DIVIDEND POLICY AND THE BID‐ASK SPREAD: AN EMPIRICAL ANALYSIS

John S. Howe, Ji-chai Lin

Research output: Journal article publicationJournal articleAcademic researchpeer-review

18 Citations (Scopus)

Abstract

Extant theories of the bid‐ask spread posit a positive relationship between the level of information asymmetry and the magnitude of the spread. As suggested by dividend signaling and agency theories, the payment of dividends conveys information to the market, thereby reducing asymmetry. Thus, dividend policy may influence the bid‐ask spread. Based on this reasoning, we explore the empirical proposition that an inverse relation between dividend yield and bid‐ask spread exists, ceteris paribus. Evidence is consistent with this hypothesis.
Original languageEnglish
Pages (from-to)1-10
Number of pages10
JournalJournal of Financial Research
Volume15
Issue number1
DOIs
Publication statusPublished - 1 Jan 1992
Externally publishedYes

ASJC Scopus subject areas

  • Accounting
  • Finance

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