Information Shock and Dividend Policy in Family-controlled Firms: Evidence from Korea

Abstract

ABSTRACT This paper aims to investigate whether the International Financial Reporting Standards (IFRS) used as an exogenous information shock relates to a firm’s dividend policy as a result of the improved information environment in the emerging Korean market. More specifically, utilizing a large sample of KOSPI-listed firms over the period 2000–2018, we examine whether the propensity and the level of dividend payments around the Korean IFRS (K-IFRS) adoption have changed and further how the family involvement affects such association. Our results show that firms tend to decrease the propensity and the level of dividend payments after the mandatory K-IFRS adoption. Moreover, we find that family-controlled firms have a significantly positive association with dividend payouts after the K-IFRS adoption. Our evidence can be shared with other emerging markets, where prevailing family firms have the characteristics of concentrated ownership and strong control power in an immature market with weak legal protection for outside shareholders.