Managerial Ability and Dividend Payout Policy during Global Financial Crisis: Evidence from Emerging Market of China

Abstract

In this paper, we examine the impact of pre-crisis managerial ability (MA) on firms' dividend policy during period of global financial crisis. By using data for 1640 non-financial listed firms of China, we document a strong positive relation between pre-crisis MA, dividend initiation decision (Di), and a negative relation between pre-crisis MA and dividend termination decision (Dt), that remains robust in the presence of corporate governance and CEO level control variables. We also analyze the impact of MA on dividend payout decisions (Dt, Di) by varying the construction of sample firms in two different ways, and find that relationship between MA and dividend payout decisions (Dt, Di) are 1) more prevalent for financially unconstrained firms and firms with strong balance sheet, 2) more pronounced under high marketized groups as compare to low marketized groups. Further, study confirms that di(dt) decision during crisis period increases(decreases) firm value. This study further employs propensity score matching (PSM) method to control possible endogeneity, and produce similar results.