Information Asymmetry and Dividend Policy around the Sarbanes-Oxley Act

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dc.contributor.author Harakeh, Mostafa
dc.contributor.author Matar, Ghida
dc.contributor.author Sayour, Nagham
dc.date.accessioned 2020-01-13T13:59:00Z
dc.date.available 2020-01-13T13:59:00Z
dc.date.copyright 2019 en_US
dc.identifier.issn 0144-3585 en_US
dc.identifier.uri http://hdl.handle.net/10725/11716 en_US
dc.description.abstract The literature of financial economics documents a causal relationship between the level of information asymmetry in the firm and its dividend policy. The agency theory and the pecking order theory show that the problem of cash over-retention inside the firm exacerbates in the presence of high asymmetric information. At the same time, when managers increase dividend payments, the level of asymmetric information decreases. This reverse causality between information asymmetry and dividend policy has been a challenge for financial economists. To overcome this econometric issue, we employ the enactment of the Sarbanes-Oxley Act (SOX) in the US in 2002 as a source of an exogenous variation in the level of information asymmetry to study the potential effect that this variation might have on the dividend policy. In doing so, we utilize a difference-in-differences research design, in which the treatment group is US publicly traded firms that were exposed to the policy and the control group is publicly traded companies in the UK where SOX was not enacted. Both countries have similar institutional settings and enforcement of laws, which makes them comparable in our research context. Our findings show that, compared to UK companies, US firms increase their dividend payments following a reduction in asymmetric information as a result of the SOX enactment. Our study contributes to the literature of financial economics by showing that policy makers can mitigate agency conflicts and protect shareholders by improving the corporate information environment and reducing asymmetric information. en_US
dc.language.iso en en_US
dc.title Information Asymmetry and Dividend Policy around the Sarbanes-Oxley Act en_US
dc.type Article en_US
dc.description.version Published en_US
dc.author.school SOB en_US
dc.author.idnumber 200701866 en_US
dc.author.idnumber 201604580 en_US
dc.author.department Finance And Accounting en_US
dc.description.embargo N/A en_US
dc.relation.journal Journal of Economic Studies en_US
dc.keywords Information Shocks en_US
dc.keywords Information Asymmetry en_US
dc.keywords Dividend Policy en_US
dc.keywords Corporate Financial Decisions en_US
dc.keywords Sarbanes-Oxley Act en_US
dc.identifier.ctation Harakeh, M., Matar, G., & Sayour, N. (2019). Information Asymmetry and Dividend Policy Around the Sarbanes-Oxley Act. Journal of Economic Studies, Forthcoming. en_US
dc.author.email mostafa.harakeh@lau.edu.lb en_US
dc.author.email nagham.sayour@lau.edu.lb en_US
dc.identifier.tou http://libraries.lau.edu.lb/research/laur/terms-of-use/articles.php en_US
dc.identifier.url https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3504200 en_US
dc.orcid.id https://orcid.org/0000-0003-3294-4391 en_US
dc.orcid.id https://orcid.org/0000-0002-9352-1782 en_US
dc.author.affiliation Lebanese American University en_US

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