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A tale of two emerging market economies: evidence from payout smoothing in China and Taiwan

Edward C. Hoang (Department of Economics, University of Colorado at Colorado Springs, Colorado Springs, Colorado, USA)
Indrit Hoxha (School of Business Administration, Penn State Harrisburg, Middletown, Pennsylvania, USA)

International Journal of Managerial Finance

ISSN: 1743-9132

Article publication date: 6 July 2020

Issue publication date: 29 April 2021




The purpose of this paper is to investigate payout smoothing in two emerging markets – China and Taiwan. The authors conduct a comparative study of two emerging market economies that have common cultural and historical characteristics but have experienced different government systems and different approach to the market-based system.


The authors collect firm-level data from Standard and Poor's Compustat Global database, which covers 5,298 public firms in China and Taiwan during the period 1996–2015, and use a variance decomposition methodology to estimate the smoothness of corporate payout in a common empirical framework that includes net income, and debt and investment policies.


Overall, the empirical findings support recently proposed theories of joint determination of corporate payout behavior with debt and investment policies. The authors find that debt and investment policies absorb the majority of shocks to net income, and that debt policy is the main shock absorber. Furthermore, the authors show that firms in China follow a similar strategy with their counterparts in United States and smooth their payout. In contrast to firms in China and US, the payout of the Taiwanese firms is relatively highly sensitive to net income shocks.


To the best of authors’ knowledge, this study is the first to use a joint model to empirically investigate the extent to which debt and investment policies are used to keep corporate payout smooth in emerging markets.



Hoang, E.C. and Hoxha, I. (2021), "A tale of two emerging market economies: evidence from payout smoothing in China and Taiwan", International Journal of Managerial Finance, Vol. 17 No. 3, pp. 361-376.



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