Corporate Dividends during the COVID-19 Pandemic: Evidence from South Korea

[Purpose] The COVID-19 pandemic caused an unprecedented shock due to disruptions in global demand and supply chains. In a perfect capital market, a firm’s dividend policies have no impact on its value. However, in reality, firms tend to maintain stable dividend payouts as a strategy for preserving their corporate value, or they may increase dividend payouts to convey a positive signal about their future earnings. In these circumstances, this study examines whether the COVID-19 pandemic affects firms’ dividend policies. Furthermore, it explores whether the impact of COVID-19 on corporate dividends varies across firm characteristics such as profitability or debt dependence. [Methodology] To this end, we employ the difference-in-differences method for firms listed in the Korea Composite Stock Price Index (KOSPI) market and the Korea Securities Dealers Automated Quotation market (KOSDAQ) from 2018 to 2021. [Findings] We find that firms reduced their dividend payouts during the COVID-19 crisis. We also find that the negative impact of COVID-19 on dividend payouts was alleviated when a firm was more profitable. Finally, we observe that leverage was not a significant factor affecting the relationship between COVID-19 and dividends. [Implications] These results suggest that firms decreased dividend payouts as they focus on overcoming heightened financial constraints, rather than increasing dividends to send a positive signal to the capital market during the pandemic. Our findings also indicate that even Korean firms, which showed relatively good performance including record highs in export performance resulting from successfully controlling the spread of COVID-19, still had to cut dividends during the health crisis. Furthermore, profitability played an important role as a mitigating factor in reducing the adverse impact of COVID-19 on dividend payouts.