Published online by Cambridge University Press: 16 August 2021
This article shows that, for major equity markets, the proportion of index values attributable to the first 5 years of dividends dropped substantially in the first quarter of 2020 and that this drop was not reversed by the end of the year. In the cross section, this breakdown of dividend smoothing due to COVID-19 was less severe for firms with higher operating cash flows and more positively coskewed stock returns, and it was more pronounced for those with higher leverage and in the financial sector. Heavy dividend cutters also experienced a substantial increase in exposure to systematic risk.
We thank Harry DeAngelo, Ran Duchin (editor), Andrei Gonçalves, Mark Grinblatt, Jarrad Harford (editor), Jonathan Karpoff, Alessandro Melone, Neal Stoughton, Jules van Binsbergen, Michael Weber, Alex Weissensteiner, Youchang Wu, and participants of the JFQA COVID-19 symposium for valuable comments. Miklós Verebélyi has provided excellent research assistance.