Political institutions, stock market liquidity and firm dividend policy: Some international evidence

Karen M.Y. Lai, Walid Saffar, Xindong (Kevin) Zhu, Yiye Liu

Research output: Journal article publicationJournal articleAcademic researchpeer-review

3 Citations (Scopus)


In this cross-country study, we draw on the dividend liquidity hypothesis and the political economy literature to examine whether political institutions affect the relationship between stock market liquidity and a firm's dividend policy. In countries with weak political institutions, we expect that investors are less able to demand higher dividends for stocks with low liquidity. Using a sample of 52 countries, we show that the negative association between stock market liquidity and dividends is more pronounced in countries with sound political institutions, consistent with the “outcome” model of dividends. These results are stronger in countries with better legal institutions and weaker for firms with financial constraints.

Original languageEnglish
Article number100180
JournalJournal of Contemporary Accounting and Economics
Issue number1
Publication statusPublished - Apr 2020


  • Dividend policy
  • Legal institutions
  • Political institutions
  • Stock market liquidity

ASJC Scopus subject areas

  • Accounting

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