DIVIDEND POLICY. Nia Christina 16598. Article from CRP. Title: The Effect of Asymmetric Information on Dividend Policy Theory used by the article / research: Pecking order theory , in the presence of asymmetric information, a firm may underinvest in certain state of nature.
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Method of analysis: Censored regression or Tobit model, apply both dividend-paying and non-dividend paying firms.
Agency cost-transaction cost trade-off model, the payment of dividends forces the firm more frequently to the external capital markets and the subsequent external security serves as a bonding or monitoring function thus reducing agency cost.
Firms with stronger internal corporate governance mechanisms also “use dividend payouts more intensely
Method of analysis: Utilizing prior testing methodology, allows us to see if the new Corporate Governance Quotient (CGQ) plays a role as a substitution mechanism for dividend payouts.