Article1992

DIVIDEND POLICY AND THE BID‐ASK SPREAD: AN EMPIRICAL ANALYSIS

43 citations0/0 files storedThe Journal of Financial Research

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Corporate Finance and Governance Financial Markets and Investment Strategies Financial Analysis and Corporate Governance

Abstract

Abstract Extant theories of the bid‐ask spread posit a positive relationship between the level of information asymmetry and the magnitude of the spread. As suggested by dividend signaling and agency theories, the payment of dividends conveys information to the market, thereby reducing asymmetry. Thus, dividend policy may influence the bid‐ask spread. Based on this reasoning, we explore the empirical proposition that an inverse relation between dividend yield and bid‐ask spread exists, ceteris paribus. Evidence is consistent with this hypothesis.

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1985Bid, ask and transaction prices in a specialist market with heterogeneously informed traders 1986Asset pricing and the bid-ask spread 1985Dividend Policy under Asymmetric Information 1984Two Agency-Cost Explanations of Dividends 1982GROWTH, BETA AND AGENCY COSTS AS DETERMINANTS OF DIVIDEND PAYOUT RATIOS 1988Estimating the components of the bid/ask spread 1989Inferring the Components of the Bid-Ask Spread: Theory and Empirical Tests 1971The Only Game in Town

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