Stock Market Liquidity and Company Decisions to Pay Dividends: Evidence from the Warsaw Stock Exchange

Abstract

Studies on the effects of stock liquidity on corporate financial decisions have been made only recently. The first work in this field was the paper by Banerjee et al. (J Financ Quant Anal 42(3):369–397, 2005), in which they investigated the impact of stock market liquidity on companies’ dividend policies. In developed markets, the effect of liquidity on companies’ dividend payout is well documented, and the findings are not ambiguous: the more liquid shares on capital markets are, the fewer companies are willing to pay dividends, and so they maintain a lower level of payments. Although most studies made on emerging markets support these results, there is still lack of a comprehensive analysis made on the Polish capital market. The goal of this paper is to investigate the relationship between stock liquidity and both companies’ propensities to pay dividends, and the level of dividend payments. The research results presented here also support the effects of previous studies: companies with less liquid shares are more willing to pay dividends, and pay them at a higher amount. The paper is a contribution to further research in this field, using data on more companies and from a longer period.