Internal Dynamics of Dividend Policy in East-Asia: A Comparative Study of Japan and South Korea

Japanese and Korean financial systems are distinct from those in the western economies. Considering this, we examine how the dividend policy of the firms in two of the largest economies of East Asia is determined by the internal attributes of firms. Firm-level data from 1,773 Japanese and 1,035 Korean firms were evaluated using panel data techniques, and some interesting similarities and differences in the dividend policies of both countries were unearthed. For example, in both countries, larger firms pay higher dividends, whereas those firms with volatile earnings pay low dividends. It was also determined that Korean firms pay more dividends when their profitability surges. On the other hand, cash dividends in Japanese firms decline when there is an increase in their profitability level. Overall, the dividend policy of Korean firms resembles more to those in Anglo-Saxon countries, while the dividend policy of Japanese firms bears little resemblance to other established financial systems. This study is the first to compare and contrast the internal dynamics of dividend policy for both the Japanese Keiretsus and Korean Chaebols while evaluating a huge universe of firms from both countries. Transnational studies are important to draw parallels and differences. The findings of this study offer important implications for various stakeholders, including managers, investors, and policymakers. Also, the results pave the way for a theoretically enriched understanding of dividend policy by comparing and contrasting diverse financial systems.