Stock market liquidity and firm dividend policy: Evidence from a Frontier Market

Abstract

Scholars have been studying dividend policy since the days of Modigliani and Miller (1958). However, until quite recently, the idea of liquidity has rarely been mentioned. The study examined whether there was a relationship between the firm dividend policy and any share liquidity criteria in the Sri Lankan context. This study represents 50 companies listed on the Colombo Stock Exchange (CSE) and performance throughout 2015-2019. It has been used Amivest liquidity, turnover liquidity, and Gopalan liquidity as the liquidity measures. Combined linear regression was used to examine the relationship between variables. Using some statistical tests the study has determined that there was no meaningful relationship between dividend policy and liquidity measures of Amivest liquidity and turnover liquidity. However, the study detected a significant reverse relationship between dividend policy and Gopalan liquidity. It emphasizes that firm dividend policy is affected by the firm liquidity but not by the stock market liquidity in the Sri Lankan context.