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Dividend Policy and Financial Distress: An Empirical Investigation of Troubled NYSE Firms

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Author Info
 DeAngelo, Harry
DeAngelo, Linda
Abstract

This paper studies the dividend policy adjustments of eighty NYSE firms to protracted financial distress as evidenced by multiple losses during 1980-85. Almost all sample firms reduced dividends, and more than half apparently faced binding debt covenants in years they did so. Absent binding debt covenants, dividends are cut more often than omitted, suggesting that managerial reluctance is to the omission and not simply the reduction of dividends. Moreover, managers of firms with long dividend histories appear particularly reluctant to omit dividends. Finally, some dividend reductions seem strategically motivated, e.g., designed to enhance the firm's bargaining positions with organized labor. Copyright 1990 by American Finance Association.

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Article provided by American Finance Association in its journal Journal of Finance.

Volume (Year): 45 (1990)
Issue (Month): 5 (December)
Pages: 1415-31
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Handle: RePEc:bla:jfinan:v:45:y:1990:i:5:p:1415-31

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  1. Renneboog, L.D.R. & Szilagyi, Peter G., 2006. "How relevant is dividend policy under low shareholder protection?," Discussion Paper 73, Tilburg University, Center for Economic Research. [Downloadable!]
    Other versions:
  2. Harry DeAngelo & Linda DeAngelo & René M. Stulz, 2007. "Fundamentals, Market Timing, and Seasoned Equity Offerings," NBER Working Papers 13285, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  3. Correia da Silva, L. & Goergen, M. & Renneboog, L.D.R., 2002. "When do German firms change their dividends?," Discussion Paper 56, Tilburg University, Center for Economic Research. [Downloadable!]
    Other versions:
  4. Joos, Peter & Plesko, George, 2004. "Valuing Loss Firms," Working papers 562043, Massachusetts Institute of Technology (MIT), Sloan School of Management. [Downloadable!]
  5. DeAngelo, Harry & DeAngelo, Linda & Stulz, Rene, 2007. "Fundamentals, Market Timing, and Seasoned Equity Offerings," Working Paper Series 2007-13, Ohio State University, Charles A. Dice Center for Research in Financial Economics. [Downloadable!]
  6. Carlos Martins, 2007. "Consistency of Dividend Signalling and Future Maturity Level:Evidence from UK Data," Working Papers de Economia (Economics Working Papers) 40, Departamento de Economia, Gestão e Engenharia Industrial, Universidade de Aveiro. [Downloadable!]
  7. Anton Korinek & Joseph E. Stiglitz, 2008. "Dividend Taxation and Intertemporal Tax Arbitrage," NBER Working Papers 13858, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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