lebih baik. Dengan mengunakan sampel dari dua puluh dua negara pesat membangun, kami mengunakan regresi logistik panel dengan kesan rawak untuk menganggarkan model. Mengunakan kualiti tadbir urus yang telah dibangunkan oleh bank dunia, kajian ini menemui kestabilan politik, kecekapan kerajaan, kualiti peraturan, dan kawalan rasuah merupakan antara faktor-faktor yang menyederhanakan hubungan antara kecairan saham dan dividen.

Kata kunci: Kecairan Saham; dividen, kualiti tadbir urus; maklumat asimetri


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