Export impact on dividend policy for big colombian exporting firms, 2006-2014

Abstract The trade impact on dividend policy is a relatively unexplored topic in the literature. As exports could be one of the missing pieces in assembling the dividend puzzle, this paper studies the impact of exogenous export demand shocks on big private Colombian exporting firms’ dividend policy using firm-specific real exchange rate as an instrumental variable. The results indicate that these firms initiated to decree effectively paid dividends as a way to mitigate the agency cost generated by exogenous exports through higher free cash flow and higher cash flow volatility. Heterogeneous specifications support the ‘outcome model’ within the agency cost theory. JEL Codes: F14, F10, G30, G32, G14, G35.