Firm-level political risk and dividend payout

We use a novel measure of firm-level political risk based on a textual search technique on firms' quarterly earnings conference transcripts to explain dividend payouts in publicly listed U.S. firms. We find a positive and significant effect of firm-level political risk on dividend payouts, particularly in uncertainties related to economics, institutions, technology, trade, and security. The effect is more pronounced in firms with better corporate governance, less analyst follow-up, and higher growth opportunities. These results support the signaling role of dividends rather than the role of agency theory in explaining dividend payouts when firms are associated with higher levels of political risk. We also find the effect to be prominent after controlling for an aggregate measure of economic policy uncertainty and in poor economic conditions and in major political event periods. We address endogeneity concerns by running placebo tests and conducting instrumental variable analysis and we alleviate self-selection bias by performing propensity score matching technique.