Signaling, corporate governance, and the equilibrium dividend policy

The well-documented information content of dividends is contingent on the firm's corporate governance. Using cross-listing events, we find that firms reach a new equilibrium dividend policy after a shift in the level of shareholder protection and the direction of the dividend adjustment depends on the pre-cross-listing locus of control. Exchange-traded cross-listings can afford to decrease dividend payouts as they substitute dividends with better corporate governance. However, dividend distributions and the likelihood to pay dividends increase when cross-listings are controlled by insiders, supporting the signaling hypothesis. The cross-listing level and ownership structure convey useful information regarding future shifts in dividend payouts.