The financial crisis and dividend policy: evidence from an emerging market

Prior research shows that firms restrict their dividend policy due to precautionary motives when they face high uncertainty and external financial constraint during a financial crisis. However, the effect of a financial crisis on dividend policy may also be explained by the bird in hand mechanism. This paper investigates how the global financial crisis affects corporate dividend policy in the Vietnamese stock market. We choose this emerging market since its weak corporate governance environment strengthens shareholders’ bird in hand motive. With a sample of 5,489 observations between 2007 and 2017, we find that both the probability of dividend payment and dividend payout ratio are higher during the crisis period of 2008-2009. The effect of the financial crisis is weaker in firms with high leverage and large size. Moreover, our findings show that the likelihood of dividend omission is lower while the probability of dividend initiation and dividend increase is higher during the financial crisis.