Paying dividend is one way many companies use to
attract investors to send signals that the companies are performing well and
will perform well in the future.
There are many variables which can affect the
management decision on dividend policy. Thus, there comes a question what are
the determinants of dividend policy. Many researchers draw attention to study
on this issue, including Denis and Osobov (2005) which uses sample of United
States, Canada, United Kingdom, Germany, France and Japan. The paper found that
firm size, profitability, growth opportunities and earned equity mix affect on
dividend policy. As a result, some investors might put these in their concerns
on investment decisions. However, there are not only the above variables, but
also liquidity of stock that is studied on its impact towards dividend policy.
Modigliani and Miller (1967) proposed the Dividend
Irrelevance Theory that under the assumptions of perfect capital market,
rational behavior of the investors and perfect certainty, the company’s
dividend policy is irrelevant to the company’s value. The investors feel
indifferent between dividend yield and capital gain because there is no cost for
information, trading and tax so the investors can synthetically create their
own dividend if the dividend is unpaid. Under the implication of Miller and
Modigliani when the assumption of no cost is not held in actual world, the
company that has low stock liquidity should pay high dividend, and vice versa.
In the real world, there is cost of information and asymmetric information also
exists. When there is low asymmetric information, the stock liquidity is high.
Thus, the company’s management do not have to send any signals through dividend
policy as the market has already been informed well. The result from the study
of Vayanos and Wang (2012) also shows the negative relationship between
asymmetric information and liquidity of the stock.
Many researchers study on this issue of stock liquidity and dividend
from Banerjee et al. (2007) and Griffin (2010) demonstrate the result of
negative relationship between the two variables while result of Jiang et al.
(2017) presents the positive relationship. There is also an evidence from
Thailand which Thanadvanich (2008) studied the listed companies in the Stock
Exchange of Thailand (SET) by using the data during 1998 – 2008.
The research question on this paper is whether there will
be any impact from stock liquidity on dividend payouts in Thailand and Japan.
This paper aims to study the effect of stock liquidity on dividend payouts and
do the comparative studies between the listed companies in Thailand and Japan.
In contrast to Thailand, Japan has developed market with high liquidity. According
to Conroy (2000), with effective Japanese governance and stock exchange
requirement, listed companies in Japan needs to announce their financial
performance and their forecast of future performance. Thus, the asymmetric
information in Japanese market is quite low and the companies do not need
dividend as a signal to investors. When investors can access more information,
they would trade more and the stock liquidity would be high and vice versa. As
mentioned above, dividend is one way for the company to send information to the investors. Thus, the
developing market like Thailand with less stock liquidity would have more
asymmetric information and more dividend payment while the developed market
like Japan with more stock liquidity would have less asymmetric information and
less dividend payment.
The study period is from 2009
– 2016 to avoid the financial crisis period and to extend the study period from
Thanadvanich (2008). The model of Thanadvanich (2008) is applied to the
study with Thailand and Japan dataset.
The contribution from
this paper is to benefits investors who are currently investing or considering
to invest in Thai and Japanese stocks when they make consideration on their
investment. Also, this paper benefits the company’s management when they make
decision on dividend policy.