Investigating the Relationship between Asymmetric Information and Dividend Policy in Iranian Industrial Companies

Abstract

This study aims to examine the relationship between asymmetric information and dividend policy. Today, researchers and economists have divided the capital market into two distinct forms: The first one is the Perfect Competition Market. Since in this form of market, the level of knowledge is equal among the market factors, there is no possibility to benefit from obtaining hidden information. The second type of market is the Imperfect Competition Market in which the market information is not fully available to everyone rather it can be bought and sold like a commodity. Thus, it gives the chance to those who have more knowledge to gain more profits. Thus, considering the lack of an efficient performance of the capital market, the current study intends to investigate whether there is a significant relationship between asymmetric information and dividend policy. To do so, among the various components of information asymmetry index, asymmetric information is considered as the difference between forecasted earnings and dividends paid to shareholders in the present study. Among the most influential cases affecting stock dividend policy, the index proposed by Fama and French (2001) is used in this study. Basically, the index includes cases such as the firm size, firm risk, profitability and the percentage of dividend and the ratio of market value to book value.