COVID-19 Wage Subsidy Disclosure and Firms' Contemporaneous Dividend Payouts

Abstract

The Canada emergency wage subsidy (CEWS) was designed as a bailout for employees who had been sidelined from employment during COVID-19. However, the eligibility rules for the wage subsidy suggest that it was not restricted to jobs that would otherwise have been lost. CEWS recipients also did not have to demonstrate the need for cash, so the cash received from the subsidy, based on a decline in monthly revenue, could be used for other purposes if annual revenues did not end up declining. This article examines characteristics of publicly listed firms that voluntarily disclosed the wage subsidy they received and whether such disclosure was associated with increases in contemporaneous dividend payouts. The authors hypothesize and show that firms may have been reluctant to disclose their CEWS if they increased their dividend payouts in the same year. This finding is moderated by firms' cash holdings, reported losses, lower accounting earnings (compared to the prior year), and the extent to which firms managed their accounting earnings. The results hold under endogeneity tests using a two-stage least-square regression.