Working Paper: CEPR ID: DP14921
Authors: Davide Pettenuzzo; Riccardo Sabbatucci; Allan Timmermann
Abstract: We examine the effect of the Covid-19 pandemic on firms’ decisions to suspenddividends and estimate a model that quantifies the effect of suspensions on growthin aggregate dividends. Our estimates show that dividend suspensions had a largeimpact on expected future dividend growth and also helped predict the sharpdeclines observed in broader measures of economic activity. Firms with highleverage and low profitability were more likely to have suspended their dividendsduring the pandemic as were firms with the largest negative stock returns prior tothe dividend announcement date. While firms that suspended their dividendsexperienced large negative abnormal returns, firms that substantially reduced butdid not entirely eliminate dividends saw large positive abnormal returns around theannouncement date.
Keywords: corona virus; covid19; high-frequency; cash flow news; dividend suspensions; dividend growth dynamics; event study methodology
JEL Codes: No JEL codes provided
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| high leverage (G19) | dividend suspension (G35) |
| low profitability (L19) | dividend suspension (G35) |
| dividend suspension (G35) | expected future dividend growth (G35) |
| dividend suspension (G35) | negative abnormal returns (G12) |
| reduced dividends (not eliminated) (G35) | positive abnormal returns (G12) |
| financial flexibility (G32) | dividend suspension (G35) |