ATJ Asian Tax Journal

Asian Tax Journal

Print ISSN 1738-3323 Online ISSN 2733-9270

The Effect of Firm Location on Dividend Policy

  • HyeJeong Nam Dongguk University

Asian Tax Journal Vol. 19 No. 3 (2018), pp. 215-235

Abstract

This paper examines the effect of a firm’s location on dividend policy. Prior studies suggest that the geographical location of a firm affects the firm’s business decisions. For example, the firm located in metropolitan areas are more likely to manage its earnings to meet investor’s expectation because most interested parties such as financial analysts, investors, and creditors work the metropolitan areas where close to the firm’s headquarter. The close location between a firm and interested parties influence a firm’s business decisions. Using 18,566 firm－year observations from Korean listed companies over 2001－2015, we find that firms located in Seoul or its surrounding metropolitan area are more likely to have higher dividend yield ratio. This finding is consistent with the alternative variables for a firm’s dividend. We also find that the firms with higher growth are more likely to have a negative relationship between a firm’s location and dividend policy. This implies that the market pressure from interested parties who are closely located influences the dividend policy of a growth firm. This also suggests that the firm characteristics affect the level of market pressure from geographical location. The findings in this study provide an important contribution by extending traditional accounting research to the geographic proximity of firms to market participants. Our results indicate that geography plays a significant role in determining the dividend policy an should provide valuable insights for accounting researcher, practitioners, and regulators.

Keywords

  • firm’s location
  • dividend policy
  • market pressure perspective
  • monitoring perspective

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