Discussion paper

DP14921 Dividend Suspensions and Cash Flow Risk during the Covid-19 Pandemic

We examine the effect of the Covid-19 pandemic on firms’ decisions to suspend
dividends and estimate a model that quantifies the effect of suspensions on growth
in aggregate dividends. Our estimates show that dividend suspensions had a large
impact on expected future dividend growth and also helped predict the sharp
declines observed in broader measures of economic activity. Firms with high
leverage and low profitability were more likely to have suspended their dividends
during the pandemic as were firms with the largest negative stock returns prior to
the dividend announcement date. While firms that suspended their dividends
experienced large negative abnormal returns, firms that substantially reduced but
did not entirely eliminate dividends saw large positive abnormal returns around the
announcement date.


Pettenuzzo, D, R Sabbatucci and A Timmermann (2020), ‘DP14921 Dividend Suspensions and Cash Flow Risk during the Covid-19 Pandemic‘, CEPR Discussion Paper No. 14921. CEPR Press, Paris & London. https://cepr.org/publications/dp14921