Abstract:
This paper examines whether the large stock dividends (LSD) is intentionally used to help insiders to sell stock (ISS). Based on solving the reverse causality endogeneity problem between LSD and ISS and alleviating measurement errors in ISS, we find that firms have strong incentives to undertake LSD as a way of market value management to help insiders earn more from stock sales. Our paper provides not only a better understanding for firms’ motivation about LSD, but also empirical evidence for regulators to deal with the abuse of LSD and protect investors.
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